Short FAS/FAZ at same time ?

Recent history shows that shorting FAS/FAZ at the same time might be good trading strategies,

are there any pitfalls in doing these ?

Thanks.

 

You might want to read the following thread

http://www.elitetrader.com/vb/showthread.php?s=&threadid=158529

and in particular page 2:

http://www.elitetrader.com/vb/showthread.php?s=&threadid=158529&perpage=6&pagenumber=2

 

Couldn't you use options to hedge your exposure or would that make this strategy no longer work?

 

When you say "use options", what do you mean exactly?

 

The thread link provided above talks about how there is a possibility that FAZ could increase in price exponentially and cause anyone carrying out this strategy to experience a margin call. Since options are available for FAZ and FAS, one could short both ETFs as the original poster suggested and buy calls for both to cap any downside risk.

 

To clarify, is your proposed strategy the following:

short FAS
short FAZ
long FAS calls
long FAZ calls

As you may be aware, this is the equivalent of the following

synthetic long FAS puts
synthetic long FAZ puts

The strategy will work, as long as your gain on the short positions are enough to pay for the premium paid on the calls.

 

Yes that was the strategy I was referring to.