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)

Feb 102012
 

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.