E UVXY Reverse Split Ahead: How To Position When Volatility Spikes

With only a week of trading under our belts in 2017, maintaining a core short position in ProShares Ultra VIX Short-Term Futures ETF (UVXY) has been good to the Golden Capital Portfolio thus far.  In fact, shorting UVXY since its inception has been one of the greatest wealth generators in the market place.  Another core holding helping to facilitate the portfolio early in the year is Costco (COST).  With many retailers reporting a dismal holiday selling season last week, Costco was the outlier, reporting the following results:

  • Costco's net sales grew 5.0% Y/Y to $13.07B in October.
  • Comp sales +3%. U.S. +3%, Canada +7%, Other international -3%.
  • Excluding the effects of gasoline prices and currency swings, comparable sales increased 3%; U.S. +3%, Canada +4%, Other international +4%. 

As a buyer of COST shares last year and more recently on the pullback to $144, I’m continuing to hold shares of COST in the Golden Capital Portfolio and looking forward to the possibility of Costco announcing another one-time, outsized dividend payment to investors.  The retailer has done this twice in the past.  Moreover, the unique and market leading business model has found shares of COST with ever-achieving new highs.  With COST and UVXY, Golden Capital Portfolio is presently up 17.8% to start the New Year. 

 

 

Just as the markets don’t and won’t go up in a straight line, I don’t expect my portfolio to do so either.  I’m sure, like in preceding years, the market will have fits and starts in 2017.  This trading week will possibly foreshadow how the remaining month of January trades for the markets.  As such, and with profits already in hand while the VIX remains complacent, I took the opportunity to lock in profits on my VelocityShares Daily 2x VIX ST ETN (TVIX) short holdings.  In general, the only reason I will acquire TVIX shares is due to the lack of availability of UVXY shares to borrow short.  It’s not often that this occurs, but when it does TVIX behaves as a substantial substitute for UVXY shares.  So let’s discuss more broadly volatility going forward.

Volatility has remained complacent with very low VIX levels for an extended period of time.  Barring the spike from the November 2016 U.S. elections, VIX has remained below 15 ever since.  I’m no market timer and I’m no volatility event timer, but if I were to guess I would be of the opinion that an increase in volatility is just around the corner.  And at what better time than as we approach a reverse split in shares of UVXY and like instruments on January 12, 2017.  So why not go long some shares of UVXY?  The answer is short, simple and with sound logic. 

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Comments

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Nick Despo 1 month ago Member's comment

Amazing & Accurate analysis as ALWAYS... From The BEST in the Busness

Seth Golden 1 month ago Author's comment

Too kind Nick but thank you for taking the time to read. Hopefully the analysis and strategy outlined will be to your benefit.

Anastasija Janevska 1 month ago Member's comment

Interesting photo choice Nick Despo. What does it mean?