FAZ/FAS math

Discussion in 'ETFs' started by privador81, Mar 24, 2009.

  1. "a)Is it shorting both easy money?
    Whats the catch?"

    How much would you have enjoyed being short FAZ when it tripled in a month (38 to 115, 2/09/09 to 3/06/09)?
  2. m22au


    What if, in a really really bad situation, FAZ goes not just from 38 to 115, but all the way to 230? or 380?

    Essentially a strategy of twin-shorting FAS and FAZ requires you to assume that you have enough of a cushion to withstand a huge rally in either ETF, especially FAZ.

    However the moment that the cushion is exhausted, is when you're stuck in a margin call - just when it could be a good opportunity to short FAZ.
  3. I challange you to try to short either for a period of time. its hard as hell to borrow faz to short many times so what are the odds your short doesn't get called in. How about it gets called in during one of those huge runs from $38-$115 and you have to cover with a huge loss.
  4. The better strategy is to go LONG both. :p

    Do the calculations, it works out if financials run on way or another. It is basically like an options strategy.
  5. By nature leveraged ETFs and leveraged Mutual Funds have issues with Daily Compounding and therefore experience price decay. The ideal way to short is to short the pair at the same NAV/price and with the same exposure/dollar amount on either side. This way, assuming that performance and tracking are equal you would have your free lunch.

    Most of these ETFs are at "max short" meaning that every available share is currently shorted and there are no shares to borrow. Additionally, most/many firms do not allow you to short because of the leverage, volitility and because shorting the short gets you around margin rules/requirements (short the short and use proceeds to buy long, etc.).

    Hope that makes sense - good luck
  6. What if, in a really really bad situation, FAZ goes not just from 38 to 115, but all the way to 230? or 380

    lets say i want to short fas and faz for 10k$ i have money 200k$
    How big is possibility that faz raises 10x?
    Is it +EV?
  7. m22au


    what is +EV?

  8. m22au


    The other assumption is that you have sufficient funds available for those times when one of the two ETFs (generally the 'short' one) rises by a lot. For example, FAZ in late November and again in early March.

  9. There is no real, upper limit to a stock value, yes resistance but not true limit.

    Just keep in mind as others have said already using numbers, there is some safety in trading only on the long side. You can only loose what you gambled. On the long side, a stock can only fall to $0.

    Betting on the short side of the market, you can loose exponentially more money.
    #10     Mar 25, 2009