You are using an out of date browser. It may not display this or other websites correctly.
You should upgrade or use an alternative browser.
You should upgrade or use an alternative browser.
FAZ/FAS math
- Thread starter privador81
- Start date
Quote from privador81:
What if, in a really really bad situation, FAZ goes not just from 38 to 115, but all the way to 230? or 380
lets say i want to short fas and faz for 10k$ i have money 200k$
How big is possibility that faz raises 10x?
Is it +EV?
as m22au asked - what is +EV???
you are getting into the game too late IMO. look at the opening NAV/Price which was $60 back on election day in November. If you had shorted both then at $60 it would be a totally different ball game - now it works just the same though, if FAZ goes up 50% you go from $10k to $15k (you would be out about $5k) but when FAS goes down 50% then you go from $10k to $5k and you are in the money $5k so you are fine - the math is very simple the key is that you need to short equal dollar amounts not equal number of shares, etc.
Problem is that most of these are already at max short (or more) and there are no shares to short or most firms don't allow shorting. Why not use options which inherently have price decay?
Just curious as to why you would use NAV instead of the current price at the time of the trade?
thanks
Tony O
thanks
Tony O
Quote from winstontj:
By nature leveraged ETFs and leveraged Mutual Funds have issues with Daily Compounding and therefore experience price decay. The ideal way to short is to short the pair at the same NAV/price and with the same exposure/dollar amount on either side. This way, assuming that performance and tracking are equal you would have your free lunch.
Most of these ETFs are at "max short" meaning that every available share is currently shorted and there are no shares to borrow. Additionally, most/many firms do not allow you to short because of the leverage, volitility and because shorting the short gets you around margin rules/requirements (short the short and use proceeds to buy long, etc.).
Hope that makes sense - good luck
If you need to ask this you have no business doing the trade.
Simulate it on a spreadsheet and you'll have a quantitative answer as opposed to the imaginary crap floating in people's heads.
Simulate it on a spreadsheet and you'll have a quantitative answer as opposed to the imaginary crap floating in people's heads.
Quote from privador81:
http://www.google.com/finance?chdnp...pto=NYSE:FAS&cmptzos=-18000&q=NYSE:FAZ&ntsp=0
In graph-both FAZ and FAS has fallen
And theoretically they shold be go to zero.
a)Is it shorting both easy money?
Whats the catch?
Or there are no free lunch?
b)When both FAZ and FAS are closing to zero,are they both discarded and deleted from etf-s?
I've done this via simulation on several websites and as part of my desktop trading software. The main problem for me was already mentioned, you need a rather large reserve to be able to handle the rather large swings to either side and to avoid a margin call when you can least afford one.
again, can someone tell me why use NAV instead of trade price?
-Tony O
again, can someone tell me why use NAV instead of trade price?
-Tony O
Quote from Trader666:
If you need to ask this you have no business doing the trade.
Simulate it on a spreadsheet and you'll have a quantitative answer as opposed to the imaginary crap floating in people's heads.
Tony,
It doesn't really matter - the NAV and price will nearly always be less than 3% different to each other.
If they weren't, someone would create / redeem for a risk-free profit.
http://www.direxionshares.com/etf/fbu_3x_shares.html?daily;funds=fas
eg. recent close at 6.86 was 10 cents (less than 2%) below the NAV of 6.96.
It doesn't really matter - the NAV and price will nearly always be less than 3% different to each other.
If they weren't, someone would create / redeem for a risk-free profit.
http://www.direxionshares.com/etf/fbu_3x_shares.html?daily;funds=fas
eg. recent close at 6.86 was 10 cents (less than 2%) below the NAV of 6.96.
Quote from Tony O:
I've done this via simulation on several websites and as part of my desktop trading software. The main problem for me was already mentioned, you need a rather large reserve to be able to handle the rather large swings to either side and to avoid a margin call when you can least afford one.
again, can someone tell me why use NAV instead of trade price?
-Tony O
Quote from privador81:
What if, in a really really bad situation, FAZ goes not just from 38 to 115, but all the way to 230? or 380
How is that possible?
The FAZ is based on swaps of the Russell 1000 Financial Services index.
If you plot the index and FAZ on top of one another you can see the bottom in the index made on 1/20/09 was near the 11/21/08 bottom while the equivalent high in the FAZ was about 50% of the earlier high.
Since Russell only reconstitutes their indexes once a year it seems likely that there's going to be some upper limit to the FAZ as the index continues to drop in value.
IMHO, anyway...
FAZ could easily go to 380. All it would take is a steady, sustained decline in the Russell 1000 Financial Services Index. Do the math, it's simple...not rocket science.
Quote from jprad:
How is that possible?
The FAZ is based on swaps of the Russell 1000 Financial Services index.
If you plot the index and FAZ on top of one another you can see the bottom in the index made on 1/20/09 was near the 11/21/08 bottom while the equivalent high in the FAZ was about 50% of the earlier high.
Since Russell only reconstitutes their indexes once a year it seems likely that there's going to be some upper limit to the FAZ as the index continues to drop in value.
IMHO, anyway...