Skf

[NERVESASTEEL]

These are purely day trading instruments! Looking at the technicals for these products over any period of time more than a day is pointless.

Read:
http://seekingalpha.com/article/31195-leveraged-etfs-a-value-destruction-trap

 

[NY0BScalper]

You can trade SKF off a chart alone and it respect levels. I've even played it directly off the LII and made money. It doesn't trade quite like a stock but I don't feel sorry for longs at 100 who didn't get out on the break when it had worked so many times before.

SKF being an inverse basket of stocks with a 2 times multiplier does not exclude it from charting.

I will say the jiggles in SKF can be painful but that is to be expected and anticipated in the trading plan.

 

[monty21]

Quote from retire45:

Strong technical support at 100.

WRONG! Hope it didn't cost you $.

 

[monty21]

Quote from Eleanor:

Do you think it's a coincidence that SKF bounced at 100 even? Are you certain you know which is horse and which is cart here?

WRONG! Hope it didn't cost you $.

 

[NERVESASTEEL]

Quote from NY0BScalper:

You can trade SKF off a chart alone and it respect levels. I've even played it directly off the LII and made money. It doesn't trade quite like a stock but I don't feel sorry for longs at 100 who didn't get out on the break when it had worked so many times before.

SKF being an inverse basket of stocks with a 2 times multiplier does not exclude it from charting.

I will say the jiggles in SKF can be painful but that is to be expected and anticipated in the trading plan.

Over the past 6 months the XLF is down 12%, but the SKF is down 53.78%. How can a double short of the a financial index be down so much more than the long???

 

[monty21]

Quote from NERVESASTEEL:

Over the past 6 months the XLF is down 12%, but the SKF is down 53.78%. How can a double short of the a financial index be down so much more than the long???

Their made up of mostly the same financial stocks but with different weights/volumes... and the way ETF instruments are designed they require a lot of options hedging which is why there is no perfect correlation (similarly how 2x leveraged ETFs are not exactly 2 times of the underlying instrument).

Also...

XLF= Spiders
SKF= Proshares

Different companies obviously have different mechanisms to price these Etfs

 

[Drock409]

Do the math...is the DAILY % gain

these products are meant for DAYTRADING STRICTLY

anyone longterm investing in them is a sucker unless he shorts them on very large overextensions

 

[Trader666]

Unless you make a spreadsheet and simulate thousands if not millions of price paths for SKF based on the movement of its underlying (Dow Jones U.S. Financials index) so you really understand how it moves and why, I wouldn't recommend trading it long term.

For example... did you know that if the underlying closes at exactly 150 in x days from now, SKF's price will depend on the path the underlying took to get there... and that different paths to 150 will result in different prices for SKF?

I've done a lot of research on SKF and have found one high probability & high payoff pattern that definitely isn't going long at perceived support.

I'm not suggesting that anyone close their SKF or FAZ longs but I consider them high risk/low payoff.

 

[NERVESASTEEL]

Quote from monty21:

Their made up of mostly the same financial stocks but with different weights/volumes... and the way ETF instruments are designed they require a lot of options hedging which is why there is no perfect correlation (similarly how 2x leveraged ETFs are not exactly 2 times of the underlying instrument).

Also...

XLF= Spiders
SKF= Proshares

Different companies obviously have different mechanisms to price these Etfs

Okay, let’s be a little more specific about how a leveraged ETF works. In order to deliver the 2x results that the fund’s investors expect, fund management has to hold equal proportions of debt and equity at all times.

In other words, if there’s $100m invested in the fund, it has to borrow an additional $100m and make a $200m investment in the underlying index. That’s the only way that the fund can provide 2x the underlying daily return of the index.
Of course the fund doesn’t go to the local bank and borrow money every day and then invest it. It uses financial derivatives, such as swaps, options, and futures. But the overall effect is the same.

However, every day the market moves and the assets in the fund either increase or decrease in value, throwing off the leverage ratio because total assets are no longer equal to total debt. By the end of the market day, the fund’s leverage is either too high, or too low, and some kind of corrective action is required to bring it back to 2x.

In order to maintain the target leverage ratio, our fund has to buy or sell millions of dollars worth of shares every day. Not only does this increase expenses, transaction costs, and short-term capital gains taxes, but it’s also just a bad investment strategy.
Whenever the market makes a big move downward, the fund sells shares and reduces its debt level in order to maintain its target leverage ratio. This locks in losses and reduces the afund’s sset base, making it much harder to recover gains in the next market upturn.

Note that this situation is called the Constant Leverage Trap and is a well-known problem in financial modeling. Investment portfolios that try to maintain constant levels of leverage over time perform very poorly in bad market conditions because they sell off large percentages of their assets. It’s similar to a margin maintenance call.

 

[sirgiyan]

Thanks for the info but here is my question:
What if fund holds ETF in both directions... does it help to solve the margin problem?