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UVXY: Eyeing A Long Volatility Trade Through Mid-March

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TERADAT SANTIVIVUT

Volatility has ticked up conscionable a smidgen lately. Even pinch 2 consecutive down weeks connected nan S&P 500, nan CBOE Volatility Index (VIX) is hardly managing to emergence supra nan 20 level. That’s a stark opposition to what was seen a twelvemonth agone erstwhile nan VIX neared 40 astatine times astir Russia’s penetration of Ukraine. What is awesome astir nan existent authorities of nan marketplace is that nan latest jump successful yields has been met pinch a ho-hum guidance by traders.

Recall during nan mediate of past year, into early Q4, erstwhile ostentation jitters and a rising Fed Funds Terminal complaint led to a swift selloff successful stocks and a jump successful volatility.

SPY TTM Historical Volatility & Implied Volatility Trends

SPY TTM Historical Volatility & Implied Volatility Trends

Fidelity

We haven’t seen that yet successful 2023. In nan supra floor plan from Fidelity, realized volatility (30-day HV) and nan IV Index mean (a proxy for implied volatility) are some somewhat tame contempt what consciousness for illustration whippy day-to-day banal marketplace changes.

But nan adjacent period aliases truthful could spot much choppy value action among U.S. ample caps successful my view. The backmost half of February is often fraught pinch a lousy portion while volatility spikes person historically travel astir during nan first half of March, according to information compiled by Equity Clock.

Notice successful nan Equity Clock floor plan beneath that nan VIX often spikes from mid-late February done mid-March. Of course, overmuch of that was caused from events of 2003, 2008, 2009, and 2020. Still, a near-term agelong play connected volatility could work. And that conscionable arsenic galore propose nan VIX is simply a surgery indicator. But it’s really conscionable mathematics – nan VIX is calculated based connected 30-day options pricing connected nan SPX.

VIX Seasonality: It's Now aliases Never

 It's Now aliases Never

Equity Clock

But really tin investors play volatility effectively? It is simply a vulnerable world retired location these days pinch leveraged ETFs, ODTE (zero days till expiration) options, and risky futures. One ETF is simply a celebrated trading conveyance for placing wagers connected short-term vol moves.

According to nan issuer, nan ProShares Ultra VIX Short-Term Futures ETF (BATS:UVXY) seeks regular finance results, earlier fees and expenses, that correspond to 1 and one-half times (1.5x) nan regular capacity of nan S&P 500 VIX Short-Term Futures Index.

I for illustration UVXY not for a semipermanent position owed to its enhanced return conception and consequence of antagonistic compounding returns via leverage, but for time trades and plaything trades. So, nan clip sky of a fewer weeks is good successful my mind for investors looking to profit from a emergence successful VIX futures.

UVXY’s portfolio holds nan beforehand 2 months of nan VIX futures curve, truthful it is perfect for specified near-term VIX moves. It tin besides perchance hedge a agelong banal portfolio if you are concerned astir downside banal value risk. ProShares is prudent to constituent retired that only knowledgeable investors who actively negociate nan portfolio should waste and acquisition UVXY, and nan ETF tin move otherwise from nan VIX.

UVXY Portfolio: Front 2 Months of VIX Futures

 Front 2 Months of VIX Futures

ProShares

There is ever statement astir whether it’s due to execute method study connected nan VIX, but I spot it arsenic useful. Notice successful nan floor plan beneath that nan VIX has climbed backmost supra nan cardinal 18 to 19 level, though not pinch large spikes. I for illustration this move and could spot vol spike to nan precocious December precocious adjacent 26 complete nan adjacent fewer weeks. Perhaps an eventual move to nan precocious 30s could happen, but I americium not making that lawsuit pinch conscionable a 4-week clip horizon.

VIX Technicals: Holding nan 18-19 Line

 Holding nan 18-19 Line

Stockcharts.com

UVXY: Take Profits Near $6.50

 Take Profits Near $6.50

Stockcharts.com

The Bottom Line

I deliberation a agelong UVXY waste and acquisition present makes consciousness fixed immoderate caller downside momentum successful stocks and volatility that appears cheap. Long UVXY present pinch a profit target corresponding to 25 connected nan VIX is an charismatic plaything waste and acquisition idea.

Please beryllium advised of various manufacture warnings astir nan unsocial risks owed to negatively compounding returns of leveraged ETFs. Products specified arsenic UVXY are not designed to beryllium held semipermanent but alternatively arsenic short-term trading vehicles arsenic described successful nan article.

1) The Lowdown connected Leveraged and Inverse Exchange-Traded Products (FINRA)

2) Leveraged and Inverse ETFs: Specialized Products pinch Extra Risks for Buy-and-Hold Investors (SEC)

3) FINRA's Reminder connected income practices for Leveraged and Inverse ETFs (FINRA)

This article was written by

Mike Zaccardi, CFA, CMT floor plan picture

Freelance Financial Writer astatine SoFi & Ally | Investments | Markets | Personal Finance | RetirementI create written contented utilized successful various formats including blogs, emails, achromatic papers, and societal media for financial advisors and finance firms successful a cost-efficient way. My passion is putting a communicative to financial data. Working pinch teams that see elder editors, finance strategists, trading managers, information analysts, and executives, I lend ideas to thief make contented relevant, accessible, and measurable. Having expertise successful thematic investing, marketplace events, customer education, and compelling finance outlooks, I subordinate to mundane investors successful a pithy way. I bask analyzing banal marketplace sectors, ETFs, economical data, and wide marketplace conditions, past producing snackable contented for various audiences. Macro drivers of plus classes specified arsenic stocks, bonds, commodities, currencies, and crypto excite me. I genuinely bask communicating finance pinch an acquisition and imaginative style. I besides judge successful producing evidence-based narratives utilizing empirical information to thrust location points. Charts are 1 of nan galore devices I leverage to show a communicative successful a elemental but engaging way. I attraction connected SEO and circumstantial style guides erstwhile appropriate. My CFA and CMT backgrounds show prowess successful finance guidance and my master acquisition includes extended nationalist speaking and communication. Moreover, my extended assemblage school and master trading acquisition supply useful skills. Past roles besides see dense usage of Excel modeling and floor plan creation arsenic good arsenic PowerPoint.I americium a contributor to The Dividend Freedom Tribe.

Disclosure: I/we person nary stock, action aliases akin derivative position successful immoderate of nan companies mentioned, and nary plans to initiate immoderate specified positions wrong nan adjacent 72 hours. I wrote this article myself, and it expresses my ain opinions. I americium not receiving compensation for it (other than from Seeking Alpha). I person nary business narration pinch immoderate institution whose banal is mentioned successful this article.

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