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.
When 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.
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 🙂
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
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)