Mar 162013
 

About a year ago I bought some HVU.TO. It was my first time dabbling in the futures market and it was quite risky. The HVU, or Horizons BetaPro S&P 500 VIX, is an ETF that tries to double the gain or loss of the VIX index which is a benchmark for volatility in the stock market. Normally when the stock market is doing really well like right now the VIX index is low because investors don’t think stocks will fluctuate very much in the near future. But in 2008 and 2009 when stocks were low the VIX was high because there was a lot of uncertainly in the markets. Buying into volatility is a way to minimize portfolio risk lest the stock market decides to take a dive.  I bought about 180 shares of HVU in February last year. Total purchase price was worth about $2000.

13_03_hvubuy, swing tradeWhen I bought the HVU back in early 2012 I thought I could make a quick swing trade but instead of selling when I could have made a small profit I decided to wait for it to go higher. Well that was a mistake because soon I was losing money and the price never came back up. By being too greedy and missing my opportunity to sell I ultimately lost out (>_<) I checked my balance today and was less than impressed with how the HVU have performed over the last year.

13_03_hvu_account, swing trade

Apparently it’s lost 98% of its value since I bought it and I’ve lost almost all my initial investment of $1979.19. The reason the quantity says “4” instead of my original “180” shares is because it went through a 1:10 split and then another 1:4 split *sigh* (ーー゛). Even if it goes back up 10 folds now it still won’t be worth very much. So earlier today I put in a sell order of all my HVU holding. Since markets are closed today the sell order will automatically be executed first thing on Monday morning 🙂

13_03_hvu_sellorder, swing trade

Initial Investment: $1000. Leveraged up to $1969.20 by borrowing $969.20 on margin at 4.25%.

Feb 15st, 2012
Bought: 180 shares of  HVU.TO at $10.94/share = $1969.20
Today, Mar 16th, 2013
Sold: 4 shares of HVU.TO at $8.68/share = $34.72
Difference: -$1934.48

Expenses:
Commission: 2 trades x $9.99 = $19.98
Margin interest: $44.62

Net loss after expenses: $1999 (pre-tax)

That’s a 200% loss on investment. Unfortunately this swing trade could have turned out better. Can’t expect to win every time I guess 🙂 Good thing I wrote in my disclaimer that readers shouldn’t take my financial decisions as advice.  I think there was a few key mistakes I’ve made this time that led to the loss. Normally for my swing trades I buy more than 1 name, but this time I only bought HVU so the risk was greater. I also chose to ignore all the signs, like the 1:10 split. That’s usually how you can tell a stock is in trouble, lol. But the biggest factor was that I held on to a losing position for too long. I should have gotten out of the HVU after a couple of weeks at most but didn’t. This was simply due to poor judgement on my part. I even considered selling if I lost 50% but didn’t pull the trigger.  At least a poor performing VIX index is usually a sign of a healthy stock market 😀 Since I bought the HVU the Canadian stock market has returned over 13%, and my total stock portfolio has made a positive return despite my $2000 loss. I think I’ve learned a n important lesson about trading risky equities 🙂 mainly don’t hold onto to a losing stock, especially if it lacks fundamental underpinnings. On the whole I think $2000 is a small price to pay for learning that experience the hard way. That’s life isn’t it (゜∀゜) Making mistakes is just part of trying something new, haha. I’m glad that I got the chance to learn from my errors now rather than later on when I might have a family and decide to risk a lot more money 😉 I might trade the volatility index again in the future, especially since the VIX is at record lows, but if I do then I will definitely have a stop loss to minimize any potential downside, and not hold onto it for so long again (^v^)I believe someone once said good judgment comes from experience, and experience comes from bad judgment. I probably have a lot more experiencing to do then lol (ʘ‿ʘ)

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19 Comments on "Swing Trade, Round 3: Sell and Loss"

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myownadvisor (@myownadvisor)
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Ouch.

So, you don’t want to buy and hold other dividend payers (like in your portfolio above; BNS, CNQ) and just watch the dividends and capital appreciation roll in?

Much easier on the stomach man.

I’ve been there as well…but won’t go back again no matter how tempting it might be. I’ve learned boring wins.

Cheers,
Mark

hungry hungry artist (@blerghhh)
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That’s the way the VIX is played… No more than 24-72 hours. Same as any other short. It’s not a long term deal unless you’re “muddy waters” and are completely confident in your research and see a company going completely bust. A completely BETTER and less risky way (albeit less direct) is to sell naked puts below the money on index (1x, 2x, or 3x) ETFs. That way you collect the premium if the markets go up or sideways, or even down a bit. If they tank, then you get PUT the units for the ETF. Which then you can then liquidate at market, or write a covered call, or wait until it recovers. As index ETFs are WAY more likely to recover in due time. Alternatively if you have a “short-margin” account, then you can just SHORT the VIX etf. It will no doubt be folded up into oblivion in due time due to the daily re-balancing. (HOD will be as well… Long term oil will go up. This one only goes down except for brief periods of crashing oil prices) So provided you can hold the short for a LONG time, it will make money! Or you can… Read more »
mochimac
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Yep. I’d agree with Mark. The boring strategy wins. For the dividend stock portfolio, I don’t like more than maybe 20 stocks in there because I can’t keep up with all of them (sucks the life out of me).

Currently hemming and hawing over which ones to buy if at all.

Theo
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Theo

I lost close to 80 % on PMT, which was a dividend paying stock, it stopped paying out quite a while ago, I dont feel bad about this loss as
it is less then 1 % of my portifolio by now, I am also happy to keep holding on, one day nat gas might come back.Leveraged ETF s are a greater risk than any stock,good thing you didn’t loose too much.

hungry hungry artist (@blerghhh)
Guest

If you did a market order then your math is wrong! HVU popped 10% at market open. Would have been a nice trade between Friday afternoon and today! An extra $4 in your pocket!

j
Guest
j

Been through the same thing. It’s something in the math of these doubly leveraged ETFs, if held for a long time, it doesn’t really match the market it’s tracking. Eventually, you lose. It’s truly only good for short term swing trades.

Alex Yang (@yyangalex)
Guest

if you watch cnbc you’d know not to hold these overnight. they’re meant to be day trading vehicles and their value is reset at end of each day, making them all but guaranteed losers for people not using them properly

learning from others is one way to avoid the same pitfalls yourself. im not going anywhere near options, futures, or leveraged ETFs! plenty of money to be made elsewhere, why bother. the popular phrase, no risk no reward, is a load of baloney. some of the best investments are actually the lowest risk.

Anonymous
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Anonymous

hi I was reading your comments on HVU (interesting trade) however HVU is a volatile stock and most traders will try and exit their position once they have some gains my question is how do you exit this trade once the VIX (HVU) is at its highs who will take the other side of your trade ? I would think very few traders would want to buy into the VIX (HVU) when it is at its highs. I have thought of trying this trade myself however I have always been wary of doing so due to the above concern.

mick
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mick

A very good friend of mine (not me) was convinced to invest a significant amount of $CAD in this HVU ETF – Horizons BetaPro S&P 500VIX Short-/Term futures, Bull Plus ETF approx 1 year ago. From what I can make out she might have lost 98% + of her original investment with little chance of her recouping her investment any time soon, if at all. Am I correct with this assumption? I am not used to trading ETF’s and do not want to alarm her unnecessarily. I would appreciate your thoughts. Thanks in advance, Mick

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