hey you don't owe me anything just be careful because its one thing to short the pair at an even NAV/price but now at different prices a 1% move means a different $ amount on either side. If the market goes down 5% FAZ is up 15% on a $60 NAV while FAS goes down 15% on a $10 NAV - i'm not trying to reccomend this - just do all the math to make sure that you are weighted evenly on both sides of the pair...
Options are getting there - there are plenty of options on the 2x ETFs but 3x will take some time. I assume that the higher volume 3x ETFs will be a better bet.
You might want to look at the UYG/SKF pair of funds to see how these things move long term. SKF has not eroded over time, it started out at $60 and hasn't been near that in quite some time. I'm not saying this can't be profitable, it just might not be as much as a no-brainer as it seems when some of these ETFs start spiking.
Agreed, it's not a no brainer. But there does seem to be a bias to the downside on these animals, even the bull ones, that can in many cases be exploited with a decent probability of success over time. I bet some finance academic types are already modeling this and working on papers about it. And in a year or two, we'll see papers about the great ETF rip-off. (And yes, I know the offerers say these are not intended for long-term positions. but people are basically idiots, especially most people in the market, and they are just exploiting that stupidity. The American Way.)
nravo - i agree. They to tend to "decay" or lose value due to compounding. If you had shorted FAS/FAZ as a pair at $60 which was their NAV at inception (back on election day in November) you would be up $60/pair on that short. We know what these things are - unfortunatley you can't educate everyone but there is demand for cheap leverage out there. In my opinion, the biggest problem is "performance chasers". I wish that we did not publish any performance data because what happens is people see up 60% YTD and get in right before a huge sell off, etc. They are intended for short term investments, hedges, etc. - even holding overnight is a huge risk.
I wonder if there is a consistent play by simply shorting MOC, if that is possible, and then buying back on the pricing the next day, or something like that, simply exploiting the overnight repricings, forgetting the intra-day.
I've simulated this and you have a good chance of making a small profit, a fair chance of making a larger profit and a small chance of losing a lot. Also, balancing both sides so you start with roughly the same $ amounts will reduce your risk and increase potential profit.