Shorting UVXY is sort of like making pancakes and flipping them in the air and catching them with the pan.  You can entertain yourself and others like that for a while, and you just may accumulate a large stack of perfectly browned piping-hot pancakes, but sooner or later some raw batter is going to hit the kitchen floor, and that is not much fun.  And what if everyone eats up all your pancakes in the meantime, and you're stuck with nothing but a kitchen-floor disaster? Well, on Thursday, April 20th, I felt the ever-present hunger for a little short UVXY profit, so I shorted some shares.  But only with the keen awareness that I was lending out borrowed shares backed up by capital I really did not want to cut into and hand over in an "oops - bad timing" debacle.  It could also be likened to writing a check as a security deposit, not wanting that [huge] check to be cashed - because what if the damages might turn out to exceed the amount I have in the bank?  Sky's the limit with UVXY and I wanted to be along for the ride down the slide, but not for anything involving high-and-rising share price heights.

I could not or did not want to watch every tick and possibly experience the sickening sight of a huge and maybe nearly-immediate loss in value of my short shares.  So instead I paid a fee to set a limit on the amount of risk I'd be exposed to and I accepted a time limit within the fee's contract.  My fee was 0.65 per April 21st (the very next day) 19.50 strike call contract and I bought the appropriate number of contracts to go with my short shares.  I had shorted at 19.53, so the plan was:  Should I choose to exercise those calls, I'd be buying shares to cover at 19.50, making a $0.03 per share profit on my short, bring my loss at that point to 0.62, or $62 per block of 100 shares.  The hoped-for scenario at this point, conversely, was that UVXY would drop enough from my shorting price of 19.53 to pay me back for the 0.65 cost, so that I could buy the calls back for some small recoupment or even see them expire worthless, but I'd make so much when closing the short that I'd find the 0.65 to be worth the sleep-at-night value it conferred.

I wanted to reduce that cost, though, by selling some puts, even though that action would then limit the profit I could make on the above-described short with protective call.  I priced out puts tick by tick (see, there's no escaping watching the ticks, but at least I had breathing room now) but didn't like the fact that I'd still be locking in a loss, even though it would be a maximum worst-case loss.  Puts were going for prices lower than what I had paid for the call, so I couldn't pay myself back fully.  To be a hair-splitter, I had a 3-cent head start on the short, so I could accept a price 3 cents lower on the puts and still pay myself back.

It turns out that a series of nice red ticks brought the put prices down to where I was able to sell the same expiration puts on the 19 strike for 0.63 (see first orange arrow on chart), nearly the same as the price I paid for the calls.

At this point I could ignore the whole trade and check in late on Friday to find out whether it was a zero or the full profit or something in between.  Zero would materialize if UVXY would end higher than my call strike.  I'd exercise the calls, buy to cover for a 0.03 profit per share, and I'd have the full put premium received of 0.63 to set against the 0.65 I had paid for the redeemed calls, and you can see that this would come out to completely flat.

Something in between would materialize if UVXY would end between my strikes.  I'd be able to take some profit on the short, and premiums would offset each other (as described above, with the call expiring worthless against the full premium retained on the put).

Maximum profit would occur with UVXY ending below the put strike.  I'd lose all of the 0.65 I spent on calls, I'd be assigned on the puts, keeping the premium of 0.63 received, and at the strike price of 19.00, my short profit would be 0.53 per share.  This would net out to 0.51 per share, or $51 per block of 100 shares.  I was all set, though, with this can't-lose scenario and could sit back and do nothing.

But wouldn't you know I went and tinkered with this, taking vital parts of the machinery apart, early Friday morning.  UVXY opened so high and rose so much higher (see second yellow arrow on chart) that within seven minutes of the market open I bought back the puts to close for 0.20, envisioning a reversal of this hopefully-aberration-like open and then unfettered short share profits beyond my wildest dreams.   It seemed like a good move - for a little while.  Most of my short put premium had been locked up as a booked gain, and nothing was holding me back from limitless profits to the downside on UVXY.  But as UVXY zig-zagged higher for hours, I realized my mistake.  I had gone from max-loss-zero to a max-loss equivalent to the premium I chose to give back in my impetuous buy-to-close.  Should UVXY now rise above my call strike, I'd be able to buy to cover safely and essentially flat, but I'd be out the 0.65 cost of the calls with only the 0.43 profit made on the puts to offset it, or a 0.22 per contract/$22 per block of 100 shares loss.  Prices under my [no longer existent] put strike were looking unlikely by midday, and I kicked myself for turning my can't-lose trade into a might-lose-moderately trade without thinking it through.

I started looking for ways to bring in whatever premium could be recovered from the call side.  I already had a maximum loss set out at this point and while I couldn't likely recreate the no-loss scenario, I could manage the same max-possible-loss by changing the criteria for the day's outcome.  And the outcome loomed close, with only an hour and some minutes left in the day.

At 2:46 PM, I sold the calls for just 0.06 against the 0.65 I had paid.  That doesn't seem worth much, but I used that in determining the price for my stop-on-quote.  In order to break even-ish, I set the stop for my short UVXY shares at 19.33, while they were trading at around 19.12.  Within a few minutes my stop almost hit (see chart below.)  I believe it was within 2 cents, and you can deduce my mental state when I tell you that the person looking over my shoulder suggested that I "go and do something else for a while."

Soon, enough, a cascade of tumbling UVXY prices appeared like Niagara Falls, so - finding myself suddenly at the bottom of the falls - I climbed aboard the first boat I could see through the mist without stopping to read the name first, and grabbed the 18.98 bid to get rid of my short shares and put this story in the history books.  You can see the price bounce that ensued (back over 19.25 for a second), making me glad I hadn't waited and analyzed and computed even one darned digit before hitting "market" to unload that short.  To recap:  My known-max-loss went to no-loss, then to a different known-max-loss, and ended up at a profit not too far from the original max profit I had computed.  With an ultimate cost of 0.59 on the calls, 0.43 profit on the puts, and 0.55 profit on the shares netting out to +0.39 overall, I consider this a two-day adventure I'd be happy to have again, at least after I shake the 2-cents-from-stop experience (better than triggering-stop-in-one-tick) out of my brain and try to remember only the good parts and the fun.