Heading into 2016, I had positioned my portfolio for greater gains by increasing my exposure to volatility or VIX leveraged ETFs. My volatility ETF of choice, since 2012, has been ProShares Ultra VIX Short-Term Futures ETF (UVXY).Back in March of 2016, I highlighted my positioning with UVXY in an article titled “UVXY: My Plan For Success In 2016”. For those unfamiliar with UVXY, the instrument was literally constructed to decay in price long-term.The potential for the instrument to do anything but decay in price long-term is non-existent. Having said that, short-term spikes in the share price for UVXY can happen and alongside spikes in volatility as the instrument is tied to S&P 500 VIX Futures. Most investors and/or traders don’t fully understand or appreciate how UVXY works in the marketplace and even more, unfortunately, believe it to be a hedge against the markets. As a hedge against the markets, this understanding is proven valid on a limited basis given the fact that the ETF is mainly leveraged to the VIX. 

A perfect example of misunderstanding UVXY and assuming it is a hedge against the market was portrayed by the ETF during the 2-day Brexit trading environment. On Day 1, U.S. equities plunged severely, dropping 2% or greater on the major averages. Shares of UVXY soared on Day with the VIX spiking as fear gripped global markets.On Day 2 of the Brexit trading environment, U.S. equities fell another 1% or more across the major averages, but UVXY actually fell in price as the VIX began to fall. The chart below identifies the Brexit trade from June 2016.

Now if you timed the market just right and went long VIX or UVXY, you probably did very well.But most people did not time the market well as it would have forced a trader to buy at the right time and sell at the right time.It’s not likely that given the fear that existed once Brexit had been decided upon, traders would have sold their position given the uncertainty surrounding Brexit and the fact that the VIX had initially spiked so greatly. Market timing:It’s a tough trade and one not for the faint of heart, especially when utilizing instruments that were meant to decay in price like UVXY.No, the best trade to have made ahead, during and even after Brexit was to go short UVXY.This is also evidenced in the chart above as well as the following historic chart of UVXY. 

Since UVXY was introduced to the market back in 2011, it has done exactly what it was designed to do, decay in price. The S-1 identifies the nature of the ETF better than I could ever explain.

Unlike many financial websites and publications, TalkMarkets has allowed for a greater discussion surrounding UVXY.Most financial websites don’t permit a reasonable publication of UVXY because it detracts from mainstream, fee-oriented investing.We tend to recognize these financial media outlets by their proliferation of dividend investing focused publications and promotions. While I can appreciate dividend investing for the value it brings investors, it fails to compare with the returns one can generate through exposure to UVXY and like instruments when used appropriately. 

UVXY is not a suckers trade as describe in the article “The Biggest Sucker's Trade On Wall Street” . In fact, if there is such thing as a guaranteed return on capitals invested, UVXY and like instruments are just that. Again, the construction of the instrument ensures price decay long-term.It’s up to the investor/trader to ensure they position for liquidity during VIX spikes and subsequent UVXY spikes. Additionally, it’s up to the investor/trader to ensure they have cash on-hand to participate during UVXY price spikes by layering into the instrument with more short positions.I have participated in this manner with UVXY since 2012 and have generated wealth by doing so. But there are some things to know, of course, and as I will further explain.

One can utilize options for participating with UVXY and like ETFs. The option contracts tend to be expensive when compared to traditional stocks/equities, but like stocks/equities, they define one’s risk quite well. Unfortunately, what many fail to consider when participating this way is that UVXY can have dramatic price swings in the pre-market and after-hours trading sessions. Options are not of value given this consideration. For this reason among others, I choose the majority of my UVXY capital allocation with common shares. “But what if your shares get called-in unexpectedly Seth”? Yes, that’s a consideration, but while most broker-dealers and broker-dealer sites are permitted to take this action, even without notification, investors/traders should know which will and which won’t.I’ve utilized Scottrade and Schwab for several years and never since owning UVXY short have my shares been called-in. In fact, with regards to my clientele, none have had their shares called-in with Scottrade. The reason I utilize two trading platforms is with regards to “availability”.

Sometimes, shares are difficult to borrow short and rendered unavailable. For this reason, I utilize two broker-dealer platforms in case one doesn’t have shares available to short. More importantly, every trading day when pre-market trading opens, I execute limit day trade orders so as to be able to “lock-up” inventory and ensure shares are available throughout the trading day. During the trading day, I afford myself the opportunity to modify my limit order according to the trading environment surrounding UVXY. Scottrade has proven to have/maintain the largest supply of UVXY shares since 2012. Another like instrument in case no shares are available to borrow is VelocityShares Daily 2x VIX Short-Term ETN (TVIX ). It works very much like UVXY long-term. 

So with all that being said, I encourage readers/traders/ investors to read all my offered publications on UVXY when time permits. I have held a core position in the ETF since 2012 when I discovered it and read the S-1 thoroughly. Moreover, as UVXY and the VIX are experiencing another spike let’s discuss the potential for UVXY near-term. After all, with election results coming this Tuesday, many are fearful of what the markets will bring leading up to Tuesday night's election results. Fear drives the VIX, which drives UVXY. 

Since falling to all-time, reverse split adjusted, trading lows only a couple of weeks ago, shares of UVXY have spiked to over $20 per share. As I stated earlier, I have maintained a core position in UVXY since 2012, but on October 25^th I decided to cover a portion of my core position in the pre-market at $12.99 a share. I often post my trades on Twitter (TWTR) through my Twitter feed in real-time as I perform the trade execution. 

I covered this portion of my core position in preparation for both the election cycle approaching and end-of-year rebalancing.Since that time I have been able to reacquire some of those short shares at higher prices. Always a good thing!But as we edge closer to Tuesday’s big election results, it’s quite possible that market fears will exacerbate and produce an increase in VIX levels and UVXY share prices. It’s quite possible to see UVXY rise 50% or more into this trading environment, but even that is uncertain. Should shares of UVXY continue to rise in price through the trading week, it has proven to be wise to layer in short positions as the rally persists. By the very nature of volatility, increased levels of VIX can only be sustained for short periods of time. In fact over the last several years, the VIX has only increased consistently for its greatest period of time being 3 weeks…give or take a day. As such, short-term pain with regards to shorting UVXY into price spikes has always generated long-term gains of substance for one’s portfolio.