Everyone knows UVXY, UVIX and VXX decay over time. It seems like free money - just buy puts and wait for the inevitable drop, right?
The “Obvious” Trade
UVXY decays about 90% per year on average. BOIL loses value consistently due to contango and roll costs. These aren’t secrets - they’re mathematical certainties built into how these products work.
So naturally, new traders think: “I’ll just buy puts! These things are guaranteed to go down!”
If only it were that simple. The market isn’t stupid, and neither are the people selling you those puts. That decay you’re counting on? It’s already baked into the option prices like flour in a cake.
The Market Already Knows What You Know
Here’s the brutal truth: option prices reflect all known information, including structural decay. When you buy a put on UVXY, you’re not betting it will go down - you’re betting it will go down MORE than everyone already expects.
Think about it this way: If everyone knows a house will depreciate 10% this year, would anyone sell you insurance that pays off if it depreciates 10%? Of course not. They’d only sell you insurance that pays off if it depreciates 15% or 20% - more than expected.
That’s exactly what’s happening with UVXY puts.
The Math Behind Buying Puts
Let’s look at UVXY at $20:
What You Think Will Happen:
UVXY will decay to $15 in three months (25% drop)
You buy a $20 put for three months out
Profit when UVXY hits $15
What Actually Happens:
The $20 put costs $6 (30% of the stock price!)
UVXY needs to drop below $14 for you to profit
That’s a 30% drop just to break even
The “expected” 25% drop? You lose money
The put is so expensive because everyone knows UVXY decays. You’re not paying for a normal put - you’re paying disaster insurance prices for something everyone expects to decline.
Time Decay: Your Enemy, Not Your Friend
When you buy puts, time decay (theta) works against you. Every day that passes, your put loses value.
You might be right about direction but still lose money because:
The move happens too slowly
Time decay eats your premium faster than the stock drops
You need bigger, faster moves than expected
Why People Keep Making This Mistake
It Seems Logical: “It always goes down, so puts must work!”
Backtesting Illusion: Looking at charts shows the decay but not option prices
Occasional Big Wins: Sometimes volatility spikes create winners, reinforcing bad habits
Misunderstanding Options: Not realizing decay is priced in
FOMO on Decay: Seeing the inevitable decline and wanting to profit
What Actually Works
Instead of buying puts on UVXY, consider:
1. Selling Calls
Collect premium from others betting on spikes
Profit from decay AND time decay
Don’t need extraordinary moves
2. Put Spreads
Buy $20 put, sell $15 put
Reduces cost dramatically
Caps profit but improves odds
3. Shorting
Captures actual decay
But watch those 50%+ borrowing costs
Often unavailable anyway
The Bottom Line
UVXY will probably decay 90% over the next year. BOIL will likely lose value from contango. And put buyers will probably lose money betting on these “certainties.”
The decay is free to watch but expensive to bet on. The option market makes sure of that.