Negative Leverage trap question
- Thread starter nravo
- Start date
hey you don't owe me anything
just be careful because its one thing to short the pair at an even NAV/price but now at different prices a 1% move means a different $ amount on either side. If the market goes down 5% FAZ is up 15% on a $60 NAV while FAS goes down 15% on a $10 NAV - i'm not trying to reccomend this - just do all the math to make sure that you are weighted evenly on both sides of the pair...Quote from winstontj:
hey you don't owe me anything
I hear you. Btw, know off hand if there are options on these with any decent liquidity?
You might want to look at the UYG/SKF pair of funds to see how these things move long term. SKF has not eroded over time, it started out at $60 and hasn't been near that in quite some time.
I'm not saying this can't be profitable, it just might not be as much as a no-brainer as it seems when some of these ETFs start spiking.
I'm not saying this can't be profitable, it just might not be as much as a no-brainer as it seems when some of these ETFs start spiking.
Agreed, it's not a no brainer. But there does seem to be a bias to the downside on these animals, even the bull ones, that can in many cases be exploited with a decent probability of success over time. I bet some finance academic types are already modeling this and working on papers about it. And in a year or two, we'll see papers about the great ETF rip-off.
(And yes, I know the offerers say these are not intended for long-term positions. but people are basically idiots, especially most people in the market, and they are just exploiting that stupidity. The American Way.)
nravo - i agree. They to tend to "decay" or lose value due to compounding. If you had shorted FAS/FAZ as a pair at $60 which was their NAV at inception (back on election day in November) you would be up $60/pair on that short.
We know what these things are - unfortunatley you can't educate everyone but there is demand for cheap leverage out there.
In my opinion, the biggest problem is "performance chasers". I wish that we did not publish any performance data because what happens is people see up 60% YTD and get in right before a huge sell off, etc. They are intended for short term investments, hedges, etc. - even holding overnight is a huge risk.