The UVXY is perhaps the most toxic asset on the market. It is designed to go to 0. I've back tested the UVXY's performance and compared the results to both the VIX, and the S&P since the UVXY's inception - and it's not pretty at all. If you want to know just how toxic this is, here's 1 fact I believe to be the most telling.
On March 15th, 2012 (Closing Prices): S&P - 1402.60 VIX - 15.43 UVXY - $2,468.00 (Split Adjusted)
On August 7th, 2012...just 6 months later...(Closing Prices): S&P - 1401.35 VIX - 15.55 UVXY - $602 (split adjusted)
So, the UVXY is supposedly a function of the VIX and S&P, at least on the surface, to unwitting investors, that's how it appears. But just 6 months apart with nearly identical VIX and S&P numbers, the UVXY has a loss of 75%.
DO NOT LOOK AT THE CHART ON GOOGLE FINANCE. It is incorrect because it hasn't factored in the Split Adjusted prices. Yahoo Finance has the correct chart...where you see the MONUMENTAL and EXPONENTIAL decline in the UVXY price from a share price of $20,000 to $40, where it stands today.
Since the inception of the UVXY:
* Largest single day gain: 37%, on Nov 11, 2011
* 40% of the days, it's up from the previous days. You'd have better odds playing Blackjack or Craps, just laying down a bet.
* HOWEVER: When the UVXY has consecutive closing price losses 5 days in a row, if you purchase near the close on the 5th consecutive day, your probability of winning the next day is about 80%. This seems to be the only way to play the UVXY safely. And even if the 6th day closes lower...you're virtually guaranteed a victory on the 7th day. This I believe, is a strong pattern to trust despite being back-tested only a few years.
* The UVXY was launched on Oct. 4th, 2011. That turned out to be the OPTIMAL LAUNCH DAY. And obviously Pro-Shares, the creator of this HORRENDOUS ETF, new the technically optimal time to launch it. On that day, the VIX was at a historically extreme high of 40.82, the S&P was at 1123.95, and the UVXY share price launched at $20,621 (split adjusted). Since that day, the S&P never got below 1,123.95, and the VIX never reached above 40.82. So, Pro-Shares knew what they were doing, big-time.
Yes, it is expensive for Pro-Shares to keep this ETF going. But they've made so many millions of dollars off of this ETF it's insane. I'd wager it's one of their biggest, if not the biggest money-makers for them.
It's also been a huge bain in the market. I've fallen victim to it, because I didn't understand it. Now that I do - I'm trying to warn you to stay away.
The UVXY is a DAY TRADING instrument. If you're going to gamble on it, for the love of God, do not stay in it more than a day. If you want to gamble, you NEED to get in and out quickly, going for the kill and escaping like a mosquito.
HOWEVER - as I mentioned, if you track the UVXY, and you see that it's going to close lower on 5 consecutive days, since the history of the UVXY - the probability of it closing higher on the 6th day is about 80%. And even if it closes lower on the 6th day, the data shows that you should hold through until the 7th day. The chances of an increase on the 7th day off a 6 day consecutive losing streak are 95%.
