We talked about how to hedge UVXY today

BY ANDREW GIOVINAZZI

April 26, 2024

Yo Pit Crazies,

The event you need to go to in Chicago is happening in July. Come and learn how to trade options from traders who trade them every day. Get ready for Option Pit University coming soon!

We famously put out a Proshares Ultra Short Term VIX futures ETF (Ticker: UVXY) trade. I put some money in it. See below.

I bought a put spread variety and the Mark “Sea Bass’ ‘ Sebastian Special on the UVXY Jun21 33 puts. My guess right now is that you won’t be able to get this for anywhere near these prices after the open today. That is what you had to sign up to the Trading Desk or 0DTE but I digress.

Thursday morning everything opened terribly and my subscribers wanted to know what to do if UVXY decided to do the thing it can do sometimes, which is to go up. You see it spends most of its time going down. But not Thursday morning.

2 Day UVXY chart

This is what I told them

Volatility changing zones sets up a binary switch

For review the OP VIX Zones are as follows and VIX spends half its time below 18 and half of its time above 18.

Zone 1 9-12.99

Zone 2 13-17.99

Zone 3 18-23.99

Zone 4 24 and above

When VIX changes zones, going up is rarely a good thing especially when I own UVXY puts. We were still in Zone 2 and if UVXY broke $37 on the upside VIX would be in Zone 3 and the market would be accelerating downward. If that happens who know how high VIX and UVXY goes so I recommend buying the VIX Jun18 19 calls. That way if VIX moved into Zone 4, the UVXY puts would essentially be financed and break even is a whole lot better than giving $2000.

But we never got that and UVXY should go back to doing what it does, which is rot. As options traders, we can trade direction, volatility and time. And with UVXY puts we trade all 3 which is why I expect Mark and his 100% gain to work.

To Your Trading Success,

-AG