If you can remember back to the far left here, just before the 2018 3 month sell off AKA the "December Glitch" I was selling call spreads at the 40 short strike with ~6month duration. As if in a cartoon, UVXY almost instantly 2-3x'd against me, thus began my 10 year Trojan war...
Since September, I added on more to the short position and sold puts/ put spreads against it to flatten deltas, some getting back off for a scratch, some a small loss (note the huge drops back in 2019)
Since I'm not a pure fentanyl rush gambler, I've been slowly taking off some of the short call lots for a scratch or small loss as we approach expiration , while flattening deltas with short puts, basically reducing crash/spike risk as we almost return home. (Its more thematic to fight the cyclops in the middle of the journey than to get bludgeoned right back at your doorstep)
So basically we have a 6 month scratch trade, this isn't what you point back at to clarify genius... this isn't going 100x leverage on your student loans to buy penny stocks/crypto and 20x, so who cares?
The point is the inevitability of the short VIX complex mechanically, and even a very bad trade can be managed/ flattened, but ultimately saved with duration at the beginning.
Takeaways/ Going forward- 1yr duration
In hindsight I was happy I stayed more conservative with the 6mo trade into those Oct/Dec spikes, while some of the short vol crowd were putting on the 'traditional' ~45 day premium trade. I did a lot of backtesting in the last year before the UVXY leverage rebalance, and was looking at the 6mo to 1yr duration, and especially now with the deleverage I would lean to the longer duration to offset the weaker decay.I'll wait for another vol pop to re add long duration positions (we've been vol crushing for a week now), but to eyeball a trade with UVXY spot at ~40, the 1yr 40/45 call spread looks about 33% ROIC, which should be very good for a conservative annual trade.
