FAS vs FAZ

The leveraged ETF owners/managers "readjust" the price daily. Think of it as a fee you must pay for the leverage. They must have extra expenses connected with all the swaps and futures, etc., needed to obtain the leverage...and they probably skim some of the cream off for themselves too.

Quote from Quickless:

Still trying to get my head around FAS/FAZ

I looked at the follow data

12/13 FAS 58.34 FAZ 42.52 Russell 696.09
1/18 77.17 30.89 766.49

The FAS has gone up 32.27% The FAZ has gone down 27.35 % The Russell has gone up 10.11%

Would have expected FAS up 30.33% and FAZ down 30.33%?

Is this the slippage you guys are playing?

Would you expect in a down market for the FAZ to go up by more than the FAS would go down?
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Quote from Quickless:

I am clueless when it comes to ETF's. Would appreciate some help.

I understand the basic difference in FAS vs. FAZ, however why would one buy one vs the other?

Who primarily buys these instruments? Are they used to hedge large financial stock positions?

I looked at the holdings of FAS. Most of the portfolio is in cash instruments. How are they replicating a 3X? There is something about rebalancing each day but I don't follow the mechanics of this.

If you were going to do options on either FAS vs FAZ is there a difference in the market for options on either of these instruments, i.e., if you were going to play options which would you do?

I am new to these markets. The about has probably been explained somewhere a thousand times.
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1.) Buying FAZ allows people with cash accounts (read: idiot TD Ameritrade investing "experts" who's faces are the easiest to get) to short the market
2.) I don't think options on these ETF's and ETN's are very popular... most of them don't even have much volume
3.) Because of point #1, volume often dries up on these securities, much like a lake having all of the fish caught...
4.) Just go to future contracts for more intraday leverage...

Some institutional traders will buy or short them to hedge their portfolio to a market neutral position. Doug Kass at Seabreeze Partners often goes long/short the Russel 2000.

There are plenty of un-worthwhile articles out their bashing leveraged ETF's. All you really have to remember, short of reading the prospectus, is that you cannot hold *any* of these tickers overnight. If you do, you will surely get burned, because the underwriters readjust the price every single night. They're intraday only. Also know that ETN's are as good as the underwriter's credit, and that they generally don't quite follow the market or their emulated counterparts perfectly.
 
would anyone know when the "decay" actually happens,
is deducted from the leveraged ETF's price?

after the markets close?
on the next days opening print?
after market open?
etc

it may be hard to know, exactly,
unless you are someone involved in running a leveraged ETF.

marc
 
Quote from marcoPolo21:

would anyone know when the "decay" actually happens,
is deducted from the leveraged ETF's price?

after the markets close?
on the next days opening print?
after market open?
etc

it may be hard to know, exactly,
unless you are someone involved in running a leveraged ETF.

marc
More...

At least with respect to certain products, between the time the market closes and the time the market opens there is a gap in trading hours. In that gap is where the decay appears, and more obvious on the open in the morning pre-market session. Because swaps are virtually guarantees of returns, the regular decay you would notice in options is not present because these aren't options. Even the swaptions underlying the leveraged ETF's will behave in the same way and predictably almost in lock stop with the movement of the market between trading hours because they know exactly how much the fund's worth and will exploit every last penny of inefficiency if it is possible to do so through HFT.
 
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