I'm short UVXY $61 puts for next Friday (only 4 trading days) and I'm long $61 Puts for Friday Sept 18th (after Fed's decision).
The play is that there is panic next week (puts expire worthless) and after FED doesn't move, there is a big 2 day rally that takes UVXY down 45% as VIX craters. This will give me x4 on my play.
I'm risking $5800.
Volatility is not over, however cash will fall below front month today and front month is still 100% higher than it was 3 weeks ago.
Even if it declines from 25 to 22, it is still elevated, but this decline means drop of 24% for UVXY.
Another 20% from there if VIX goes to 20 (also high VIX).
It will be a while until we see 17 on the VIX, but drop down to 20 could happen and quickly unless market falls apart.
Tomorrow it might be $49.99.
If we come in at 190K jobs (very well might) market will rally again, but UVXY will take the biggest percentage drop this week. Why? Because Jobs number is behind us. It is always the biggest risk day during the month. As volatility declines stocks will go up and trend up even higher as shorts cover for Labor Day weekend.
I'm not kidding, but I think that everyone waited for this to come out so they can run up the market back to 204 (this is the balance area).
Once Gartman flips (very heavily invested in stocks), you'll have to sell.
That's where we get $66.
Now if market rebounds in Asia and we go up in futures again, VIX should be down another 10% or 20% on UVXY starting from $68. So that takes us to $54.
It can happen for sure. All it takes is a Fed president or Yellen to throw doubt on any rate increases this year and the event risk goes away. Market would go up and puts would be dumped wholesale.
You could potentially get a gap down even deeper than 19. Spot VIX was at 11 just a month ago with front month at 12.50. So even 19 looks quite high with event risk being removed.
You have to take it as a possibility. Even if it is remote there is still 0.5-3% chance that it could happen.
that will be equal to 36% on VIX or 72% down day for UVXY. So just going back to 19 on VIX would equal UVXY at $23.66. That is pretty scary if you just bought it at $85.00
It will happen for sure.
Sentiment: Strong Buy
UVXY would be trading sub $10 within an hour.
Yellen has no clue and the rest of the folks even less.
This will plummet. I wouldn't touch VIX right now.
You have to be positioned for the fall. Once the jobs report comes out (ie 200K jobs).. Market will be stable and nothing will happen. This will take the sails out of the fear trade. If it goes back to 15 from 24.75 now, you are talking 65% loss for UVXY or about $21.
After each spike this thing gets hammered even more. The bigger the spike the bigger the drop.
I hope you don't have a big position. I'm guessing 10 contracts (1000 shares).
Nightmare scenario is opening of $15 points down and having you broker close you out if you don't have enough equity in your brokerage account. If it is 2K shares or more an you only have $20 - $30K account they could go after your other assets.
If you like XIV I would sell puts at this point with downside protection. Eventually VIX will turn into contango and XIV will profit from contango.
It is probably the best to buy XIV during recession and hold for long term. During last recession XIV was at $4 and it went to $50. So $40K invested returned $460K in profit. You can buy 2 condos and rent them good enough to live in Spain without having to lift a finger.
Huge risk for those long fear trade.
Saudi Arabia stocks closed up 1.2%. SPY will go for break of 200. At that point you'll get short covering in panic propelling it to 204 quickly after jobs report. 204 - 206 - This is where it will pause until FED meeting.
For VIX, cash at 26 goes sub $20 this week. Same thing for front month. From 24.425 to 19 in one week. This is 22% loss for index and 44% loss for 2/3 holdings of UVXY. NAV is at $60.23 so UVXY would yield $33.72, however 1/3 of the fund is invested in October VIX at 21.75. So 1/3 will go down 25% in UVXY terms.
So to average it out, UVXY would be down 29%-33% this week. I think it will start with Monday and by Friday UVXY will be trading at $39.
rally so they can portray strength and unity.
This correction is over. We now go into the football season and all eyes will be on fantasy football leagues, grilling and tailgating, plus Labor Day holiday.
Everyone I know is traveling somewhere.