Using options to compensate for 3x ETFs' deficiencies

Discussion in 'ETFs' started by short&naked, Sep 8, 2009.

  1. Is there are option strategy that can be used on let's say TNA to curb the effects of the compounding decay over time?
  2. Depending on your position and your appetite for risk you can sell OTM. FYI there really isnt much you can do to avoid the daily compounding of anything at the 3x level.

    Do you own enough to sell calls against it and if so are you really holding that long?

    EDIT: the reason why I say there really isn't much you can do to avoid the compounding is because the income generated by selling OTM has been (in my experience) never enough to offset the compounding issues. I would be interested to learn your experience if you find something that works.
  3. Thanks, Winston.

    If there isn't a way to use these etfs for anything but intra-day trading, then I really don't know why they exist. You might as well simply use brokerage margin on ES.

    With the recent DXO liquidation it would probably be wise to stay away from these anyway.. they really look like an accident waiting to happen.
  4. DXO was an ETN not an ETF - big difference. an Exchange Traded Note takes into account the credit worthiness of the issuer the same as any note/debt instrument, versus an Exchange Traded Fund, which is a 40 Act mutual fund with intra-day liquidity.

    Bottom line is when they started clamping down on speculation and commodities it was in their best interest to close.

    Check out correlation between VIX and intra day moves on the 3x'es. They are good to hedge overnights, good for a 100% sure swing trade (AKA gamble) and also good for a short-er longer term hold (like a week) (but I'll prob get flamed for saying that). Also note that compounding and price decay is also correlated to the VIX.

    They are very good, liquid instruments but with a purpose which is not buy & hold. If you can sell naked I'd look at selling OTM against some of the top holdings in the underlying versus against the 3x'es - you'll probably have better luck that way.