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The ticker UVXY is a leveraged ETF that follows the VIX volatility symbol. It's a long term decaying asset. It decays rapidly - often 50%+ a year. Why wouldn't traders short it and hold for a year, collect the profits and repeat? The expense ratio is 1%. What am I missing? There must be some catch for why long term shorting it is not profitable. Is it perhaps because brokerages won't let their clients short these ETFs because there is a symmetrical ETF that is for shorting the VIX symbol?

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If you want to short a stock, you need to borrow a stock. People don't let you borrow their stock out of the goodness of their heart, they're collecting rent/interest. In the case of a big, widely traded stock, there are plenty of pensions, mutual funds, ETFs, etc that own the stock and intend to own the stock long term so lending it out to short sellers is an extra source of income.

$UVXY is not a buy and hold stock. Nobody owns it long term (c.f. Why do volatility stocks/ETFs (TVIX, VXX, UVXY) trend down in the long-term?). It's a day-trading stock to bet on volatility, guaranteed to lose value over time.

Nobody owns it long term so nobody is going to lend it to you.

As for your other points, the 10.75% interest rate is only true for widely traded, boring stocks. Volatile stocks and stocks with a lot of short interest are Hard to Borrow (HTB) and have a higher interest rate and a higher margin requirement (400% in the case of Schwab).

I think you'll find that you can't borrow it, or at least at an interest rate where it's a profitable trade. (How much would you need to get paid to be on the other side of that bet?) You could buy calls, which are much more easily available and don't run the risk of a margin call ruining your day, but you'll find the decay is factored in so that's not free money either.

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  • Hi Kevin. Thank you. I know the fundamentals of ETFs, etc. I know that this is not meant to be held long term. I am just looking at it purely technically and I am trying to figure out why not given how rapidly it decays. When submitting the order, Schwab says "The estimated annualized rate to sell this stock is 10.75%." If that's the case and, on average, it drops 50% a year, why not short sell it? I understand the risk of a margin call if spikes up, but one can protect against it with a stop buy order. it might be tricky to time the reentry. Perhaps short sell when it spikes.
    – pkout
    Commented Sep 17 at 16:07
  • Kevin, do you know the explanation for why, according to the graph I posted in my question, the stock's price at inception was in billions? There's no way that that was the case. Do they regularly split it or something?
    – pkout
    Commented Sep 17 at 16:15
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    UVXY does a reverse stock split about once a year. Since inception, it's cumulatively done a 3 million: 1 reverse stick split.
    – Kelvin Sherlock
    Commented Sep 17 at 18:02
  • Got it. Thank you!
    – pkout
    Commented Sep 17 at 18:17
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If you look at the two year graph of UVXY you will see a big spike up. That would be a disaster for somebody who is short.

Also, can the broker borrow the shares of UVYX? and if so, how much will that cost the person shorting the stock? I do not know and the answer to my first question might be yes and nothing for the second. It is something you should investigate if you really are serious about shorting this ETF.

Shorting UVXY is not something I am going to do and it is not something I would recommend. However, I have not carefully researched this ETF and if I did I might come up with a different answer.

A few minutes ago, I placed an order at my account at E*Trade to short UVXY. The order was placed subject to HTB review. I believe HTB stands for hard to borrow. I did this to see if E*Trade would allow the order. I then canceled the order.

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  • Ok, so they did let you trade it. Do you know what the % fee on that trade was? Anything below 30% annually would theoretically be a good deal.
    – pkout
    Commented Sep 16 at 3:04
  • @pkout I do not know what the fee would be. You could call E*Trade and ask them.
    – Bob
    Commented Sep 16 at 4:29
  • I use Schwab. Their ToS trading platform said that the interest rate for shorting is 10.75% annually. This thing falls around 50% a year. Why not do it? It's apparently worth the fee. There must be some other catch why this won't be profitable.
    – pkout
    Commented Sep 16 at 5:31
  • @pkout Have you looked at the 5 year chart?
    – Bob
    Commented Sep 16 at 13:51
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    @pkout If you want short 5 years ago, and it spiked up, there is a very good chance you would get nervous and buy back. Also, a spike up could result in a margin call. A margin call might force you to close your position.
    – Bob
    Commented Sep 16 at 22:34

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