Discussion in 'ETFs' started by Quickless, Jan 13, 2012.

  1. I am clueless when it comes to ETF's. Would appreciate some help.

    I understand the basic difference in FAS vs. FAZ, however why would one buy one vs the other?

    Who primarily buys these instruments? Are they used to hedge large financial stock positions?

    I looked at the holdings of FAS. Most of the portfolio is in cash instruments. How are they replicating a 3X? There is something about rebalancing each day but I don't follow the mechanics of this.

    If you were going to do options on either FAS vs FAZ is there a difference in the market for options on either of these instruments, i.e., if you were going to play options which would you do?

    I am new to these markets. The about has probably been explained somewhere a thousand times.
  2. FAS and FAZ use daily swaps as their underlying instrument and create a return at a target they've used investor capital to get from someone to underwrite the swaps that in turn underly those instruments.

    You sell/sellshort overvalued and buy/buytocover the undervalued.

    Pairs Strategies are what you have to use when investing in these instruments, and if you're new, do not even think about touching them until you've worked through some financial modelling. Without that research you will lose and it's as simple as that.

    A well known attribute of triple leveraged instruments is that they are both guaranteed mathematically to negatively compound and eventually approach 0. Every time, and that's why you should stay away from them unless you know that they're doing that and you also know what you're doing after devising a well-thought out strategy to trade them.

    They try to explain if the index moves up 1% and down 1% exactly, you will still be down on your position, and this should be emphasized much more than it is when they just ask you to acknowledge you are aware of this before you trade.
  3. "Well known" but completely wrong.
  4. Yeah, right, Rodney. Shows what you know.

    I guarantee all leveraged instruments will decline by 90% in the next 10 years, then you're going to say I'm wrong still...whatever.

    This is the only instrument out there that you can short both the leveraged long and inverse counterpart and be guaranteed a profit, but that's the only way you should ever plan to hold them is by going short both.

    It's guaranteed, but probably takes an infrequently queasy and strong stomach.

    I've traded QID and QLD since March 2007, and they both drewdown 90% and that's only a 2x, the 3's are much faster than that.
  5. Any given levered ETF could decline by 90%, but could also go to infinity. It all depends on how the markets behave. Why that's the case, I'll leave as an exercise for the reader.
  6. I'm much smarter than you, Rodney, and I don't have to find a creative way to say that.

    I've built the best pairs system in the world, and unless you use those model types, you will fail trading those instruments, and you will fall flat on your face, and you will prove after some humility that I was right.

    The question is not whether they compound negatively to zero, we know they do. The question is whether you can trade them profitably without a pairs strategy, and the answer is no.
  7. Fair enough. I surely can't compare to a product of Danville, KY's finest educational institutions.

    The one listed on covestor.com? :confused:
  8. Yes, that one. The one that made 8.45% for investors for the full year last year.
  9. bwolinsky:

    any tips on Rebalancing, shorting a leveraged ETF pair?
    I'm experimenting with a pair, but the rebalancing seems tricky

    and my borrow rate is close to 6%!

  10. I like to use them for market reversals and short term intraday runs. When one is red, the other is green...
    #10     Jan 18, 2012