DGI Adventure 11-12-16 – Shorting the Worst Stock Ever – UVXY Put Update

Back at the end of September I started an experiment to short what could only be described as one of the absolute worst stocks ever created: The ProShares Ultra VIX Short-Term Futures ETF (UVXY).

In case you missed it, I covered the basics of why I wanted to short this dog in this post published on 9/30/16.

TL;DR version: this ETF takes bags of money, throws them in a dumpster and then lights the whole thing on fire. It basically says as much in the prospectus.

Anyway, after I totally screwed up with the first contract I bought, I was able to sell my remaining UVXY position yesterday.

I had aggregated three put contracts of the Jan20 2018 $15 strike. I sold them all at the same price of $9.35/share and paid a total of $3.57 in commissions.

I think a table is the best way to illustrate what happened:


As for the total annualized return you could look at it a couple of different ways: If I take my total return (4.22%) and annualize it over the last 38 days it comes out to a 40.56% annualized return, which is what the table shows.

But I only had 1/3 of the money tied up for those 38 days. The other two trades were in force for much less time. If you look at each trade separately they had 13.24%, 75.84% and 218.31% annualized returns, which works out to an “average” annualized return of 102.46%

I’m not sure it matters much. It was a successful trade no matter how you look at it.

Interestingly the Jan20 2018 $16 strikes, which I accidentally sold for a loss last month, didn’t appear to be in any better shape when I checked them yesterday. The bid/ask spread was $9.50 – $10.35, which puts my old cost basis (~$9.86) right smack in the middle. I don’t know what I could have sold them for, but the ask price (which I wouldn’t expect to be able to get) only represented a 3% return…which is weird, because that option was a whole extra dollar in the money than the ones I sold today.

The spreads on these puts are really wide and illiquid and behave weirdly which makes it hard for me to tell if I got lucky or this really is a smart trade.

I think I will keep trying, but as I expected timing is kind of important. It seems to work a lot better to buy the puts after a couple days of volatility when the underlying ETF’s share price has spiked.

I’ll try to keep documenting and recording my shorting adventure. If you hadn’t noticed already, there is a tab labeled “UVXY” on the Dividend Income Tracker back at the mother ship. It will definitely document every move, even if I forget to write about it.

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