UVXY Too Volatile?

UVXY is a 1.5X leveraged fund that tracks short-term volatility. Does anyone have experience with these types of stocks?

I try to stay away from the VIX (Chicago Board Options Exchange’s CBOE Volatility Index) and its tracking funds (UVXY is just one of many). Why did you choose a leveraged fund vs a normal tracking? Will see higher gains… but also more brutal downturns with an already volatile mechanism.

One thing I don’t think a lot of people realize is that the VIX will ALWAYS decay in value since it is essentially pricing out the price of future options, so while you can use it for short term hedging… I’d be hesitant to use it for a long term position. Seems to more in the realm of professional traders.

Other VIX ETFs - VXX, UVXY, SVXY, etc.

Best article on it:

Short version - useful for day traders… not so much for long-term value/Buffet investors.

Another good one breaking down the internal dynamics… yea looks wayyyy too complicated for me:

  • The VIX, or the volatility index, is a standardized measure of market volatility and often used to track investor fear.
  • Investors can trade ETFs that track the VIX in order to speculate on or hedge against future market moves.
  • Understanding how the VIX and its ETFs work, including its unique risks, is key before adding it to your portfolio.
1 Like

UVXY is growing! Reddit strikes again!

(Bloomberg) – The world’s largest volatility ETF topped $2.5 billion in assets for the first time, prompting speculation that Reddit traders have turned their attention to betting on market turmoil.

The ProShares Ultra VIX Short-Term Futures ETF (ticker UVXY) has nearly doubled its assets this year amid a streak of inflows that included a record $280 million in a single day.

Such growth in a “relatively obscure” exchange-traded fund has the likes of Michael Purves of Tallbacken Capital Advisors LLC pointing the finger at the newbie day traders shaking up Wall Street.

While some investors may be drawn to the fact that UVXY hit an all-time low this month, it’s historically expensive right now to hold a leveraged long-volatility product. UVXY and VXX track a mixture of first- and second-month futures contracts on the Cboe Volatility Index, which are trading at huge premiums to the fear gauge itself.

Absent a considerable volatility spike, those contracts will mechanistically lose value as time passes – a decline known as the “rolldown.”

Positioning in volatility instruments can also be tricky to pinpoint, and there are theories that the inflows and options activity actually represent bets on volatility to fall.