Registered: Sep 2008
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.