Long term, is there any reason to hold a 2X or 3X ETF, long or short? Let's say, no. So given that (with a few exceptions) it's not a good idea to hold them long term, because of the leveraged negative compounding on down days, why not just short them long term, and let them dissolve. Caveats?
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Negative Leverage trap question
- Thread starter nravo
- Start date
Quote from nravo:
Long term, is there any reason to hold a 2X or 3X ETF, long or short? Let's say, no. So given that (with a few exceptions) it's not a good idea to hold them long term, because of the leveraged negative compounding on down days, why not just short them long term, and let them dissolve. Caveats?
It is not possible to predict a longterm bear position with reliability. Bear markets tend to be short, aggressive and unpredictable.
Many times, when people try to take a short position after a large downward move, they end up losing money as the market snaps back.
Longterm bulls, yes the market over the decades generally goes up.
Truthfully, the market is not really predictable more than a few hours or a day or two out. No one knows where it will be in 3 months or a year. People confuse their opinions with knowing more than the market does. When they are right, they blow their horn. When they are wrong, they clam up.
Quote from TraderZones:
It is not possible to predict a longterm bear position with reliability. Bear markets tend to be short, aggressive and unpredictable.
Many times, when people try to take a short position after a large downward move, they end up losing money as the market snaps back.
Longterm bulls, yes the market over the decades generally goes up.
Truthfully, the market is not really predictable more than a few hours or a day or two out. No one knows where it will be in 3 months or a year. People confuse their opinions with knowing more than the market does. When they are right, they blow their horn. When they are wrong, they clam up.
Wasn't really what I asked ...
Quote from nravo:
Long term, is there any reason to hold a 2X or 3X ETF, long or short? Let's say, no. So given that (with a few exceptions) it's not a good idea to hold them long term, because of the leveraged negative compounding on down days, why not just short them long term, and let them dissolve. Caveats?
nravo - YES!!! you are on to something - the answer is to short the pair because over time, daily compounding causes the NAV price to decay. You will see a much more rapid decay price with the 3x than in the 2x, but its still there. By shorting the pair, you can offset your margin call with gains from the opposite pair.
Right now I have heard that all the 3x shares are max short - meaning you'll have a hard time finding shares to borrow because others have already caught on to this strategy.
Quote from winstontj:
nravo - YES!!! you are on to something - the answer is to short the pair because over time, daily compounding causes the NAV price to decay. You will see a much more rapid decay price with the 3x than in the 2x, but its still there. By shorting the pair, you can offset your margin call with gains from the opposite pair.
Right now I have heard that all the 3x shares are max short - meaning you'll have a hard time finding shares to borrow because others have already caught on to this strategy.
Figures. I did some 2X stuff today. Dipped my toe in. We'll see what happens.
Hedgies got a name for this type of trade? Is it a spread trade? Market Neutral? Arb or some sort?
Quote from winstontj:
nravo - YES!!! you are on to something - the answer is to short the pair because over time, daily compounding causes the NAV price to decay. You will see a much more rapid decay price with the 3x than in the 2x, but its still there. By shorting the pair, you can offset your margin call with gains from the opposite pair.
Right now I have heard that all the 3x shares are max short - meaning you'll have a hard time finding shares to borrow because others have already caught on to this strategy.
IB had FAZ available today.
FAS is the long part. Both FAS & FAZ had a price of $60 at inception back on election day (they launched that week/day). If you had shorted both at $60 you would be up ~$40 on FAS and even/slight loss on FAZ.
Nice to see that IB had shares. They may get snatched up but you never know. I don't know if the shares outstanding is a public thing or not...
Nice to see that IB had shares. They may get snatched up but you never know. I don't know if the shares outstanding is a public thing or not...