short short etf + short long etf

Discussion in 'ETFs' started by Sundog, Nov 10, 2012.

  1. Sundog


    A mate is doing short cvol , short xiv, making constant income.

    Ontop of that with the borrowed money he is investing in more safe vehicles. He still has a pile of cash on the account for adverse movements, which he generated with this strategy.

    Any thoughts about that, especially inherent risks, margin call on one leg, etc.

    The whole idea is really tempting, I have charted several etf´s, etc´s etn´s, because of underperformance of one another (roll over costs of derivatives and log scale of the inverse vehicle) this idea looks like a cash cow.
    But I am still hesitant. The German Boerse has hunderds of etc´s , etn´s , bid ask spreads are descent on the etc´s.
    How about borrowing costs for those funds ?

    Any discussion is much appreciated.
  2. cvol = ?
  3. Sundog


  4. UNG + GASZ might work.
  5. Sundog


    Basically the idea is to combine a short or better inverse ETF with the same long one.

    If you buy both as you know, just take any combination, the inverse will underperform.

    The "long term" trend of all inverse products is down anyway, but you will smooth out the curve heavily, ideally to a straight down line! That´s the aim.

    Thus instead of going both long, go both short.
    => Outperfomance with a smooth steady hedged uptrend, now.
    Pairs trading or relative value trading on ETF´s.

    Now the question is what are the inherent risks? Do I oversee sth.
    I have heard borrowing costs can be quite high for those ETF´s.
    The brokers really dislike it. I gonna check the next days.

    CVOL was just an example. Just combine what belongs together.

    There are now so many vehicles tracking VIX. I would take the one which combined has the smoothest downtrend for a steady return.
    Yesterday I have checked two ETC´s on the German Boerse from
    COBA , namely COCOA and the inverse one. Really smooth downtrend, if you combine them. Hedge ratio, if necessary is also a point. By now I suggest an equal dollar(euro) amount per leg. But it really depends on the products.
    Ah, a good example is SPY vs. SDS. Try that one. Since, I live in Europe I prefer European ETF´s.
    Hope, I could help.
  6. Sundog


    UNG + GASZ, not bad at all. Thanx.

    It´s a pity GASZ is still new, my chart history goes back until mid 2011.
  7. ETF’s and ETN’s are excellent arbitrage opportunities. Yes, to the OP, it is a cash cow. However it requires allot of margin, and there are other similar opportunities in ETN’s and ETF’s that make more money without using as high margin. :)
  8. Sundog


    Yes, that´s the point.
    I am also concerned with any kind of margin call as well. Suddenly one leg is open. Not good at all.

    Check out the german boerse. They are really trailblazers in terms of ETC´s.
    Spreads are really low for those products.

    I would set up a whole portfolio with several products, commodities, whatever to diversify a bit.
    What about borrowing costs? As well, how difficult is it to borrow shares ?
    Well, anyway I will find out for myself, but nice to talk about it.
    That´s the whole idea of the thread.
  9. Margin call only should happen on account balance, not position.

    Mike :cool:
    #10     Nov 10, 2012