Make UVXY your winning lottery ticket that keeps on winning.

It's mathematically impossible not to win, you just have to learn how to play.

In 2020, I managed to ride a small UVXY position for a 10x return while leaving the beach in Baja and flying home during covid shutdowns. I kept selling along the way, locking in gains, but managed to hang on to a few shares for the full run. That was my first ‘big win’, even though it wasn’t a big dollar win.

From the March, 2020 low, the markets roared up nearly non-stop till the end of 2021. Hanging on for that full run proved equally difficult, but on December 19, 2021, I wrote an article, “Are You Ready For The Next Market Crash?“. It’s an entertaining read saying, “It's definitely a good time to 'batten down the hatches', close the windows and doors, put the cows in the barn and get the last of the grain in the bin in case there's a blizzard. It's also a good time to 'hedge your bets' and make some cash selling snow tires.” I also showed how one could have gotten +44% gains on a few UVXY trades in late November, early December. What I didn’t mention and didn’t realize at the time, was the power of compounding returns versus one hard run for 1000%.

In early 2022, I was watching for the markets to fall hard and volatility to blast higher. Instead, fear turned on and off like a light switch for the first 6 months and never had the blast to 80+ VIX, giving a 10x opportunity with UVXY. It did however give a 40x opportunity if you simply traded the swings as per the simple plan. Unfortunately, I was trading HUV, the Canadian equivalent, which is extremely difficult to trade effectively, and I was still learning how to execute my ‘simple’ plan.

I’m now learning how to do a kayak roll, and the similarities are quite interesting. First, it took a very long time to finally find a video that presented a simple, logical, step-by-step approach to learn the roll. Most videos suggested getting upside down, underwater, as a first step. Sounds like most investing advice! Average in to a position as it gets cheaper and cheaper, and you get deeper and deeper underwater!

Well, I’m not very good at holding my breath underwater, figuratively or literally, so I prefer to avoid it as much as possible. The same Eric Jackson has an excellent video for learning to brace, which is essentially the last part of the roll that he started with to teach you how to roll, and is used to prevent yourself from going upside down in the first place. Even JC is comfortable going underwater on his positions and his entire method is based on buying in 3 batches, generally half a batch at a time. I am just not interested in going underwater.

Everyone knows that anyone can learn to roll a kayak, it just takes practice and perseverance. Everyone also knows that it’s possible to count cards and consistently win at Black Jack, but they also know that very few people could master the skill. It seems nobody in the world knows that you can learn to win every game of Calculation Solitaire. It is possible, I can do it and anybody can learn to do it, so I made my first ever Wikipedia edit stating that fact.

Saying it's mathematically impossible not to win trading UVXY will get some pretty extreme reactions from most investors, all of it negative and disbelieving. I hope to convince you that it is entirely possible and in fact ‘easy’, much like the kayak roll is entirely possible and easy to do once you learn how. I’m still learning both, and I’m very close to succeeding at both.

The past 3 weeks provide all the examples necessary to understand the trading strategy. Although we’ve been expecting a market drop since June, volatility has remained low and UVXY continued to slide, until making a sharp move higher on July 27. Ideally you were ready and waiting to buy a reversal, which generally coincides with a sharp drop in the markets.

The strategy says buy early if it moves up from the open, so you would have bought early on July 27. When it broke sharply higher at 1pm, buy more. At the high, you’re up 14%, which is a lot given the fact there was no major news and fear has been low, so I would recommend taking the win. You can always buy at the open the next day, even if it opens 10% higher or more. Remember, a major drop will send the VIX to 30+ and the July 27 move was from 12.74 to 15.02.

Note how the sharp drop in VIX on June 1 coincided with the markets pushing higher. In contrast, on June 12, the VIX was up with the markets also up. The markets started falling June 16 from a gap open and we were ready and waiting to go short with SQQQ and SOXS. VIX remained low then and going forward. I should also add that the VIX chart includes contract roll, so sometimes VIX will be up but UVXY is down, and sometimes, like the move on July 6, it simply makes no sense at all, but the strategy will still deliver a win if you follow the ‘rules’.

July 27 was a big ‘wake up call’ for the markets and UVXY. You then had 3 more days to get ready. A bit like having time to take a big breath of air before trying your kayak roll.

Now, let’s look at what you’re supposed to do and what can go wrong. The big gap open on August 2 likely had you still short the market but not likely holding UVXY, since that would contravene a key safety rule of not holding overnight unless fear is already up and you’re sitting on a gain of 4-5% from buying earlier in the day.

Despite opening +9.5%, buy at the open and buy a lot, then watch for a drop and put in a stop sell. As it moves up, keep your stop loose and don’t sell unless you’re up over 5% and even then, keep it loose but above breakeven. Holding overnight on August 2 made sense, despite the late drop and despite the large gap lower on July 27. Selling to be cautious is perfectly reasonable and locks in a gain of 7%.

The next day, it did open higher and moved up, so buy if you had sold. It reversed after 15 minutes, so sell for break even (or a big gain from the day before), or a looser stop if you wish. It then reversed again, so buy it back. At 10:30 it reversed sharply from 19.85 high. I had moved my stop up to 19.50 (+9.9%) and then set a stop buy at 20.00 (+2.6%), in case it reversed while I wasn’t watching. That turned out well as it fell to a low of 17.94 (-8.0% from sell price) before 1:30 then held up around 18.50 to the close.

While reviewing my actual trades, I’ve decided that it’s best to not watch the 5 minute chart. There’s simply too much movement and you can easily get whipsawed if you trade too often. Plus, it’s simply too tiring. The target is 10% returns in a day, and more over several days, so keep stops loose. It’s better to sell while falling for a 2% gain, or even breakeven, than at 5%. Give it time to follow through to the upside. Another important rule to follow is don’t re-buy while it’s falling. It’s better to leave your stop buy higher than you sold until it has dropped 5% or more.

On Friday, August 4, I bought the early reversal, but you could have had a stop buy above the early high, or the August 3 close. I was then stopped out for a small gain on the drop. Once it held flat for several hours, then it made sense to buy the floor with a tight stop sell so that you’d have a good price locked in if it moved up. After that, just let it run with a loose trailing stop. Selling late for +15.0% would make sense, especially since there was no real ‘panic news’, like the bank failures in May. Holding would be okay also, but the fact that it was over the weekend might factor in to your decision to sell or hold.

It did open lower on Monday, August 7, and there was no real reason to buy as it slowly slid lower all day. I did buy, but I really shouldn’t have. It turned out to be lucky, but it then threw me off my game for the gap open Tuesday. The strategy is very clear: buy the gap open, set a stop buy and let it run. If you’re already holding a small position, ignore that fact and buy your full allotment. Then don’t take profits and try to time a top. At noon, with momentum lost, it made sense to sell and place a stop buy higher. Once it fell, take the win and forget about any possible reversal. Just stay out with a very loose stop re-buy and a lower alert. Even if you ‘expect’ the markets to drop further the next day and UVXY is down 10% from where you sold, don’t buy. Stick to the rules and wait.

While holding a floor the next day at 17.55, and still early in the day, that’s the perfect time to buy with a stop sell. With it up 8% at noon and remembering that it fell the day before at noon, tighten up your stop sell or set a limit sell at the ceiling and a stop buy higher. You can adjust the strategy to what works best for you, but sticking to the core strategy will likely provide the best results overall. Once you’re trading it successfully and consistently, then you can start fine tuning your own method. Re-buying late on August 9 wouldn’t normally be ideal, but it was a solid floor, lower than your earlier buy and you locked in a profit of 8% already on the day.

As is so often the case, breaking the rules doesn’t pay. It gapped way down the next day and fell. Prior days it has been reversing mid-morning so buying around 10am should have been easy. And I should emphasize that if you had held overnight, then you must sell at the open with a stop re-buy higher. Don’t break one rule and then another.

I would definitely try selling at 19.00 at 2pm and then settle for a gain of 11.4% selling on a stop at 18.50. Remember, let it run early and tighten your stop sell in the afternoon and try to pick a top if you want. Definitely don’t buy the late reversal as you did the day before, knowing fully well that Murphy’s Law says it will open higher because you didn’t buy! When it gaps higher, buy at market with a stop sell. You’re out with a 1% loss and have a compounded return of about 65% on 5 trades in 8 trading days. That’s a winning ticket if you ask me.

I actually held some shares from Thursday and then sold at the open because I was ‘expecting’ a possible move pre-open with the CPI report, then a move on the day in the opposite direction. Yes, it worked out ‘as expected’, but it’s really better to simply stick to the rules and not improvise based on feelings of what you ‘expect’ to happen. If it goes the other way, it can then be easy to hold your small position and be ‘happy’ that you have a chance to buy more cheaper. That’s the commonly accepted ‘wisdom’ that doesn’t apply with UVXY. Keep it simple, don’t be greedy and enjoy the long stretches of time doing nothing when there is no fear in the markets.

For even more horsepower, you can trade UVIX. It’s 2x leveraged versus 1.5x for UVXY. If you want less horsepower, you can trade VIXY. As I mentioned before, the Canadian version HUV is practically useless since the volume is low and you can’t follow price movements effectively. If that’s your only option, then watch the 15 minute UVXY chart and be even more selective with your buys.

On June 6, soon after the markets pushed higher and VIX dropped lower (June 1), an SA author wrote: “VIXY: Time To Pounce On The VIX”. “We target buying the VIXY when the VIX is below 15 points. Based on our proprietary research, this level provides the optimal reward-to-risk for taking a long position on the VIX. We upgrade our rating on VIXY from "Hold" to "Buy".” VIXY closed June 5 at 30.65 from 31.30. He never replied saying his actual buy price, so let’s say he caught the exact low of 30.60. On July 27, it hit 22.24 (-27.3%). I tried my best in the comments to present a different strategy, that I believe is better, but to no avail. You can make your own decision on how to best trade UVXY, UVIX or VIXY and how to best learn to roll a kayak. I’m off to try that now!

Update to Fri. Aug. 25 : On Friday, Aug. 11, you sold early giving a compounded return of about 65% on 5 trades in 8 trading days. UVXY gapped higher on Monday, August 14, you bought and then sold for breakeven when it fell at 10am and continued lower. Re-buying the floor and holding overnight is unnecessarily risky. Don’t do it.

It opened higher on Tuesday so you buy, and hopefully you’re getting comfortable doing that. It topped out after 10:30, held till 11am, then fell hard. Keeping a loose stop kept you in with a 2% cushion for the rest of Tuesday and Wednesday. Thursday also pushed up from the open till 11:30, then started to slide and you might be tempted to sell and take an 8.6% gain off the table, but let it ride. Remember, the target gain is 15-20%. Having held for 3 days, don’t sell late on Thursday either, for a gain of 16.4% from buying at the open on Tuesday. When you see pre-open on Friday, August 18, that UVXY is up significantly and the markets are near major support, then it’s time to sell at the open for a gain of 21.9% and a compounded return of +98.1% since July 27.

On Friday, August 18, you should have went long the market at the open as well as selling UVXY. On Monday, August 21, you’re watching for either a reversal or continuation to the upside. Nvidia was reporting earnings on Wednesday after hours, so it made sense to be ready for a gap open on Thursday. With blowout earnings and forecasts again, the markets gapped higher and then fell hard from the opening bell.

Here are my thoughts on how that can happen. Blackrock owns 182M shares of NVDA ($91B) and the daily trading volume is around 50M shares. I’m sure they knew in advance that the earnings would be good, so they decided to buy extra shares in advance. When you own more than 3x the total daily traded share volume, you can easily push the price around, so they first pushed the price down to $408 on Friday, August 11, sold more to gap it lower at $403 on Monday, August 14, then they started buying, pushing the price up to $471 (+16.9%) at Wednesday’s close.

When Nvidia reported second-quarter results after hours, it popped nearly 9% and, of course, Blackrock was buying in order to get the pop. They were then up 28% from buying on Monday, August 14, a mere 8 trading days ago. Not bad, and then they started selling.

The average 30 minute volume is about 8M shares. On Thursday, the day after earnings, 30M shares were traded in the first 30 minutes. Blackrock, on its own, could have sold 30M shares that it bought from Monday, August 14 to Wednesday. Once they’ve initiated the hard drop, it continues on its own and they simply continue selling as needed to ensure it continues lower all day. Sure, they were selling for less and less of a gain, but they wanted the price to crash so they can re-buy cheaper. By mid-day Friday, NVDA was down to $450. Maybe Blackrock is now finished ‘playing around’ or maybe not. We’ll see what happens next week.

One news report I saw wrote, “AMD shares fell sharply on Thursday, ending the session down more than 7% as the euphoria surrounding Nvidia (NVDA) and its strong second-quarter results and guidance faded. More than 100M shares of AMD changed hands on Thursday, compared to the average daily volume of 68M.” Euphoria suddenly faded amongst all the millions of NVDA shareholders at the same time? Get real? Minnows don’t create waves. Whales do. Obviously, Blackrock also owns a lot of AMD shares and played the same game there. They can single-handedly move the entire US market with 8.6 trillion USD AUM (Assets Under Management).

The key for us ‘minnows’ is to simply understand and accept the games that are being played by the whales, and profit from it. The markets were waiting for Powell to speak after the Jackson Hole meeting on Friday morning, so the whales would likely be playing around again, making waves. SOXS and SQQQ turned out to be better than UVXY for Thursday - Friday’s trade, which we could have guessed based on what we learned trading all three last year. The markets shot up at 10am on Friday and tanked 15 minutes later. Millions of investors all changed their minds after 15 minutes? Of course not. Blackrock and friends were playing their games sending the markets up hard for 15 minutes, then down hard for 45 minutes, then on cue, started buying at 11am and continued buying the rest of the day. I imagine a pod of killer whales in a feeding frenzy would look eerily similar, and it’s perfectly safe for the ‘minnows’ to be gorging themselves on the scraps.

Update to Fri. Sep. 1 : With the markets pushing up on Friday, August 25, after the Jackson Hole shenanigans early in the day, there was significant optimism for the markets to push higher this week. The higher low on August 25 versus August 18 also supported such a viewpoint.

The gap higher on Monday had me watching for a reversal and drop, but it held. On Tuesday, it roared up, which caught me by surprise, but along for the ride since taking a long position on Friday. Volatility also fell all week and UVXY fell to new lows for the year. Perfect! Now we can wait for the next trading opportunity.

With the S&P 500 in the middle of its trading range, I’m not expecting any extreme moves. It could move higher or lower next week, and volatility could hold near 13. I’d like to see it get near 12 and hold. On Friday, Sept. 1, with the gap higher in the markets and lower in UVXY, I was ready and watching for a market drop. They did fall from the early high, till noon, then held and rallied a bit in the afternoon. I would now suggest staying out of UVXY and waiting for the next opportunity like July 27. Check for a significant gap lower or higher each morning, buy early if it makes sense, and if not, go on with your day with an alert set 3-5% higher. No problem giving up the early part of a move during the day in exchange for the freedom to enjoy your day doing other things. When the markets start another fall, there will be plenty of opportunities to put your UVXY lottery ticket to work again.