3x levered ETF's

S

seauouch

Looking at FAZ ( 3x bear ) & FAS ( 3x bull ) in particular. Can these ETF's be shorted? If you shorted both since these funds started trading ( this Nov )you would be up close to 40%. These funds need the market to go in one direction only to do well over time, the more the market trends the more they lose over time.

Also looking at UVG & SKF seem to give the same results..

jan08 today
UVG $40.00 $6.11
SFK $ $100.00 $117.00

Seems like a way to free $$$...I must be missing something here.
 
Quote from seauouch:

Looking at FAZ ( 3x bear ) & FAS ( 3x bull ) in particular. Can these ETF's be shorted? If you shorted both since these funds started trading ( this Nov )you would be up close to 40%. These funds need the market to go in one direction only to do well over time, the more the market trends the more they lose over time.

Also looking at UVG & SKF seem to give the same results..

jan08 today
UVG $40.00 $6.11
SFK $ $100.00 $117.00

Seems like a way to free $$$...I must be missing something here.
More...

Hi,

It seems that there is additional counter party default risk when it comes to leveraged ETFs due to the use of Credit Swaps. I would like to know myself exactly how risky these ETFs are.

If they happen to diverge a bit from their target indexes, that is something I can live with. However, if there is a chance of them blowing up, I might as well trade mid/small-cap stocks.

Could somebody please elaborate?
 
I have heard this in many forums that over the longer term if traded in market conditions such as the ones we are in now that these highly leveraged ETFs do lose value over time as you can see, its has alot to do with how they trade, with the significant moves we have seen over the last 12 months these etfs dont really set out what they are suppose to do.


Here is an example I found:

Imagine you bought both at their 52 week highs: As of 12/4/08, DIA's high was $137.90, and DDM's was $96.29. Recent price in this example is as of market close on Wednesday 12/3/08.

DIA
Bought: $137.90
Recent: $86.04
Down: 37.6%
Required gain to get to even: 60.27%

DDM
Bought: $96.29
Recent: $30.84
Down: 67.97%
Required gain to get to even: 212.22%

If the DIA gets back to $137.90 a share, DDM will be somewhere under $66 a share, still down some $30. While the Dow has to gain 60.27% from Wednesday's close for DIA to get back to its 52 week high, DDM won't get back to even until the Dow goes up around 106%!
 
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