Another swing trade? Where did this come from? Well this is a very unusual situation.
In our first swing trade we used the volatility index to correctly predict that the markets will become less volatile and move up. But yesterday as I was glancing over my watch list I noticed the VIX was really low (around 18.6), which means at some point it will probably revert back to its mean of around 20 to 30. So how can we take advantage of this opportunity? One way to play volatility is the Horizons S&P 500 VIX Short-Term Futures: Bull Plus ETF. Or, HVU on the TSX. It’s a long name, but the HVU is basically an ETF that tries to double the returns (or losses) of the VIX. In other words, if the VIX goes up 10%, then HVU should go up 20%. However, a 10% drop in the VIX means a 20% drop in the HVU.
So earlier this morning, Friday, Feb 10, I bought some HVU. Luckily, last month between working 2 jobs and my investment income I was able save more than $1,000 after paying for all my living expenses. So today, I used $1,000 of my own savings, and borrowed another $1,000 from my line of credit, to buy roughly $2000 of HVU. This means half the money is my own, and half the money I’ll need to return once I sell the shares later. Details below.
Initial investment = $1000
Leveraged up to $1969.20
Bought 180 shares of HVU.TO at $10.94 CAD = $1969.20
I say this is a very unusual situation because normally I don’t swing trade unless I know there’s a pretty good chance (above 70%) that I’ll make money. But today I’m only about 60% sure I’ll make money, and 40% I’ll lose money (>_<) . But the reason I’ve decided to do it anyway is because betting on increasing volatility is also a hedge against the overall market. So even if I lose money with this swing trade, my buy and hold investments, which represent 90% of my portfolio will probably go up because these two types of investment instruments have a negative correlation to each other!
My exit strategy? If the HVU goes up by 10% to 30% I will sell it and take profits. If it drops by more than 50% then I might sell it and take my losses. This is the riskiest gamble I’ve made so far with my swing trades. I’m basically using leverage on top of leverage, lol.
Do NOT try this at home if you don’t understand all the risks involved. Like I said, I am willing to lose 50% of my holdings, which is about $1,000 of my hard earned cash on this because I think the potential for profit outweighs the dangers. But hey, who knows.Maybe this will be my first swing trade where I’m actually going to lose money（ ﾟ Дﾟ）. I guess only time will tell. Isn’t this exciting? (^_^) Stay tuned in the weeks to come.