Shorting FAZ reality check and a question

[Kirribilli]

Besides a wide spread and the black swan of a complete crash in financials, which I can hedge with an option, what are the caveats for shorting FAZ at 22 with single-stock futures, longer-term, and keep rolling?

What happens to a short futures position on FAZ if there is a reverse split?

Thanks in advance

 

[TexasTeaTrader]

You generally shouldnt hold x3 leveraged ETF's for more than a couple days.
They are used for day trading, long term investor usually lose money with leveraged ETF's.

Used to trade FAZ, i used options.

 

[Clubber Lang]

You generally shouldnt hold x3 leveraged ETF's for more than a couple days.

Correction- You shouldn't hold them LONG for more than a couple of days.

All of the ultra leveraged ETF's go to low single digits and then reverse split.

 

[Kirribilli]

Hence my original questions. Sigh.

 

[badnewsbear]

Correction- You shouldn't hold them LONG for more than a couple of days.

All of the ultra leveraged ETF's go to low single digits and then reverse split.

That's only true in times of volatility. You can hold a 3x long ETF for as long as the volatility is low. For example, 2013, if you held FAS through 2013, you would make a 100%+ return.

 

[badnewsbear]

Hence my original questions. Sigh.

Nothing happens if there is a split/reverse split. The option becomes adjusted so you aren't affected.

 

[Kirribilli]

Where would my SSF be marked? If I sold one @ 22 and it fell to 11 and the stock reverse split 3:1 to $33 am I marked at the new price at $22 instead of $11? Is that how it would work? Not talking options here -- SSFs.

And my first question still hasn't really been answered. I am just talking SSFs, selling one on the FAZ -- forget the FAS, forget optiions, forget going long, forget the primer on how the work.

 

[mskl]

The Futures would be adjusted for the reverse split (you would not lose money because of the split)

go to the following website for previous adjustments

http://www.theocc.com/webapps/infomemos

In the search box, enter the symbol (faz)

and you will see the adjustments for the previous reverse splits including the SSF's (futures)

Best of luck

 

[actionzip54]

This isn't low risk and it's very possible you have a large amount of capital tied up for years in order to make a few pennies. Also, how is your broker gong to treat the margin on your position if FAZ moves a large amount against you? Are you going to be delta neutral the whole time? That's not easy to do.