Skf

Quote from 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?
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No. Try for yourself overlaying the UYG/SKF or
URE/SRS or any other set of Long/Short leveraged ETFs. You will see that both sides of the trade trail off into losses.:(
 
Quote from NERVESASTEEL:

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.
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Where did you copy/paste this from. I've read this somewhere.
 
Only when the market action is sideways and choppy. When it's directional the gains in the direction of the trend will exceed the other ETF's losses.
Quote from NERVESASTEEL:

No. Try for yourself overlaying the UYG/SKF or
URE/SRS or any other set of Long/Short leveraged ETFs. You will see that both sides of the trade trail off into losses.:(
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If things continue as they have and they reinstate the uptick rule, adjust mark to market, etc., SKF could easily grind down much lower.
Quote from retire45:

I take that back.. Should read "Strong technical support at 100 until broken"
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Well thanks for your opinions guys, just glad I didn't put much into this trade. Could you elaborate how the mark to market will affect SKF?
 
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???:(
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"If you bought the SKF (went 2x short the financials) at the September 2008 XLF price high at $24, and prices in the XLF have now fallen to $11 per share, take a look at your SKF position that you bought about $100 per share. You were 100% correct in your assessment that the Financial Sector was going to fall hard - and it did. However, as of today, you’re only back to break-even after a 60% fall in the XLF.

This is one of the serious pitfalls of leveraged ETFs - the rise is great, but the fall is worse than most people expect or can tolerate. Among other reasons, this effect occurs due to the way percentages are reflected in price over time."

http://blog.afraidtotrade.com/
 
Quote from Landis82:

"If you bought the SKF (went 2x short the financials) at the September 2008 XLF price high at $24, and prices in the XLF have now fallen to $11 per share, take a look at your SKF position that you bought about $100 per share. You were 100% correct in your assessment that the Financial Sector was going to fall hard - and it did. However, as of today, you’re only back to break-even after a 60% fall in the XLF.

This is one of the serious pitfalls of leveraged ETFs - the rise is great, but the fall is worse than most people expect or can tolerate. Among other reasons, this effect occurs due to the way percentages are reflected in price over time."

http://blog.afraidtotrade.com/
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Exactly! "the rise is great, but the fall is worse" This is why I gave up cocaine!!!:eek:
 
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