UVXY is one of the most popular volatility ETFs, but also one of the most misunderstood. Its design ensures that it trends lower over time, making it a poor choice for long-term investors. For active traders with precise timing, however, it can be a powerful instrument during volatility spikes.
This article explains what UVXY is, why it trends lower in the long run, why it should not be held as an investment, which types of traders might use it, and who should avoid it entirely.
What Is UVXY?
UVXY is an exchange-traded fund that provides 1.5x daily exposure to a rolling position in short-term VIX futures (the front two monthly contracts).
It does not track the spot VIX directly because the VIX is not tradable. Instead, it tracks VIX futures.
Why Does UVXY Go Down Over Time?
A glance at UVXY’s long-term chart shows near-constant decline punctuated by sharp spikes during crises.
This happens for two reasons:
Contango
Most of the time, VIX futures are in contango (longer-dated contracts are more expensive than near-term).
Because UVXY rolls contracts forward daily, it continuously sells cheaper contracts and buys more expensive ones.
This creates downward pressure that pushes the stock lower.
Beta Slippage
UVXY delivers 1.5x daily returns of its VIX futures index.
Over time, this daily compounding in choppy markets causes beta slippage.
Even if the VIX ends up unchanged, UVXY tends to lose value.
Together, these two forces ensure that UVXY trends lower over months and years, only spiking higher when volatility surges dramatically.
Why UVXY Is Not a Buy-and-Hold Entity
UVXY is mathematically structured to decline over time.
Long-term investors will almost certainly lose money, even if volatility spikes occasionally.
It is better thought of as a short-term tactical instrument for volatility events, not as a portfolio holding.
Who Should Trade UVXY?
Short-Term Speculators
Traders betting on a near-term volatility spike (e.g., before earnings, CPI releases, Fed meetings, or geopolitical risks).
Typical holding periods: hours to days.
Event-Driven Hedgers
Investors who want quick, leveraged exposure to volatility during risk events.
Useful as a hedge.
Volatility Traders
Some advanced traders use UVXY options for volatility strategies.
Who Should Avoid UVXY?
Long-Term Investors
Anyone holding UVXY for weeks or months is almost guaranteed to face decay.
Beginner Traders
Without an understanding of contango and beta slippage, beginners often lose money by holding UVXY too long.
Income or Passive Investors
UVXY pays no dividends and carries extreme volatility. It is the opposite of a steady wealth-building tool.