Buying More VXX or HUV, Gold and Silver Commentary

In late January we went long VXX, stating that we would employ no stop as these positions were "to hedge market risk per existing long positions in general equities." 

In early March we added SH to then go net short the market. 

Here in the middle of May we've reduced long exposure considerably and wish to effectively go fully short the market, and to do so we'll add a position in VXX.  Some readers may prefer to consider HUV, the equivalent which trades in Canada, or an actual market short such as SH or SDOW.

Do not consider these types of positions if you don't totally understand the nature and risks of these instruments.

Here's a graphic showing the last 3 months for HUV, VXX, and the DJIA respectively:

While the DJIA is 500 points higher, or 3.3%, since the middle of April, and the S&P (to which HUV and VXX actually relate, though we prefer to discuss the DJIA) is almost 5% higher, both of these levered inverse instruments are at the same level as they were five weeks ago. 

At this stage if the DJIA were to drop 300-500 points rapidly, which is arguably long overdue, we'd expect gains of 30% or more in either VXX or HUV.  Of course there's considerable downside risk, however we feel that the current risk is reasonable. 

It's nearly halfway through the year and thus far there's only been five 2-day drops in the DJIA, all of them quite small, and zero 3-day drops. That's an amazing trend that will, at some point, come to an end.


We're now adding a full position of VXX, last at $18.43  On this position we'll employ a stop on a closing basis of $17.40 for VXX ($9.50 for HUV). 

Those more aggressive might consider the VXX August $18 calls.  Near today's close these were priced at $2.40



Monday night and Tuesday the action in gold and silver continued to be very volatile.  We've been asked how we're handling it.  We were stopped out on Tuesday with respectable overnight gains in AGQ of over 6%, but nowhere near what we'd hoped.  We hold AGQ call options (not diarized herein) bought at Monday's open.  The June calls are up 60% at today's close.  Can't complain about that.

Those still in AGQ might consider entering stops below Tuesday's lows, to be on the safe side.  Tuesday's action looked to us like the last vestiges of selling on desperation and margin calls before the expected big bounce, but it could also be the precedent for another plunge.  No one knows for sure, so be prudent and give it 50/50 odds. 

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