Shorts Could be In Peril; Contango Not Well Understood
The relative performance level of VIX to VXV (VIX:VXV in stockcharts) is at the lowest level in 5 years and nearly the same as March 2012, before a 100% rally in UVXY. This proves that contango does not always result in lower UVXY prices, in fact, when this extreme contango happened in March it was a GREAT time to buy volatility.
Past may not repeat...but it probably will. Big rally coming in volatility probably in September and October which are some of the seasonally weakest months of the year, even in election years. The fireworks may not come till Labor Day, but something will kick this off.
robinson, let me expound on your point. yes indeed, contango is not only misunderstood, it is also overrated. let me make an example. put contango aside for a moment. Only think about Sept contracts and price paid for them by this etf. ok. Now, only think about this etf selling those Sept contracts at higher prices than it paid for them. That is called backwardation. You don't even need backwardation, however possible, for UVXY to go up. All you need is a higher price as it unwinds the contracts to the previous day. Also, contango is seen by some as an immediate loss, but it is not. There are no losses on held contracts until they are unwound. If TSHTF, UVXY could be selling not only the Septs for a profit, but also the Octs for a profit. That would result in a strong, steady rise lasting many weeks. Compounding. But remember, in order to just have 1-2-3 day profitable runs, UVXY doesn't even need that, all it needs is rising Spot.