Uvxy option trading strategy

Even as many companies and schools temporarily close, it's been business as usual for the financial markets. There has been plenty of action in the stock market and volatility has been through the roof.

What Is UVXY And How Does It Work?

Extreme volatility often comes with daring trades. This type of market can cause traders to make interesting and outrageous bets. Sometimes, these types of trades end well; but many times, they can go down in costly flames. It uses 1. Most of the action in volatility or more specifically in VIX futures happens in the months closest to expiration. Generally speaking, the action occurs from the nearest-term month, at least until it gets close to expiration, and then the activity shifts to the second-nearest month.

Step 2) Wait and Do Nothing or Roll to Debit Put Spread

Keep in mind, the VIX itself is just an index—it isn't tradable. And, most traders don't want to trade futures.


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The trader is betting that the rebound will continue or that any sell-off will be orderly and lack the panic seen in the middle of March. Because it's a levered ETF, the moves can be heavily amplified during extreme periods. On the other hand, we're in the middle of a pandemic, and volatility has been historically high.

UVXY Technical Analysis

It remains extremely high and would need another shock to put this trade at risk. However, these are shocking times. A trade like this is better made as a call spread, so your losses are limited. You are cutting your profits in half in return for a cap on losses. During the most volatile periods, it's essential to manage risk as much as possible. This is a hypothetical portfolio that is comprised of the two VIX futures contracts that are nearest to expiration.

To keep the price of UVXY at 1.


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  • The authorized participants have an agreement in place that allows them to perform this at a profit, so there is a significant incentive for them to maintain the correct price. If you were to compare the annual returns of UVXY in any given year, you would find that it almost always ends lower than when it began. Simply put, while you could hold the UVXY for as long as you wanted, you would end up losing money with a buy and hold strategy. Ultimately, the manager is buying high and selling low which is bad for the price of the ETF, leading to price decay over time.

    As a result, using UVXY is all about timing, specifically trying to time periods of rising volatility. For example, in the next few days, the odds of a market crash are low so VIX futures are cheaper compared to futures six months out where the odds of a crash are greater. In early February that year, the VIX futures curve flipped from normal contango to heavy backwardation as you can see below.

    UVXY Options Trading Strategy To Profit Off Of The Low Volatility (VIX)

    It achieves this by using a portfolio comprised of the two VIX futures contracts that are nearest to expiration. It uses leverage at 1. This means it is ill-suited to a long-term buy and hold strategy and is instead suited to very short-term bets on price volatility. Disclaimer: The information above is for educational purposes only and should not be treated as investment advice.

    Tips from 2 years of $UVXY Trading