check out this post and take a look at the attached spreadsheet
http://www.elitetrader.com/vb/showthread.php?s=&postid=2372699#post2372699
Hopefully that will make it easier to understand.
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FAZ/FAS math
- Thread starter privador81
- Start date
check out this post and take a look at the attached spreadsheet
http://www.elitetrader.com/vb/showthread.php?s=&postid=2372699#post2372699
Hopefully that will make it easier to understand.
Quote from winstontj:
check out this post and take a look at the attached spreadsheet
http://www.elitetrader.com/vb/showthread.php?s=&postid=2372699#post2372699
Hopefully that will make it easier to understand.
Thank you! That makes a lot more sense now. So you people are considering a strategy to simply short both, banking off the sideways price decay? Seems like a pretty solid bet--but how long are you considering holding these positions? In your post you cited they were held last trading day for an average of 2 and a half hours. To take advantage of these decays would you have to be in weeks in this kind of market, or could you bank off a 2 or 3 day swing?
Quote from dearinfinity:
Thank you! That makes a lot more sense now. So you people are considering a strategy to simply short both, banking off the sideways price decay? Seems like a pretty solid bet--but how long are you considering holding these positions? In your post you cited they were held last trading day for an average of 2 and a half hours. To take advantage of these decays would you have to be in weeks in this kind of market, or could you bank off a 2 or 3 day swing?
I'm not really in a position to reccomend any type of strategy - but you can easily look at Proshares 2x ETFs and Direxion 3x ETFs and get a feel for how they move/decay over time - Pro has been around for years and we just launched back in November/December with the 3x'ers so even Google/Yahoo finance will give you an idea of how fast they move from $60/pair to what they are now.
FAS/FAZ are a special case IMO because the financials have been so volitile over the last few months - still though, they are at max short last I heard so someone is making $$$ by shorting the pair from inception.
Good luck!
I don't think it's a great bet now with both of these as low as they are... a large directional move by either would cost you substantially more than you would gain from the other's decreasing price.
Quote from dearinfinity:
Thank you! That makes a lot more sense now. So you people are considering a strategy to simply short both, banking off the sideways price decay? Seems like a pretty solid bet--but how long are you considering holding these positions? In your post you cited they were held last trading day for an average of 2 and a half hours. To take advantage of these decays would you have to be in weeks in this kind of market, or could you bank off a 2 or 3 day swing?
Quote from Trader666:
I don't think it's a great bet now with both of these as low as they are... a large directional move by either would cost you substantially more than you would gain from the other's decreasing price.
Your statement is based on share price not on percentage move or market exposure. If you invest $50k into FAS and $50k into FAZ and the RIFN goes up 3.33% then FAS will go up ~10% and FAZ will go down 10% - you'll have equal exposure on both sides regardless of share price. Yes $50k will buy you more shares of FAS than FAZ but that does not matter as long as you have equal exposure to the long & short side... follow?
We were talking about shorting both to capture the decay from compounding. And as I said... a large directional move by either could cost you substantially more than you would gain from the other's decreasing price.
Let's use your example and short $50K of each:
FAS 6.45 = 7752 shares
FAZ 17.3 = 2890 shares
The most you can theoretically make from either side is $50K but the most you can lose from the other is theoretically unlimited. Let's say FAZ goes to 380 (unlikely but possible).
2890 x $380 = $1,098,200
So even with your gain in FAS you're still out about $1 million.... not that anyone who has the money to let it go that far would do so, but that's what I was talking about.
Let's use your example and short $50K of each:
FAS 6.45 = 7752 shares
FAZ 17.3 = 2890 shares
The most you can theoretically make from either side is $50K but the most you can lose from the other is theoretically unlimited. Let's say FAZ goes to 380 (unlikely but possible).
2890 x $380 = $1,098,200
So even with your gain in FAS you're still out about $1 million.... not that anyone who has the money to let it go that far would do so, but that's what I was talking about.
Quote from winstontj:
Your statement is based on share price not on percentage move or market exposure. If you invest $50k into FAS and $50k into FAZ and the RIFN goes up 3.33% then FAS will go up ~10% and FAZ will go down 10% - you'll have equal exposure on both sides regardless of share price. Yes $50k will buy you more shares of FAS than FAZ but that does not matter as long as you have equal exposure to the long & short side... follow?
Quote from Trader666:
We were talking about shorting both to capture the decay from compounding. And as I said... a large directional move by either could cost you substantially more than you would gain from the other's decreasing price.
Let's use your example and short $50K of each:
FAS 6.45 = 7752 shares
FAZ 17.3 = 2890 shares
The most you can theoretically make from either side is $50K but the most you can lose from the other is theoretically unlimited. Let's say FAZ goes to 380 (unlikely but possible).
2890 x $380 = $1,098,200
So even with your gain in FAS you're still out about $1 million.... not that anyone who has the money to let it go that far would do so, but that's what I was talking about.
666 you should have used your example the other way around - FAZ going to $380 from $17.30 is a ~2100% increase, the RIFN would have to be down ~700% to make that happen - which simply isnt' possible. #1 the market would most probably be limit down and halt trading and #2 it's not possible to lose more than 100%
a "crash up" is a realistic consideration where the sector/index could move up close to 30% in a day leaving the bear fund down at close to $0 and the bull fund up close to 100% - keep in mind that this has never happened but it's a remote possibility, therefore you should read the prospectus and understand the movement limits as outlined in the prospectus.
Anyone who shorts should know that there is unlimited loss potential and limited earnings potential.
winstontj, maybe you should stick to what you know, which is parroting info from the prospectus.
Who's talking about a one day trade? We were talking about shorting FAS and FAZ to capture decay from compounding. How much decay from compounding is a retail trader going to capture in one day after slippage, spreads and commissions, prospectus boy?
You can lose bigtime on either side and you're also wrong about FAZ -- it certainly is possible for it to go to 380... a sustained and steady decline in the index is all that's needed. Again, I'm not talking about one day.
Apparently you didn't know until a few posts ago where I pointed it out to you that shorts have unlimited loss potential which might be why you've been saying one side balances the other out.
Who's talking about a one day trade? We were talking about shorting FAS and FAZ to capture decay from compounding. How much decay from compounding is a retail trader going to capture in one day after slippage, spreads and commissions, prospectus boy?
You can lose bigtime on either side and you're also wrong about FAZ -- it certainly is possible for it to go to 380... a sustained and steady decline in the index is all that's needed. Again, I'm not talking about one day.
Apparently you didn't know until a few posts ago where I pointed it out to you that shorts have unlimited loss potential which might be why you've been saying one side balances the other out.
Quote from winstontj:
666 you should have used your example the other way around - FAZ going to $380 from $17.30 is a ~2100% increase, the RIFN would have to be down ~700% to make that happen - which simply isnt' possible. #1 the market would most probably be limit down and halt trading and #2 it's not possible to lose more than 100%
a "crash up" is a realistic consideration where the sector/index could move up close to 30% in a day leaving the bear fund down at close to $0 and the bull fund up close to 100% - keep in mind that this has never happened but it's a remote possibility, therefore you should read the prospectus and understand the movement limits as outlined in the prospectus.
Anyone who shorts should know that there is unlimited loss potential and limited earnings potential.
666 do you realize that every thread you are in turns to name calling and immature behavior on your part?
if someone is foolish enough to hold a $50k position until it's $1mm in the hole then they deserve what they get.
you posts are absolute horse sh*t. why don't you come up with something worthwhile to contribute to the community rather than babbling on about situations that are as realistic as dragons and unicorns
if someone is foolish enough to hold a $50k position until it's $1mm in the hole then they deserve what they get.
you posts are absolute horse sh*t. why don't you come up with something worthwhile to contribute to the community rather than babbling on about situations that are as realistic as dragons and unicorns
Oh please... how immature is it for you to pretend you're an expert in things where you don't know your ass from your elbow?
Listen up prospectus boy... based on your posts dearinfinity (and God knows who else) got the impression that shorting both FAS and FAZ "seems like a pretty solid bet." I pointed out why it was not and out of ignorance you incorrectly argued that one side would cancel the other out. So my example was extreme to show the stupidity of your "logic." How about if FAZ only goes to $100? Then your stupid strategy is down about $200K. Is that a unicorn too?
You obviously don't trade these and you've admitted that but you've also said you work for an ETF company. So maybe you shouldn't pretend to be an expert in areas beyond your expertise.
YOUR posts are "absolute horse sh*t" and if you want proof, just print them out (especially the ones about shorting FAS and FAZ) and run them by your compliance department. Just make sure you have a cardboard box handy for cleaning out your desk.
Listen up prospectus boy... based on your posts dearinfinity (and God knows who else) got the impression that shorting both FAS and FAZ "seems like a pretty solid bet." I pointed out why it was not and out of ignorance you incorrectly argued that one side would cancel the other out. So my example was extreme to show the stupidity of your "logic." How about if FAZ only goes to $100? Then your stupid strategy is down about $200K. Is that a unicorn too?
You obviously don't trade these and you've admitted that but you've also said you work for an ETF company. So maybe you shouldn't pretend to be an expert in areas beyond your expertise.
YOUR posts are "absolute horse sh*t" and if you want proof, just print them out (especially the ones about shorting FAS and FAZ) and run them by your compliance department. Just make sure you have a cardboard box handy for cleaning out your desk.
Quote from winstontj:
if someone is foolish enough to hold a $50k position until it's $1mm in the hole then they deserve what they get.