Comments on: The Riskiest ETFs on Earth – 3X Sector ETF Short/Long

By: Neil Pearson

Neil Pearson — Thu, 03 Nov 2011 18:53:21 +0000

I shorted FAZ and FAS a year ago today and have made 30% on both. I plan to hold them indefinitely unless the brokerage forces me to close them. A month ago, I took the profit from FAS and FAZ and shorted TNA and TZA. One of those has so far lost 7% while the other has gained 25%.

For most of the year, the FAS and FAZ short was losing money but eventually it turned around.

Yes, this strategy can lose money if the market runs but nothing runs forever. Eventually the market has to change direction which will destroy the ETF that is performing well.

By: SCOPELABS

SCOPELABS — Fri, 16 Sep 2011 05:42:04 +0000

@Darwin, WELL FROM maY U COINED $ SHORT BOTH faS AND z NO? LOL

By: Rod

Rod — Sun, 28 Aug 2011 06:52:36 +0000

Hi Darwin,

Thanks for your info.

May I ask what the risk is for options, if you know the longer trend is up, say, for gold.

For example, you lock yourself in with a call option for UGL and just buy and hold.

I am struggling to understand this “daily rebalancing” – is my understanding of this, for example , in 2 months the NASDAQ falls 5% on aggregate. But of course the falls are not linear, like what we saw on Friday, it went up. So, all these ups (if you’re shorting), may add up to be GREATER than the fall of 5% because ETFs are based on DAILY percentage losses and gains.

So the risk of options is that they would just expire worthless?

By: Brain-Sludge trading game for our SOLDIERS!!!

Brain-Sludge trading game for our SOLDIERS!!! — Tue, 26 Apr 2011 16:51:16 +0000

[...] [...]

By: شات

شات — Fri, 15 Apr 2011 21:08:53 +0000

دردشة

By: Ludo

Ludo — Wed, 29 Sep 2010 14:33:17 +0000

I follow the basic tenet of this post, but nothing is quite as certain as it appears, in life. As noted previously, the key issue is one of reversion from the mean and of compounding of either positive or negative returns, to produce most of the times yields that are lower than the corresponding index yield.
One point about the FAZ vs. XLF plot during the period March 2009 onwards. First, the index corresponding to FAZ is the Russell 1000 Financial Services (RGS) Index ($RIFIN.X). Comparing FAZ to XLF is not strictly correct.
The sharp decay during the April and May month corresponds to a sharp drop in volatility – as rightly said – determined by a change in accounting rules (i.e., mark to market vs. mark to fantasy) – a historical, one of a kind event.
Conversely, to a rise in volatility should correspond a higher risk that the underlying index would decrease, with higher expected prices for FAZ. It all depends on the magnitude and intensity of the change in volatility and of the corresponding market drop.
I firmly believe that, should a rise in volatility reoccur, with herding behavior on the selling side of the index, instruments like the FAZ would have a sudden, certainly temporary but however extremely significant upward jolt in price.

The compounding works in two ways – it erodes returns when volatility drops, but it enhances returns when volatility increases – making the current market price relative to volatility attractive.

Nobody can rightfully predict the upward movement should such an event occur, since it is more an issue of mass psychology and herding than anything else. I would however expect that FAZ would move in an exponential fashion (caused by the herding phenomenon) to upwards of several hundreds USD – albeit for the relatively short amount of time of the fear outbreak.

By: Real Estate to Trounce Stocks and Bonds - How to Play It

Real Estate to Trounce Stocks and Bonds - How to Play It — Fri, 16 Apr 2010 02:45:31 +0000

[...] *This ETF delivers triple the daily return of MSCI US REIT index. For a near term trade for purely speculative purposes, this would be your ETF. Note however, that leveraged ETFs are Never, Ever a good “investment” for a buy and hold. Due to the nuances of daily rebalancing (and fees of course), the value of these ETFs decay over time, which is magnified in spectacular fashion for highly volatile sectors such as the current real estate sector performance. For a full visual on how you can lose money on both a long and short leveraged ETF simultaneously regardless of underlying sector performance, see this article on why Leveraged ETFs are Evil. [...]

By: Chrisfs

Chrisfs — Mon, 15 Mar 2010 08:45:16 +0000

Great post. Leveraged ETFs may go up and down and lose money over the long run, but do you know who always makes money on ETFs in every market ?
The companies who offer them!, A little management fee every day, come rain or shine.

By: Biggest Gainer ETFs 1 Year Post Market Bottom

Biggest Gainer ETFs 1 Year Post Market Bottom — Wed, 10 Mar 2010 03:56:09 +0000

[...] I selected several top performing ETFs from various sectors, countries and included leveraged ETFs as well. Note that leveraged ETFs only perform well during a sustained trend like what we saw from the bottoms and over long periods of time with just mild or low volatility, they lose money on both the long and short side due to daily rebalancing decay (explained here in Leveraged ETF Decay) [...]

By: Jean

Jean — Mon, 22 Feb 2010 18:31:28 +0000

Tom – I guess you should have bought some EDC on the 9th instead of channeling your bitterness into rambling sarcasm.