Trading against the holy grail
已更新
I see an epic opportunity arising in VIX related products like UVXY and TVIX and would like to share my opinion on this.
As most are aware, articles are popping up left and right saying that shorting the UVXY is a 100% risk-free long term investment [1][2][3]. Some go further and label the VIX short as the trade of the decade. Moreover there are figures actually showing that funds are holding huge net short positions as of now [4]. The icing on the cake is provided by the crowd who is finally attracted by the „cheap“ price tag provided by the intrinsic decay of he aforementioned VIX products. People do the math and come up with the conclusion that shorting any UVXY pop WILL make them money eventually. This is it ladies and gentleman the 100% sure fire holy grail type of trade we have been looking for. Even the most experienced fund managers can’t believe that such an instrument exist. It is finally here to make us all a fortune in the long run. Some funds actually state that they add to their net UVXY short on every 3% UVXY price advance putting them in a better risk/reward position. This is brillant stuff!
However what happens if we have a real market decline like in 2008? UVXY never saw such a market enviroment as it is a QE era instrument. UVXY never spike much more than 500% but that doesn’t mean it is not capable of doing so. Central banks might come up with another round of artifical market life support and the crowd might give it a clever name like...QE4. But what if the central banks really run out of ammo or the fourth iteration doesn‘t work like the others? I agree with the opinion of many that this market is a little bit too much FED dependent right now.
In fact bond market bulls are arguably in the process of seeing a change in character after 35 years of advances [5][6]. And such a change in character in such an important trading instruments is meaningful stuff. Of course everything is possible and all that talk about market crash here and bubble burst there could also be a nice breeding ground for a real bull market thus leaving this 16 year secular bear market behind. Nobody knows! Whats so scary is he fact the even the latter scenario doesn’t rule out a 1000% short term UVXY spike.
Shorting UVXY as proposed by these guys is like trading an automated martingale forex trading system. You will make many many small profits but you can go belly up in an instant. Still the so called pros see it as a 100% risk free investment.
This actually doesn’t need many more words hence I make it short. I believe that the UVXY can just go up so much that even the toughest shorts are forced to cover. There is no such thing as a 100% sure investment. And going long UVXY could provide the opportunity of a lifetime for quick profits. And last Friday with the broad declines across the board could have been just the beginning.
Hence the real trade oft he decade in my opinion will most likely be going long UVXY hence fooling the hedge funds and the crowd... as usual. And I am not afraid to take that trade.
[1] focusedstocktrader.com/Institutional-Research/BOSVIEW/Best-Trades-Decade--Part-II/
[2] zerohedge.com/news/2015-08-02/most-successful-trade-last-decade
[3] blogs.barrons.com/focusonfunds/2012/10/19/fast-traders-favorite-new-fund-is-proshares-uvxy/
[4] hedgopia.com/hedge-funds-aggressively-shorting-vix-futures-as-price-of-tail-risk-protection-rises/
[5] wsj.com/articles/35-year-old-bond-bull-is-on-its-last-legs-1468425650
[6] marketwatch.com/story/deutsche-bank-says-35-year-party-is-over-for-bond-bulls-2016-09-09
As most are aware, articles are popping up left and right saying that shorting the UVXY is a 100% risk-free long term investment [1][2][3]. Some go further and label the VIX short as the trade of the decade. Moreover there are figures actually showing that funds are holding huge net short positions as of now [4]. The icing on the cake is provided by the crowd who is finally attracted by the „cheap“ price tag provided by the intrinsic decay of he aforementioned VIX products. People do the math and come up with the conclusion that shorting any UVXY pop WILL make them money eventually. This is it ladies and gentleman the 100% sure fire holy grail type of trade we have been looking for. Even the most experienced fund managers can’t believe that such an instrument exist. It is finally here to make us all a fortune in the long run. Some funds actually state that they add to their net UVXY short on every 3% UVXY price advance putting them in a better risk/reward position. This is brillant stuff!
However what happens if we have a real market decline like in 2008? UVXY never saw such a market enviroment as it is a QE era instrument. UVXY never spike much more than 500% but that doesn’t mean it is not capable of doing so. Central banks might come up with another round of artifical market life support and the crowd might give it a clever name like...QE4. But what if the central banks really run out of ammo or the fourth iteration doesn‘t work like the others? I agree with the opinion of many that this market is a little bit too much FED dependent right now.
In fact bond market bulls are arguably in the process of seeing a change in character after 35 years of advances [5][6]. And such a change in character in such an important trading instruments is meaningful stuff. Of course everything is possible and all that talk about market crash here and bubble burst there could also be a nice breeding ground for a real bull market thus leaving this 16 year secular bear market behind. Nobody knows! Whats so scary is he fact the even the latter scenario doesn’t rule out a 1000% short term UVXY spike.
Shorting UVXY as proposed by these guys is like trading an automated martingale forex trading system. You will make many many small profits but you can go belly up in an instant. Still the so called pros see it as a 100% risk free investment.
This actually doesn’t need many more words hence I make it short. I believe that the UVXY can just go up so much that even the toughest shorts are forced to cover. There is no such thing as a 100% sure investment. And going long UVXY could provide the opportunity of a lifetime for quick profits. And last Friday with the broad declines across the board could have been just the beginning.
Hence the real trade oft he decade in my opinion will most likely be going long UVXY hence fooling the hedge funds and the crowd... as usual. And I am not afraid to take that trade.
[1] focusedstocktrader.com/Institutional-Research/BOSVIEW/Best-Trades-Decade--Part-II/
[2] zerohedge.com/news/2015-08-02/most-successful-trade-last-decade
[3] blogs.barrons.com/focusonfunds/2012/10/19/fast-traders-favorite-new-fund-is-proshares-uvxy/
[4] hedgopia.com/hedge-funds-aggressively-shorting-vix-futures-as-price-of-tail-risk-protection-rises/
[5] wsj.com/articles/35-year-old-bond-bull-is-on-its-last-legs-1468425650
[6] marketwatch.com/story/deutsche-bank-says-35-year-party-is-over-for-bond-bulls-2016-09-09
交易進行
Monday morning futures are at 24.00 or +7%. Actually a green market open would be preferred in order to suck in some more UVXY shorts... However you have to play it as it lies. If the market open deep in red we could start to see forced selling today. Forced selling can be identified by watching the big stocks. If they accelerate to the downside, ignoring support levels on the way you know that it is bad. But shorts have to be aware that forced selling causes violent upside reactions once the funds matched their new allocation/exposure goals. To put it simply: Another runaway gap down is probably a nice opportunity to lock in some profits if someone is long UVXY since friday morning. Don't feel save just because you have a profit cushion of >20%. UVXY can take that away in a hurry if market reacts violently to the upside. In the end it comes down to just watch the stocks. Big boys (FB, AMZN, GOOGL, MSFT) and the speculative new merchandise (ACIA, WB, TWLO, LN). Today will be exciting, and exciting days tend to be less profitable than boring ones for professional traders... so beware!
註釋
Market bounced yesterday which could have been just enough to suck in bulls aka. UVXY shorts. Futures indicate that we will open deeply red with UVXY spiking up again. In my opinion we should see a UVXY new high today which would be a hint that fear is increasing and shorts are covering.交易進行
Yesterday was indeed just to suck in all possible shorts. Many people were afraid to miss the "elevator down" hence the initiated shorts late yesterday before the -10% short restriction kicked in.An it is always worth it to buy a gapup with the idea to sell if it doesnt develop into an runaway gp. However we had two now in three days. Market tries to get as much money from UVXY short as possible. What made me keep most of my position from friday is my believe that the market cannot tolerate that the crowd and funds believed they found the holy grail. 100% risk free trade. Yes maybe if you swallow upside spikes like this can yes but I cant see a good risk/reward ratio here for shorts.
交易進行
Another round of "sucking in the shorts" is completed and UVXY could turn green soon. Trade is still active and if we see a violent rollover today chances are finally good to see two green days in a row.手動結束交易
With AAPL holding up nicely and everybody talking about a surefire correction it is best to trade against that general opinion. Taking profits here and looking for fresh long plays.
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