Uvxy: Buy And Hold?

Exchange Trade Fund UVXY is a 1.5X leveraged fund that tracks short-term volatility. It is not a stock, but it can be bought and sold just like a stock in regular and after-hours trading. UVXY has consistently lost money every year since its creation. It is not a buy-and-hold investment. It is intended for short-term use; investors should actively manage and monitor their investments, as frequently as daily.

UVXY is not a stock, it is an ETF (exchange-traded fund)

ETFs are similar to stocks in that they both trade on stock exchanges during open market hours. However, they differ in that stocks represent shares within individual companies, while ETFs offer shares of multiple companies within a packaged bundle. ETFs are not bound to a single company, so they can contain various investments that make up a more diverse investment portfolio than individual stocks.

Another difference between ETFs and stocks is that ETFs have something called a net asset value (NAV). The NAV measures the total value of stocks and shares within an ETF, compared to whatever underlying index the fund tracks. ETFs may trade at prices above or below their NAV, but market makers tend to keep them priced close to their true NAV. Individual stocks, on the other hand, tend to be more stable and always trade at their current value.

In terms of fees, ETFs charge expense ratios, which is a percentage of the investor's investment that goes towards fees. ETF expense ratios typically range from 0.20% to 0.75%. On the other hand, trading both stocks and ETFs may come with transaction fees, such as commission fees or payment for order flow (PFOF).

When it comes to risk, ETFs and stocks can be equally risky, depending on the specific investment. An ETF that mimics a volatile sector, such as oil and gas, can be just as risky as a high-volatility stock.

In summary, while UVXY trades like a stock, it is structurally an ETF. ETFs are not suitable for buy-and-hold strategies due to their inherent decay. UVXY is designed to lose value over time unless there is a significant market correction or bear market. Therefore, it is crucial to understand the differences between ETFs and stocks before investing.

UVXY is not a buy-and-hold investment

UVXY's creators explicitly state that it is "intended for short-term use; investors should actively manage and monitor their investments, as frequently as daily." The fund has gone to zero multiple times and avoided trading below zero by reverse splitting—creating multiple times the number of shares to bring the price back up. Most UVXY charts do not account for these reverse splits, so long-term charts can be misleading.

UVXY is a risky investment. It can double in price in a matter of days during a volatility spike, but it can also lose value rapidly when volatility starts to drop. It is not a stock and does not give the investor a share of a company. It is an exchange-traded fund (ETF) that should only be traded by experienced investors.

UVXY's value is closely tied to 1.5 times the daily return of the S&P VIX Short-Term Futures Index

The value of UVXY is closely tied to 1.5 times the daily return of the S&P VIX Short-Term Futures Index. This index, maintained by S&P Dow Jones Indices, manages a hypothetical portfolio of the two nearest-to-expiration VIX futures contracts. The index specifies a new mix of VIX futures in that portfolio every day.

The theoretical value of UVXY, if it were perfectly tracking 1.5X the daily returns of the short-term index, is published every 15 seconds as the "intraday indicative" (IV) value. Wholesalers called "Authorised Participants" (APs) will intervene in the market if the trading value of UVXY diverges too much from the IV value. If UVXY is trading significantly below the IV value, APs will start buying large blocks of UVXY, which tends to drive the price up. If it is trading above the IV value, they will short UVXY. APs have an agreement with ProShares that allows them to make these restorative moves at a profit, so they are highly motivated to keep UVXY's tracking in good shape.

The value of UVXY is established differently from stocks. Owning UVXY does not give you a share of a corporation, so there are no sales, quarterly reports, profit/loss, PE ratio, or prospect of dividends. The price of UVXY is not driven by supply and demand. Instead, it is a small tail on the medium-sized VIX futures dog, which itself is dominated by SPX options.

UVXY is a 1.5X leveraged fund that tracks short-term volatility. It is an Exchange Trade Fund (ETF) that trades like a stock and can be bought, sold, or sold short anytime the market is open. It has excellent liquidity and its shares can be split or reverse split. UVXY is not an investment company regulated under the Investment Company Act of 1940 and is not afforded its protections.

UVXY has gone to zero multiple times due to contango loss in VIX futures

Contango loss occurs when an expiring futures contract trades at a premium to the spot price. In the context of UVXY, contango occurs when the VIX futures contracts that UVXY tracks trade at a premium to the VIX index. As the VIX futures contracts approach maturity, they converge to the spot price (the VIX index). This convergence causes the VIX futures contracts to lose value, which in turn causes the UVXY share price to fall.

The combination of losses due to the 1.5x structure and contango losses typically result in UVXY losses of around 10% per month. This means that UVXY is not suitable for long-term investors and is instead designed for investors with a very short duration for both speculation and hedging.

UVXY is intended for short-term use; investors should actively manage and monitor their investments, as frequently as daily

UVXY is a leveraged ETF that is designed to be held for short periods of time. It is not a buy-and-hold investment. The fund's creators, ProShares, explicitly state that UVXY is "intended for short-term use; investors should actively manage and monitor their investments, as frequently as daily".

UVXY is an exchange-traded fund (ETF) that aims to track the S&P 500 VIX Short-Term Futures Index and provide twice the leverage. The index measures the returns of a portfolio of monthly VIX futures contracts, specifically the two nearest monthly contracts.

UVXY has consistently lost money every year since its creation in 2011. This is due to the fact that, in order to create a product that accurately replicates the performance of the index it tracks, the managers of UVXY need to hold a large amount of VIX futures contracts. However, as a general rule, the further out in time you go, the more expensive it is to buy volatility, like VIX futures. This results in the fund managers buying high and selling low, which is not a great recipe for investment success.

Due to the double-leveraged nature of UVXY, it performs worse than the actual index it tracks. As of March 2018, if you would have bought into UVXY when it first launched in 2011, you would have lost 91.31% of your investment.

UVXY can be a very profitable trade in a Down Trend. However, in an Up Trend, contango can cause UVXY to drop in price, even while the VIX goes up. Therefore, it is not recommended to hold UVXY for longer than 1-2 days.

In conclusion, UVXY is intended for short-term use and should be actively managed and monitored by investors, as frequently as daily. Holding UVXY for longer periods of time is likely to result in significant losses.

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