Everyone Knows UVXY Decays. That's Why Your Puts Won't Work
If only it were that simple. The market isn’t stupid.
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.
The Market Already Knows What You Know
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.
Example 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
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
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 bigger drops than expected create winners, reinforcing bad habits
Misunderstanding Options: Not realizing decay is priced in
FOMO on Decay: Seeing the inevitable decline and wanting to profit