Last weekend I offered investors an opportunity to short the ProShares Ultra VIX Short-Term Futures ETF (NYSEARCA:UVXY) with a publication titled "UVXY: The Post Brexit And End Of Quarter Market Environment Trading Opportunity". Within the article I detailed why the best opportunity for long-term profits at relatively low risk levels was to layer into short positions as the UVXY appreciates in price. Lastly, the article also outlined that while I always maintain a short, core UVXY position, I had layered on another short UVXY trading position with plans to layer more on in the event the share price appreciates further.
The opportunity lay within UVXY to generate great wealth for investors/traders more so from shorting the ETF long-term. If volatility persists in the coming trading sessions, which is quite possible, I will be looking to layer short positions into a UVXY bull rally. I had maintained a $15.80 short limit order on June 24ththat did not execute and as such I actioned an after-hours limit order at $15.70 that did execute. I often utilize my Twitter feed to display my positions in real-time.
The greatest aspect of this recent and well-positioned trading opportunity is that it paid off twice in less than 2 trading days. Let me explain! You see, in the pre-market on June 27 th, even as the U.S. equity futures were set to open lower by more than 1%, the VIX was not moving in the same direction and thus the UVXY was heading lower in the pre-market.
As such, I set an order to cover my position at $15 with the belief that once the market had opened I would get an opportunity to re-short those shares, possibly at higher levels. Fortunately, the order was executed and I took a small profit rather quickly. My tweet indicated below:
$UVXY, may get a chance for quick profit on $15.70 short from Friday so order in to cover and position higher if all executes
Once the market opened I waited for my limit order to re-short those shares to execute and again, fortunately, they did so at $15.95. UVXY traded modestly higher on June 27 th before eventually settling below $15 a share. But as I had stated in my previous article, I would like the opportunity to layer on more shorts in the event that the UVXY trades higher - and trade higher it did, in the after market trading session on June 27 th. Shares of UVXY soared in the after-hours trading session as Fitch came out and downgraded Great Britain's credit rating, offering a negative outlook on the region's economy would be forthcoming due to the Brexit vote. As the UVXY spurred higher on this rather negative news that served to further incite equity fears here in the U.S., I added to my current shorts at both $16 and $16.60 a share. Why you might ask? This is where it pays to have multiple screens open at the same time and watch multiple markets.
What had been plaguing U.S. investors/traders with regard to how the Brexit vote would impact U.S. equities was the uncertainty that lay within foreign currency exchange rates. The EURO and GBP had fallen dramatically for two days, with the most relevant GBP/USD pairing falling the most. But when Fitch issued their downgrade nothing happened to the GBP/USD pairing in the after-hours. In fact, the GBP strengthened slightly on the news.
Coupling a two-day global equity route with what appeared to be a stabilizing GBP/USD pairing, I believed the already falling VIX would continue to fall as equities would soon have a relief or dead cat bounce rally. Tuesday morning came and with it the UVXY had fallen below $14 in the pre-market where I exited my trading shorts in UVXY.
$UVXY, kept shorting in AH last order was filled at $16.60. Covered all these recent positions pre-market @ $13.81. Will look to reload!
With two separate trades profiting off of the same trading thesis previously published, my total return was over 19%, which I gladly accepted. As always, my core short position remains intact and as always I hope to see the UVXY appreciate once again but to a greater magnitude and for a more prolonged period of time. For this to occur we would likely need the following occurrences:
- Dead cat bounce rally (already taking place)
- Renewed strength in USD against EURO and GBP
- Continued waning in consumer spending and retail sales in U.S. and Europe
- EU economic data to show cracks from Brexit vote
- U.S. earnings season to exhibit another earnings decline
I'm sure we can think of many more variables to add to the list of negatives that might produce an environment of greater market volatility, but for now, that will do. Going forward I don't believe the market rally on June 28th will be sustainable, offering another opportunity to play the UVXY from either the long or short side of the coin. As always, I will look for both opportunities and even instituted a very small long position in UVXY today at $12.90. My more significant and long-term short position in the instrument will reap the downside returns long-term. Even if I lose a few bucks on my new short trade, to date, my total return has leaped from 89% through May to 93% in June.
To serve as an update on my smaller speculative trades, my position in Starbucks (NASDAQ:SBUX) remains underwater by roughly 2% not including the dividend. My Fitbit (NYSE:FIT) trade, which is the 5th trade of the calendar year, also remains underwater by roughly 13 percent. (4 profitable trades in FIT generating a total return of roughly 17%) My Twitter (NYSE:TWTR) trade with price target of $16.50 a share has been achieved, although I took my profits at an average trading price of $15.90 a share. My total return on TWTR was roughly 16%, offering no dividend.
Disclosure: I am/we are short UVXY.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I have a small long UVXY position and speculative, small long FIT and SBUX positions.