System needs input

For those who question an options strategy with 500% profit/year:

just take a look at what this big firm writes at their website:

"Direxion Daily S&P 500® Bear 3x Shares
The Daily S&P 500® Bear 3x ETF seeks daily investment results, before fees and expenses, of 300% of the inverse (or opposite) of the performance of the S&P 500® Index."
http://www.direxionfunds.com/products/direxion-daily-sp-500-bear-3x-etf

If I'm not misunderstanding their statement, they even talk of 300% per day (!), isn't it?


EDIT:
they even explicitly state it in bold that the 300% is _daily_!

http://www.direxionfunds.com/products/direxion-daily-sp-500-bear-3x-etf
"Overview
This leveraged ETF seeks a return that is -300% the return of its benchmark index for a single day. The pursuit of a daily leveraged investment goals means that the return of the Fund for a period longer than a single day will be the product of the series of daily leveraged returns for each day during the relevant period. The fund should not be expected to provide three times the return of the benchmark’s cumulative return for periods greater than a day.
"

I don't know how this can work...

 

it seems they are making 300% today and lose 300% the next day, ie. averaging to 0% on the long run...
That's gambling, not a strategy.
Their DD is 300%... wtf

 

300percent of the spx return. If spx moves 1percent, they move 3percent.

 

Last time I checked, it was against US option exchange rules to submit automated orders.

Have those rules changed?

 

Which century was it when you last checked it?

 

correct me if i'm wrong but i believe it's still not allowed in this century.

 

No, they finally changed it. There was no way to enforce it anyway. IB kept after them:

Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Proposed Rule Change by the Chicago Board Options Exchange
Relating to the Prohibition Against Electronically Generated and
Communicated Orders, File No. SR-CBOE-00-57
Dear Mr. Katz:
Interactive Brokers LLC (“IB”)1 respectfully submits these comments on the proposed
rule change submitted by the Chicago Board Options Exchange (“CBOE”) imposing yet another
restriction on public customer access to its Retail Automatic Execution System (“RAES”)
system. For the reasons outlined below, the rule should be disapproved.
1 Interactive Brokers LLC is a registered broker-dealer and a member in good standing of all U.S.
option exchanges.
2
* * *
Introduction: Over the objection of a number of commenters, including Interactive
Brokers, the Commission has allowed the options exchanges over the past year to implement
rules under which public customers are prohibited from sending to exchange order routing
systems option orders that have been created and generated electronically without manual
intervention. We have argued that these rules distort the exchange price discovery function,
foster wider spreads, and impair liquidity by preventing public customers from using pricing
programs that might generate faster and more competitive prices than those of the professional
market makers that operate under the exclusive franchises granted them by the exchanges. We
have also argued that these rules are contrary to settled Commission policy in that they interfere
with market efficiency by placing artificial technological restraints on traders. Finally, we have
argued that these rules are impossible for broker-dealers to enforce against their customers and
are so ambiguous as to invite selective prosecution against exchange members whose customers
are sophisticated and able to trade successfully against market makers.
Notwithstanding these problems with the existing rules, the CBOE now seeks to expand
its rule. At the direct behest of one of its Designated Primary Market Makers, the CBOE has
submitted a proposal to expand the reach of the prohibition against electronically generated and
transmitted orders. Under the proposed rule, an order would be “deemed” electronically
generated and communicated for purposes of the Rule even if the order creation and transmission
process involves human intervention – if such intervention can be described as “minimal”. No
standards are provided to describe what the exchange will determine to be “enough” human
intervention to enable an order to be transmitted to the exchange’s order routing system




SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51030; File No. SR-CBOE-2004-91]


Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto by
the Chicago Board Options Exchange, Incorporated To Extend a Pilot
Program and Eliminate the Rule Prohibiting Electronically Generated and
Communicated Orders

January 12, 2005.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given
that on December 29, 2004, the Chicago Board Options Exchange,
Incorporated (``CBOE'' or ``Exchange'') filed with the Securities

[[Page 3405]]

and Exchange Commission (``Commission'') the proposed rule change as
described in Items I and II below, which Items have been prepared by
the Exchange. On January 7, 2005, the Exchange filed Amendment No. 1 to
the proposed rule change.\3\ The Exchange filed the proposal, as
amended, as a ``non-controversial'' proposed rule change pursuant to
Section 19(b)(3)(A)(iii) of the Act \4\ and Rule 19b-4(f)(6)
thereunder.\5\ The Commission is publishing this notice to solicit
comments on the proposed rule change, as amended, from interested
persons.
---------------------------------------------------------------------------

\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Form 19b-4 dated January 7, 2005 (``Amendment No. 1'').
Amendment No. 1 made minor revisions to Item 7 of the proposed rule
change as originally filed.
\4\ 15 U.S.C. 78s(b)(3)(A)(iii).
\5\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

The Exchange proposes to extend the pilot program in CBOE Rule 6.13
relating to market maker access to the Exchange's automatic execution
system and to eliminate CBOE Rule 6.8A prohibiting the electronic
generation and communication of orders.
Below is the text of the proposed rule change. Proposed additions
are italicized; proposed deletions are [bracketed].

Rules of the Chicago Board Options Exchange

* * * * *
Rule 6.8A. [Electronically Generated and Communicated Orders] Reserved

[(a) Members may not enter, nor permit the entry of, orders into
the Exchange's Order Routing System if those orders are created and
communicated electronically without manual input (i.e., order entry
must involve manual input such as entering the terms of an order into
an order-entry screen or manually selecting a displayed order against
which an off-setting order should be sent), and if such orders are
eligible for execution on RAES at the time they are sent. Nothing in
this paragraph, however, prohibits members from electronically
communicating to the Exchange orders manually entered by customers into
front-end communication systems (e.g., Internet gateways, online
networks, etc.). An order is eligible for execution on RAES if:
(1) Its size is equal to or less than the maximum RAES order size
for the particular series;
(2) For public customer orders, the order is marketable or is
tradable pursuant to the RAES auto step-up feature at the time it is
sent; or for broker-dealer orders, the order is otherwise submitted in
accordance with Interpretation .01 of Rule 6.8; and
(3) If the order has either no contingency or has a contingency
that is accepted for execution by the RAES system.
A marketable order is a market order or a limit order where the
specified price to sell is below or at the current bid, or if to buy is
above or at the current offer. An order is tradable pursuant to the
RAES auto step-up feature if the appropriate Floor Procedure Committee
has designated the class as an automatic step-up class and if the
National Best Bid or Offer for the particular series is reflected by
the current best bid or offer in another market by no more than the
step-up amount as defined in Interpretation .02 of Rule 6.8.
(b) The Exchange's Order Routing System ( ``ORS'') is the
Exchange's electronic order routing and delivery system which routes
orders to the Exchange's automatic and electronic execution systems and
to other Exchange systems, such as handheld terminals and trade match
systems. The ORS also delivers electronic fill reports and order status
reports.]