Trading system can't short SKF/FAZ/SRS - need ideas on alternative symbols to trade

Discussion in 'ETFs' started by OptionsOops, Mar 12, 2009.

  1. I wrote an automated trading system, and have been trading it live for about 6 months. It works significantly better on the 2x and now 3x ETFs, more than 2x or 3x better than the underlying. The problem is my broker, IB, has no shares of the ETFs I trade available to short this week, so after losing lots of money last week, I`m sitting here in frustrating watching what would have been an extremely good couple of days go by.

    Does anyone have any ideas on alternative symbols to trade? It seems everyone is short the double shorts right now.

    Is anyone using a broker that has shares available to short?

    I rewrote the system to trade options on the XLF, but 70 cent commissions and 2 cent bid/ask spread on a less than $1 option did not make for a good combination when it reversed positions too many times. The bid/ask spread on the 2x ETF options is 5-20%.

    I tried buying puts on the 2x ETF and having the system buy/sell stock for a synthetic call as needed to avoid having to reverse positions on the options, but as the ETF moved 10% the delta changed on the puts and I realized this was going to be more complicated than I thought.
     
  2. I'm sorry if I don't understand something or am missing part of your question, but why not just go long the Ultras and Bulls:

    UYG - 2X Financials
    FAS - 3X Financials
    URE - Ultra 2X Real Estate

    I checked and SKF was down 17.4% today and UYG was up 18%, so it seems to do at least as well as shorting the SKF.

    JJacksET4
     
  3. I ruled out the Ultra Long ETFs because last time I looked they were around a dollar, where per share commissions and spreads ruin things, but FAS is above $5 today, so if I change the system to go long FAS instead of short FAZ it should work until FAZ is shortable again, thanks!
     
  4. really frustrated too. I tried several times to short SRS, and SKF, want to hold them for a period of time, with time decaying, those things will be zero easily.

    so I bought WFC, BAC.... that may work better than shorting those sure short the short. since those things will go up up and no ceiling. the negative side of short the short is you need pay interest. but when you buy things, you do not need pay interest.
     
  5. Double leverage can be simulated by buying the stock on margin.
     
  6. I close out my trades at the end of the day, but if I wanted to hold for a few days to a few weeks, shorting a double short ETF is something I would look at due to how they under perform on a longer term basis. I would definitely not go long an ultra long ETF for too long, IYSWIM.
     
  7. Sell a deep ITM call in the front month or buy a deep ITM put and using deltas as close to .95 - 1.00as possible you are now "short" the stock. MIght have some bid/ask issue but look and see how wide those spreads are.

    There are always more ways than one to skin a cat....
     
  8. That was the problem I ran into, plus you needed a lot of them for the low dollar stocks, which racks up the commissions, and cancellation fees if you try to haggle with the market maker. And funnily enough the market maker isn't as willing to meet you in the middle 60 seconds before the closing bell ;)
     
  9. I have this exact same problem too. I trade SKF all day. Ideally I would like to trade it short and long. I am a scalper. I like to ride on momentum swings. My trades have very short time span. But in the past few sessions: no shorts available. It is ironic that when SKF was at 269 a few days ago, I could short all I want. But now at 136, no shorts available. Wouldn't people want to short it while it is at a higher price?

    My brokerage firm said this is a street-wide problem. Shortage everywhere. SKF... too popular now that everybody and his mother knows about it.

    There really is no good substitute. To work around it:

    1) Trade put options on SKF.
    2) Long FAS or UYG. I did some calculations and they do match fairly closely percentage-wise. The only drawback is FAS and UYG are both low-price. You need to trade many shares of them to get the same effect as 1 share of SKF. e.g. UYG: if I trade 1000 shares of SKF, I would need to buy 50000 shares of UYG to get the equivalent effect. The liquidity may not be a problem buying/selling 50000. But with a penny spread, if you change your mind and want to get out immediately, it costs you $500 (spread) to get out. That's my hesitation in trading UYG.
    3) Trade the good-old SPY. You don't get the kind of bang for your buck, but... (maybe 1/4).
    4) Trade the e-mini S&P. Lots of them. With margin 100:1, it is viable.
     
  10. Bolimomo, chances are we`ve exchanged a few shares ;) I just added support for relative orders to my system and that seemed to work well with the 5-20 cent spreads on SKF, I`ll be interested to see if I get any quick fills on the low dollar ETFs using a relative offset of 0, the rebate for adding liquidity would pay for the commissions.
     
    #10     Mar 13, 2009