Today, we are mentioning 3 questions asked by 3 readers!!
Why SPX is rising, VIX is rising and UVXY is also rising?
Seeing the past 2 days price action, a reader asked us why S&P 500 is rising, spot VIX is rising and at the same time UVXY price is rising as well?
We have explained this in our “Trading Volatility” book. The price of UVXY (and other volatility tickers like VXX, SVXY, XIV, TVIX) depends only on M1 and M2.
Spot VIX rises when more S&P 500 puts are bought. Generally, M1 and M2 mirror the movement of spot vix. If spot VIX rises, M1 and/or M2 rise. If spot Vix falls, M1 and/or M2 fall. But this is not a guarantee.
It can very well happen that spot VIX rises and both M1 and M2 or either of them fall. We have seen this in the past. But what is a certainty is, on the day the term expires i.e. the Tuesday of middle of the month (in our case February 14, 2018), M1 and spot VIX be converge.
The past 2 days UVXY rose simply because both M1 and M2 rose. Simple.
When will UVXY start falling? One needs a crystal ball to predict that. The thesis mentioned in our Trading Volatility book is:
UVXY price will fall long term if the VIX Futures graph has an upward rising slope!!
We can end by saying that UVXY will fall long term as long as the VIX futures graph has an upward slope.
I don’t have enough cash to buy SVXY. I bought enough SVXY today already and it is available very cheap now!!
This is the comment another reader made today to us during the market hours. Our reply was simple. I follow the 50-30-20 Strategy. I keep 50% cash, so I can buy the dips and have a peaceful sleep. The reader immediately told me to include this in our today’s newsletter for the benefit of others.
Would you use the margin money offered by Interactive brokers or Robinhood gold to invest in Index based ETFs?
This was the question asked by another reader today. My response was that investing "borrowed money" in stock market is a very bad idea. In our Trading Volatility book, we mention the 50-30-20 strategy. When 50% of portfolio is cash, using margin money for investment does not arise.
And the theme of our Index Investing book is earn, save and invest in Stock Market Index based ETFs on a long-term basis. Invest as little as $500 a month for 10 years with an aim to become a millionaire. This should be the premise to become rich. Not take a loan and invest in assets which inherently are risky!! If stocks go the wrong way in the short term, you will be asked to deposit more money in your brokerage account or sell the stocks at a loss.
It turned out, the reader was asking for himself and he was a student who was pursuing his college education and worked part time in his school and hardly earned $450 a month. Seeing his passion for investing, I have decided to donate an amount of $500 to him per month. The first installment of $500 was sent via paypal to him just as I was finishing this alert email.
I am not sure how long I will be in a position to do this. But I have made a start.
Why am I sharing this? Not to seek publicity. In fact, I prefer to go with my pseudonym. It is just to share that there are youngsters who are very passionate about investing. They need support. And there are others, who are well off but have neither paid attention to investing nor took efforts to invest the right way. We hope this motivates some of our readers to focus and invest for long term.
Thanks and Happy Shorting Volatility
Even if one life is changed by our educational attempts, we would consider our efforts in writing the book a success.
The material in this newsletter, the website http://TradingVolatility.info as well as in the book "Trading Volatility - Using the 50-30-20 Strategy" is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. As an investor, you are fully responsible for any investment decision that you make.