FAZ has been a great ETF to own puts on. After I made the stupid mistake of trying to bottom fish SRS, puts on FAZ saved the day and my P&L. It seems based on some arguments, that FAZ could eventually end up trading sub $10, unless there is a nasty and sustained reversal in the markets.
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The Rise of Tripled Leveraged ETF's
- Thread starter marketsurfer
- Start date
Quote from WinstonTJ:
I did not know that SEC max is 4x leverage, is that for an individual investor? I'd like to see the specific rule because many prop firms offer 4x margin but then those traders could go out and buy a 3x ETF.
. [/B]
It is under REG T and margin rules. the FED reserve board actually set the margin rules for a retail trader.
props firms can use more leverage as they have their traders/ the firm register with an exchange and are listed as "professional traders" Some prop firms call it leverage or just simply BP.
Hi,
Does anybody here use "Short" ETFs for hedging a long term portfolio?
For example, you buy $10k worth of BGZ for every 100k in your longterm trend following portfolio, and you are still effectively maintaining a bullish bias of about 77%.
And you wouldn't have to pay interest on the leveraged short because its effectively like buying and holding a single stock.
Has anybody considered this?
Any thoughts on such a strategy? Any obvious flaws?
Thanks.
Nizar.
Does anybody here use "Short" ETFs for hedging a long term portfolio?
For example, you buy $10k worth of BGZ for every 100k in your longterm trend following portfolio, and you are still effectively maintaining a bullish bias of about 77%.
And you wouldn't have to pay interest on the leveraged short because its effectively like buying and holding a single stock.
Has anybody considered this?
Any thoughts on such a strategy? Any obvious flaws?
Thanks.
Nizar.
Quote from WinstonTJ:
its really 3x... (minus fees & expenses in the small print).
I did not know that SEC max is 4x leverage, is that for an individual investor? I'd like to see the specific rule because many prop firms offer 4x margin but then those traders could go out and buy a 3x ETF.
I don't use margin in my account because I don't day trade for a living but I'm pretty sure E*Trade would let me use my margin to purchase 3x etfs, perhaps though, only up to 4x... not sure.
Also - if you can short these ETFs, and then (with paying interest) use the proceeds to buy something else, you can essentially be 9x (or higher) if you short the short and buy the long, or vice versa. Perhaps this is only a hedge fund tactic though as I have not seen any individual actually do this.
margin rules for 3x are changing by dec.1. this game is over.
Quote from thetrendfollowe:
Hi,
Does anybody here use "Short" ETFs for hedging a long term portfolio?
For example, you buy $10k worth of BGZ for every 100k in your longterm trend following portfolio, and you are still effectively maintaining a bullish bias of about 77%.
And you wouldn't have to pay interest on the leveraged short because its effectively like buying and holding a single stock.
Has anybody considered this?
Any thoughts on such a strategy? Any obvious flaws?
Thanks.
Nizar.
Ok lets give an example.
A 100k portfolio starts right at the market top.
Investor A.
100k longterm trend following.
Investor B.
90k longterm trend following, 10k on BGZ.
The longterm trend following component goes into a 40% drawdown as the market crashes. Lets say the market crashed 50%
Investor A is down to $60k.
Investor B; LTTF component is down to $54k (90k less 40%) BUT his ETF is suddenly worth $25k (up 150%).
Total portfolio value stands at:
Investor A has $60k
Investor B has $54k + 25k = $79k.
So at this stage max.DD for Investor B is actually 21% as opposed to 40%.
Let's see what happens in the recovery.
Let's say that during this initial recovery period the LTTF system is up 30% and the market recovered by 50%.
Investor A: $60K + 30% = $78k.
Investor B: $54k + 30% = $70k.
Thats just his LTTF component.
His BGZ gets ABSOLUTELY punished and is now worth only $4k (from $25k) down 83.33%.
So the conclusion;
Investor A: $78k.
Investor B: $74k.
So while the hedge does (obviously) limits the upside, it does so disproportionately to the limited risk.
Seems a goer.
The next question is, when, or how often, do you rebalance the portfolio to reflect the 90/10 split?
Quote from thetrendfollowe:
Seems a goer.
I'm not sure what a "goer" is, but if it means BAD IDEA, then I agree.
How is that a trend following strategy? If it was, then the long positions would be sold off and replaced with short positions when the market turned down. Then, when the market turns up, the shorts are replaced with longs.
That scenario sounds like buy-and-hold to me, and leveraged ETFs are losers for buy-and-hold.
Quote from user X:
I'm not sure what a "goer" is, but if it means BAD IDEA, then I agree.
How is that a trend following strategy? If it was, then the long positions would be sold off and replaced with short positions when the market turned down. Then, when the market turns up, the shorts are replaced with longs.
That scenario sounds like buy-and-hold to me, and leveraged ETFs are losers for buy-and-hold.
Funny guy.
You have misunderstood me.
90% of the system will be in a long-only Long term trend following system on stocks, where you buy breakouts, let winners run, cut losers short. Very profitable. Only problem is severe drawdowns.
What Im proposing is to put 10% of the capital into an inverse 3x ETF to hedge against crashes/corrections.
I didn't mention shorting at all.
Any one with mathematical mind wouldn't hold them overnight. The daily tracking is ultimate sucker for overnight holders. If you can't daytrade; please stay away. If you can, then make sure to return it to issuer by market close.
Mathematically anyone shorting both side of 3X Etfs are always winner. Sadly retail investor are always on other side. This is a legal scam.
Mathematically anyone shorting both side of 3X Etfs are always winner. Sadly retail investor are always on other side. This is a legal scam.