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UVXY Short Position Initiated

|Includes: ProShares Ultra VIX Short-Term Futures ETF (UVXY)

On 8/6/14 I posted an update on volatility which you can read here.

During the overnight period from 8/7/14-8/8/14 VIX futures entered backwardation. Throughout the trading day on 8/8/14 futures were unable to hold backwardation levels and proceeded into contango.

Current economic data is not glamorous in the United States, but strong enough for me to believe the economy will continue to grow. The Federal Reserve has also promised easy policy. Housing, consumer spending, and wage growth continue to be concerns for me. The current geopolitical events around the world are old news. These are countries/ideologies that have been fighting since before we were born. What isn't old news is continued poor economic data out of Europe. I believe the ECB will be accommodating in trying to jump start the European economies.

For these reasons I initiated a short position in UVXY using options. I have posted my options strategies on a prior instablog post. The current short position includes naked call options dated Jan 2016. I do this for extrinsic value purposes. It also includes several weekly and monthly put options that expire in less than 60 days.

I believe we just saw our summer correction in the S&P 500. In the event I am wrong I have initiated a stop loss of 20%. This provides accommodation for possible further appreciation in volatility.

Thank you for continuing to read all of my articles. I sincerely appreciate it!

Disclosure: The author is short UVXY.