Long term shorting leveraged ETF's

Discussion in 'ETFs' started by drukes1234, Aug 18, 2010.

  1. Long term these 2x and 3x leveraged ETF's will trend downwards simply because of re-balancing. My question is simply this, obviously using stops in case the market really tanks in a given day/week/month, what is the downside of holding a LONG TERM short position in these 2x and 3x leveraged ETF's? It seems to be like it's similar to shorting pinks and otcbb's.
  2. Really? 60 views and no one can answer this?
  3. Everyone already knew this when the leverages etfs came out. So for the most part, the intraday price action already prices it in, the options especially. Yes it will still work, but with the new leverage accounting with regard to leveraged etfs there's better use of your capitol and you are at risk to any games the etf might play when they decided to split or want back shares. But yes it will work, just short an equal dollar amount of equivalent long and short funds.
  4. Corey


    Good luck finding shares to short. That is the real issue with the strategy.
  5. IB almost always has locates.
  6. exaltedangel09

    exaltedangel09 Guest

    ^ Yea you can short high-volume ETFs on IB.
    The strategy works until it doesn't right? Your maximum win is 100% but your maximum loss is infinite.

    Remember if you shorted FAZ/FAS in march, you would of been wiped out 6x since FAZ went to perform -99% but FAS did +600%
  7. Would you mind giving more information on those percentages? Based on my cursory review, on March 1st FAS was at $25.27 and FAZ was at $17.48; as of August today (about noon-time) FAS is at $19.22 and FAZ is at $15.83. During this interim (from March til now), the sum aggregate of FAS & FAZ went from about $43 to about $47, but now is about $35. Therefore, shorting FAS & FAZ from March to now would have been profitable, based on these results.

    The BIG CHALLENGE is having the opportunity to remain short on these etfs continuously from March to now, as it is highly likely that the shorts would have been called in at somepoint before you're profitable...


  8. If you trade retail you will be called out of your shorts at the worst possible time - that is an almost certanty.

    Also, the strategy REQUIRES rebalancing of your shorts - so its a bit of work - and if you can't get additional shares to short then you aren't hedged...
  9. Actually what I have been doing with these kinds of ETFs is doing shorter term trades using longer distance put selling, especially after a strong market movement and/or increased VIX

    For example on 5/20, with FAS having dropped from ~28 to ~23, I sold 13 strike(!) Jan 11 puts for $317 each. These puts had inflated values due to the quick drop and VIX spike.

    Market calmed down a bit and with FAS in the same price range as when I sold, I bought the puts back for $193 - gain of $120 per put.

    I did the same thing more recently in the other direction - selling FAZ puts and then when the market fell over the last few days I bought them back.

    Not a guarantee to work of course, but there are some good points:
    1. They are ETFs - so at least you don't have 1 company risk, even though they are leveraged.
    2. They have plenty of strikes and volume. This makes them easy to roll if need be.

  10. atifmhmad


    i am Atef from egypt
    please I want to understand you about Robert Pretcher Analysis for dji In his book- How to Call the Market Using the Elliot Wave Principle
    about Fibonacci ratios In this image
    How fifth wave is equal to .618 of (wave 1 + wave 3)
    As is shown in the picture with the fifth wave price equal 8893 , while the first wave and the third their length both equal 995 point
    8.9 times of w1+w3
    Tell me if I'm wrong
    and If I was wrong, how Pretcher calculated it?
    Thank you
    With my best regards
    #10     Aug 19, 2010