Besides a wide spread and the black swan of a complete crash in financials, which I can hedge with an option, what are the caveats for shorting FAZ at 22 with single-stock futures, longer-term, and keep rolling? What happens to a short futures position on FAZ if there is a reverse split? Thanks in advance
You generally shouldnt hold x3 leveraged ETF's for more than a couple days. They are used for day trading, long term investor usually lose money with leveraged ETF's. Used to trade FAZ, i used options.
Correction- You shouldn't hold them LONG for more than a couple of days. All of the ultra leveraged ETF's go to low single digits and then reverse split.
That's only true in times of volatility. You can hold a 3x long ETF for as long as the volatility is low. For example, 2013, if you held FAS through 2013, you would make a 100%+ return.
Nothing happens if there is a split/reverse split. The option becomes adjusted so you aren't affected.
Where would my SSF be marked? If I sold one @ 22 and it fell to 11 and the stock reverse split 3:1 to $33 am I marked at the new price at $22 instead of $11? Is that how it would work? Not talking options here -- SSFs. And my first question still hasn't really been answered. I am just talking SSFs, selling one on the FAZ -- forget the FAS, forget optiions, forget going long, forget the primer on how the work.
The Futures would be adjusted for the reverse split (you would not lose money because of the split) go to the following website for previous adjustments http://www.theocc.com/webapps/infomemos In the search box, enter the symbol (faz) and you will see the adjustments for the previous reverse splits including the SSF's (futures) Best of luck
This isn't low risk and it's very possible you have a large amount of capital tied up for years in order to make a few pennies. Also, how is your broker gong to treat the margin on your position if FAZ moves a large amount against you? Are you going to be delta neutral the whole time? That's not easy to do.