Jan. 28 at 1:56 AM
$UVIX $UVXY $VXX For those who, like me, prefer to fade VIX spikes, UVIX—at a cheap five dollars and some change—presents several challenges:
■ As UVIX continues to get cheaper, you need to borrow more shares to make it a worthwhile trade.
■ The problem is that many experienced, risk-aware traders prefer to fade the VIX spike because it is historically reliable. Consequently, more traders are borrowing UVIX shares precisely when it spikes, making it increasingly difficult to find shares to short as the price falls.
■ Borrowing improves with reverse split, but dries up during a major spike because the "crowded trade" exhausts the supply.
■ At low price, the option bid/ask spreads are unattractive with little open interest.
■ This leads to VIX futures. They offer much higher liquidity and tighter spreads. The margin is only
$1,944 per Micro VIX (VXM) contract, and they trade 24/5. I am 95% biased to the short side, using the long side only 5% of the time on 'bloody' market days.
$SOXS $SQQQ
