Video on leveraged ETFs from Coolhand's TSPTalk thread. Must watch if trading leveraged ETFs.
http://www.tsptalk.com/mb/showthread.php?t=6317
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Video on leveraged ETFs from Coolhand's TSPTalk thread. Must watch if trading leveraged ETFs.
http://www.tsptalk.com/mb/showthread.php?t=6317
Quote:
Originally Posted by justbizness45
This also from his thread.
http://www.indexuniverse.com/section...y-returns.html
This should work better:Quote:
Originally Posted by justbizness45
http://www.youtube.com/watch?v=qEYW2CPWHYE
Thanks for spreading the news. I had heard the rumor this was coming but hadn't seen anything official until now.Quote:
Originally Posted by justbizness45
Lady
"If you were to assume that based on this cumulative return of the index, the bull fund would have experienced a 27% loss and the bear fund would've experienced a 27% gain, you would unfortunately be incorrect," wrote the company in the document. "In fact, for that time frame, the bull and bear funds returned -34.46% and 6.32%, respectively."Quote:
Originally Posted by justbizness45
So, does that mean we should be shorting the bull fund (FAS) rather than buying the bear (FAZ)?
Actually, after listening to the videos about the daily compounding, it sounds like we should always be shorting the opposite fund with every trade during a volatile market. If you think financials are going down, short FAS. If you think they are going up, short the FAZ. At least until they change to monthly compounding.
Is there a flaw in my thinking?
Tom, check this out:
http://www.youtube.com/watch?v=PDiKjOpBMQA
Very interesting. It's interesting that it was just posted the other day and we just came to the same conclusion on our own today.Quote:
Originally Posted by justbizness45
Sell them both short (long and short, as almost hedge) and they should both lose money, thus both the short positions make money in the long-term. Hmmm.
You are kind of devious aren't you....:bigsmile::nuts:Quote:
Originally Posted by etftalk
That would probably only work in a volatile market. Once we get a strong trend, it won't be as effective.
I did a little rough math and if the market is in an uptrend, it seems to pay to be long the long leveraged ETF's rather than to short the short leveraged ETFs.
Let's say during a 13-day period, the S&P 500 was up 10% one day, then down 5% the next, up another 10%, down 5%, etc.
After 13-days:
The S&P would be up 43.2%
A 2X leveraged long ETF would be up 90.4% (43.2% x 2 = 86.4%)
A 3X leveraged long ETF would be up 136.7% (43.2% x 3 = 129.6%)
So, the longer that trend continues, the more advantage to the leveraged long ETF.
Tom --
The problem with leveraged ETFs is that over long period of time they should go to zero.
Right now they are all the rage since volatility is high... but once it calms down (and I beleive it will eventually) the math catches up to the leveraged ETFs.
An asset that falls 2% needs to gain more than 2% to get back to even... You know the drill -- down 50% needs up 100%, down 75% needs 400% to get back to even, etc.
So over long periods of time when volatility is constantly low, oscillating between say +.25% and -.25% per day, the price should continue to drift lower and lower. (Actually it should work if volatility is high -- so long at it is contant, but who wants to subject themselves to that.)
This should be the case for anything that is double -- both to the upside and down. So theoretically (assuming a lack of margin maintenance requirements, etc.) a person could be short both the ultralong and ultrashort instruments at the same time and over long periods of time they should both go to zero.
Ken
Thanks Ken -
Yes, we came to that same conclusion earlier in this thread (see post #6 and 9 in this thread).
In my post above, I just wanted to do the math on a market trending steadily higher, just to see how it would work.
More dark clouds from the 3x ETFs:
All Original 3x ETFs Are Down Over Last Six Months
"Over on the Seeking Alpha site, there is a lively debate on my article on 3x ETFs. Many commenters note that Direxion says the funds are intended to track daily changes (on a leveraged basis) and may or may not track changes over a longer period of time.
Good point. But if it was just a tracking issue, then we would expect that some of the ETFs would outperform their targets, some would match the target, and some underperform.
That’s not what happened. Every single one of the original 3X ETFs — both bull and bear — is down big over the last six months. That’s not a function of a tracking error. It's a structural flaw in these instruments.....[more]"
http://seekingalpha.com/article/1331...le_lb_articles
The 3x ETFs have caused me nothing but grief. Once the monthly 3x ETFs have arrived I may try them again but I'm not touching the current ones! :wacko: Every major loss in my Roth can be traced back to FAS/FAZ or TNA/TZA. :suspicious: I paid tuition payments to ETF University for those buys. :nuts:
Lady
No wonder Scottrade never has any shares of these to short. They short them themselves.
Maybe we can get a bailout. :)
The Russell 2000 is up about 6% in 2009.
TNA, the 3X long Russell ETF, is down 5%...
http://www.etftalk.com/images/forum/042709b.gif
The TZA (3X short Russell) is down over 40%.
http://www.etftalk.com/images/forum/042709a.gif
Yeah, those things are poison IMO.:suspicious:
Lady
Anyone have any info about FAZ doing a reverse split? I caught a short snippet of information...something about FAZ shares tomorrow will show a significant rise in price due to the split? I know most here shy away from 3x etf but if anyone knows where I could get some info let me know. I kinda liked the fact that FAS/FAZ were so inexpensive that anyone could afford them. Now it looks like they are going to limit a lot of people.
Thanks in advance.
wv-girl
Hi WV-girl. Yes, I read a reference to this sometime in the past day myself, but since I don't play with it, paid little attention. I googled "FAZ reverse split" and came up with indexuniverse.com article from yesterday confirming the action.
I found this...Quote:
Originally Posted by wv-girl
Direxion To Reverse-Split FAZ/FAS
Pretty good day :)
http://www.tsptalk.com/images/mb/070909.gif
I'm not sure I have ever seen a reputable traded equity vehicle do a 10 to 1 reverse split. Looks funny. I've seen a few dogs (bad stocks) do it, but not one with this volume.
I had no idea this was comming down the pike. I wonder how many folks are getting ripped off because now they can't afford to build their position?Quote:
Originally Posted by etftalk
Maybe they are trying to get rid of all the bottom feeders driving the stock down?
I hear you, but it had to do with saving costs because the penny bid/ask spread represented a higher percentage loss just getting into a $3 or $5 stock.
Now I see, with the 54.33 bid and 54.35 ask, it's just a .02 spread instead of .10 if you had bought 10 shares at $5.43/share.
Thanks everyone for helping out. I wasn't in FAS/FAZ but had been watching it.
Just imagine how much money gets 'stolen' every day from individual investors who play this penny stock.
Computer traders: Buy, dump, buy, dump, buy dump.... all in a matter of .05 seconds.