On April 23, 2017 I informed readers, traders and investors alike as to the risks that lay before the global equity markets in an article titled Macro-Concerns Dominate The Trading Week As Volatility Takes Center Stage. Within the article I also articulated my steadfastness regarding maintaining a long-term, core short position in ProShares Ultra VIX Short-Term Futures ETF (UVXY) that I had been increasing, as the VIX had been rising. 

For all the media’s fear mongering and traders hedging their proverbial bets against their long positions and just as was the case with Brexit, global equities rallied past the headline risks as the VIX precipitously dropped. On this latest French election, North Korean and looming government shutdown scare, the VIX rose beyond 16 before settling at 14.63 on Friday April 21, 2017. If you held onto your long VIX and/or VIX-leveraged ETF/ETN positions for fear of the French election, Monday morning those positions were significantly damaged. The VIX dropped all the way down to 10.84 on Monday, cratering VIX-leveraged instruments like UVXY, my favorite of all the VIX-leveraged ETFs. And it wasn’t even like UVXY gave longs/hedgers a chance to get out of it with minimal damage that day as it trended lower throughout the day, closing near the lows of the trading day. It’s for this and many other market exampled reasons I always offer to investors/traders not to go long designated short instruments. If your timing is not precisely perfect on the entry and the exit, the capital erosion can be demoralizing. But it’s a great lesson for a great many market participants to say the least.

Staying short leading up to and through this past week’s manufactured drama in the markets proved quite rewarding for the Golden Capital Portfolio.  While I suffered through the significant 45% backwardation in the portfolio’s largest position in UVXY (Short shares); I understood this backwardation would be met with equal or greater share price decay in the near-term. And it is with that understanding that I continued to short through backwardation, layering in more and more positions as well as trading intraday. UVXY experienced a 45% share price spike from the low $15s to roughly $21.75 in a matter of 2-weeks.  In less than 3 trading sessions, the share price dropped all the way back down to the low $15 range.  This past trading week, UVXY found a new, all-time trading low and finished the trading week at $14.18 a share. Golden Capital Portfolio, as chronicled here on TalkMarkets.com and with various articles, maintains a long-term, core short UVXY position. It’s for this reason that the portfolio is now expressing a 67.5% ROIC year-to-date. The screen shot below of Golden Capital Portfolio performance YTD identifies the portfolio’s mirroring of UVXY’s backwardation, portfolio manager’s layering of additional short positions during backwardation and subsequent drop in UVXY share price.