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Posted by econometrics on 03-09-10 12:28 AM:
Fas Faz?
I am new to ETFs.
I am wondering if anyone has tried buying/selling FAS/FAZ in pairs?
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Econometrics
Posted by tommintj on 03-10-10 01:01 AM:
FAS and FAZ are inverse of each other. If you pair them meaning one long and the other short you are on the same side of the market ....that is unhedged and double exposed to movement on a 3x ETF....yipes!
Posted by noisebasement on 03-12-10 04:31 PM:
short both equally> ? and time decay makes you money?
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Posted by bat1 on 03-16-10 02:25 AM:
FAZ will be zero soon
it does not work!
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Posted by WinstonTJ on 03-31-10 12:57 AM:
Quote from bat1:
FAZ will be zero soon
it does not work!
It is not possible for it to ever reach zero. It will approach, but it can never reach zero.
Posted by Bolimomo on 03-31-10 03:23 AM:
Quote from noisebasement:
short both equally> ? and time decay makes you money?
FAS was at $12 during the March low 2009. (Reverse-split adjusted) It is at 800% a little over a year.
Did I miss something? Do they charge you something for holding it overnight? - because the theory of shorting equal amount of FAS and FAZ and hold long term does not seem to make money. Because FAZ may have dropped to only 12% of its value from March 2009, the max is that you will double your money on that leg. But on the FAS leg, you will be losing 700%?
I haven't done any extensive research on it. I think my thought is perhaps it would work only if you happen to adopt the strategy at a particular time. But won't work if you happen to start do this part trade from time X to time Y. e.g. it may work beautifully if you started to short both in middle of 2008 and hold til March 2009. If you start from March 2009 til now you will lose big? So perhaps it is not a strategy that will work universally at any time.
I have never held any FAZ/FAS overnight. What I just don't know is if they will charge you something other than the price. (Meaning like dividends... if you short a stock over the exdividend date your account will be debitted the dividend amount.)
It seems... that perhaps if the market is in a range-bound cycle, then this strategy may work because both ETFs lose money to the time decay. We have nothing but a one-way market (up) since March 2009. One leg way overpower another (like a fiddler crab), that's where the divergence caused problems.
Posted by stevenpaul on 03-31-10 09:43 AM:
Quote from bat1:
FAZ will be zero soon
it does not work!
I might point out that people were saying that a year ago, and it's still not 0, despite the huge run-up in the market. Direxion will simply do another reverse split, a breast augmentation of sorts, and new dupes will step up to the plate and start buying again. This thing is best for shorting, whereby the current market trend and the tendency for statistical decay are both working in the trader's favor.
Posted by ScalperJoe on 04-02-10 08:01 PM:
"SHORT THE SHORT!"
Both FAZ and SKF were at one point great shorts. SKF was the double-inverse of the financials long, and FAZ was the triple-inverse. Both these ETF's have a volatility premium, which means they will erode in value due to time decay, similar to an option.
In fact, the big brokers such as Fidelity and Schwab sent out warning letters recently to advise their clients that these were very aggressive ETF's and only suited for daytrading, not holding overnight. Fidelity now won't even let you buy these if you don't have at least an "aggressive" profile when you set up your account, and you must sign additional risk disclosures.
Jin Cramer at one point on his show about a year back said the SEC shouldn't even allow these ETF's to exist. Pete Najarian on Fast Money last March said to "short the short" by shorting the SKF. That would have been nice, as the SKF was over $200, and has lost almost 90% of its value. Another guest also said "get long" FAS around the same time, and that went from $3 up to about $14 before doing a 5 for 1 reverse split.
I agree with the post that "FAZ will not go to zero". They will do another reverse split, and get people to trade it because it does huge volume and makes millions of dollars in commissions for the brokers. So it's "buyer beware" and don't get suckered by these types of ETF's.
However, one point is certain, when the market DOES reverse, which at some point it will, the inverse ETF's will once again rally, where the volatility premium will work in the trader's favor. That's the ONLY time to buy them long to hold overnight. So keep watching FAZ, SKF, SDS and QID. Every dog has its day, and even these "dogs" will run up when the market tanks...
Posted by chuckybrown70 on 04-07-10 10:01 AM:
i have been shorting both since january... i am up. if u want to discuss PM me, but please be someone who has an idea of what is going on. i would love to discuss the strategy with an advanced trader.
Posted by WinstonTJ on 04-07-10 01:33 PM:
Quote from chuckybrown70:
i have been shorting both since january... i am up. if u want to discuss PM me, but please be someone who has an idea of what is going on. i would love to discuss the strategy with an advanced trader.
Who is your broker? Do you pay a daily rate to keep short?
Posted by chuckybrown70 on 04-07-10 05:26 PM:
interactive brokers and yes. its about 5%. paid $87 last month.
Posted by Jerkstore on 04-13-10 10:10 PM:
Quote from chuckybrown70:
interactive brokers and yes. its about 5%. paid $87 last month.
Stock loan is one of the most profitable aspects of any major clearing firm. Since few clients really understand this cost, the clearing firms have been raping and pillaging investors for years.
Are you familiar with single stock futures traded at OneChicago? It is a great idea, that is being held up by most major clearing firms. (IB is one of the good ones, BTW.)
Go to this link:http://www.onechicago.com/?page_id=1289
Then scroll down to the product you would like to evaluate. The front month "efp bid" rate should be somewhere in the neighborhood of your short stock carry rate, and the front month "efp offer" rate should be close to your long stock rate. If your broker's short rate is consistently and significantly lower than the "efp bid" rate, then you know they are screwing you.
(There used to be an easier way to find the implied rates of the market bid and offer prices, so I apologize if the above is not as user friendly as I would like.)
The aren't very liquid and most clearing firms do not allow their customers to trade them, though IB is an exception. These products allow you to keep the delta risk of your stock while eliminating the need to borrow stock from your firm at a negative rate.
It is probably only a good idea for the most knowledgable traders to use these highly illiquid products BUT anyone can go to the website to check on stock implied carrying rates. This should allow you to check your clearing firm's carrying costs. (It just so happens that the stock loan department of any major clearing firm is a $ multi billion business. It is my opinion that these profits are pure theft from the unknowing traders with stock positions.)
Posted by Haroki on 04-14-10 06:48 PM:
Had to post this for the LULZ....
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