RE: 3X Inverses & M.A.

[dearinfinity]

How relevant are moving averages for these leveraged ETFs? If applicable, what is the most efficient/accurate moving average to use and with what time period when looking at a 2-4 day outcome?

Also, how do the prices of these ETFs change under high volume (like today, for instance)? I am having trouble comprehending how it is that the ETF can maintain its pricing integrity under a flock of heavy buyers or sellers. Is there a lot of institutional arbitrage going on with these instruments?

 

[monty21]

Seeking Alpha has some good articles about leveraged etfs. Google them. Here's one:

http://seekingalpha.com/article/35789-the-case-against-leveraged-etfs

Here's a yahoo one:

http://finance.yahoo.com/news/3-Pitfalls-Of-Leveraged-And-etfguide-14933372.html

Moving averages are irrelevant for 2-4 days of any liquid stock (thanks to the index arbs), so they are even more insignificant in ETFs.

One important dsanger of leveraged ETFS, especially the short ones, is that the downside is greater.

 

[dearinfinity]

Yes-- I've read these articles, and I am aware of the math behind the greater downside risk if held over time. However in a possible downward rally, I see no downside so long as appropriate stop losses are used. That is my question re: the M.A. I'm trying to figure out where to create stop losses on my FAZ/SRS positions. I'm in @ 8.60 and 27 roughly, and I'm looking at stop loss around 10.50 & 30.85, slightly under the 50MA. Just wasn't sure if this was the right tactic. I understand my risk and know what I'm willing to lose, but was wondering if these things behave at all intelligibly with respect to the MA. Thanks

 

[JustSomeGuy]

IMO - do your TA on the actual index then use the 3X's as the vehicle. Personally, I tend not put much weight in the leveraged MA's.