Have you ever woke up from a nightmare thanking the heavens it was only a dream? I know I have, some pretty wild nightmares too but unfortunately the true story I’m about to tell is not a dream and haunts me every minute I’m awake. Like a nightmare, this true story is scary and disconnected. I’m writing this hoping I can help some other undisciplined trader from making a huge mistake like I have.
It starts back in the end of January when I sold my shares of LGF for about $3,000 profit. Originally I told my subscribers I’d hold LGF until the middle of March when the Hunger Games launched but sensed a shift in the market might be coming and swapped out my LGF for a hedge against the market with TVIX. This is 2x the VIX for anyone new. I’d hoped to lock in my profit on LGF and buy it back lower but as you can see, LGF never went lower. I was so convinced the VIX was going to climb I picked up a total of 5,000 shares at an average of $18.50. The market, however, had other plans and continued to trend up generally sending the VIX lower and TVIX with it. There was no fear in the market, my timing was off.
Now in my normal swing trade strategy I’m only looking for 5-10% profits with 1-4 day holds and tight stop losses. But with TVIX which is an ETN and not a stock, I came up with a different strategy telling subscribers I didn’t care what it did, I was holding until it was at $24-$30. I was going for a big score and I wont lie, as a newsletter guru the big scores sell more newsletters than the base hits. Ironically, I built my newsletter from a handful of subscribers a year ago to 700 where I am now, all on on base hits and now we have our first glaring flaw. The nightmare begins!!!
Now early on in the trade I remember being down $15,000 or about $3 per share. In my normal swing trade strategy I’d throw up if I was down $1,000 let alone $15,000. But I stuck to my plan using TVIX as a hedge against my swing trades and as the market continued to climb higher each day, fear lower and I traded stocks actively trying hard to ignore the big loss snowballing in my account. The nightmare continues!!!
But then the tide turned and TVIX ran hard above $21 in early February which is right around when I added size. I remember being up well over $10,000 and everyone in chat was going nuts, our timing had been off in the first few weeks but we were now in a full on squeeze and I could taste the $24-$30 range, I honestly thought it was coming the next day. A friend suggested I lock it in but I had a hunch I would score a big one. As you can imagine, the market was right back up the next day sending TVIX back down to $16 and that was the first time I regretted not selling. I was down $15,000 living a nightmare only for it to swing to over $10,000 profit and I didn’t lock it in because I wanted the big score?! Just four days later I was given a second chance though when it hit the mid $20’s again putting me up over $10,000 profit but I got greedy despite a friend suggesting I lock it in… the nightmare continued.
At this point I was not given another chance to be a hero, down big twice and up big twice I would not get another chance to be up big or up at all for that matter. I remember being down about $10,000-$15,000 for days on end waiting for the VIX to climb and then the bad news hit, seriously it’s an ETN and I got caught in bad news. Like a punch in the gut, new share creation of TVIX was halted by CS and the 2x VIX instrument broke. However, despite the market climbing and the VIX heading lower TVIX seemed to hold its premium so I gambled. I honestly didn’t know what to make of the new share creation halt, it didn’t seem to be hurting me at the time, but in hindsight should have simply sold right away since the tool was no longer the same. The nightmare is getting worse!!!
The rest is history, rumored leaked that CS would start creating new shares again and the free fall was on and premium lost. Around $8 per share I got a margin call on the smaller portfolio I trade and took a $19, 576 loss on those 2,00o shares. Right now I’m sitting on 3,000 shares down $38,000. It took me 1 year and about 600 verified trades to build $100,000 in profits swing trading stocks and I managed to give back almost $20,000 realized and as of today another $38,000 unrealized on one ETN hedge against the market. If I were to realize this loss tomorrow I’m still up $42,000 in 12 months of hard work but it sure feels like I’ve made nothing after this. That’s my TVIX nightmare and it’s clearly not over yet.
The lesson I hope you learn is that buy and hold (HOPE) does not work, I know this, teach this, but did not apply this. As for the 3,000 shares, at this point since the premium is gone and CS is issuing shares again I’ll watch to see if it’s working 2x the VIX again, if yes, maybe I’ll finally get my opportunity to end this nightmare.
To be continued…