squark62

A Summertime Short Play with SDS

i agree with jason's short-term bearishness of the market from a different technical perspective. i track SDS & SSO in an ETF only pairs trade. we all know the story with slippage and tracking errors with levered ETFs, but these two suffer so to a much lesser degree - which makes the pair a great barometer. my analysis looks at long-term rates of changes of both ETFs and i calculated the necessary weighting of SDS & SSO to maintain a delta neutral performance which takes slippage into consideration. from here i see the current weights at near yearly extremes, with the bottom in the market thus far on MAR-9 only more extreme by a tad. nominally it takes several months, not a couple, for these weights to flip and go to opposite extremes. so IMHO, this recently rally has reached insane levels. definitely time to take some cover.

Leveraged ETF Ban Spreading Like the Flu

if they ban leveraged ETFs, they should ban individuals from options trading. even more risk there. i think some of these bans are coming down to prop the market up as the gobment starts pulling brokers purse strings. the down-side of taking TARP money and anything else from the gobment. non-profits have known this from years. don't take uncle sams money because uncle sam will start dictating your policy. future noise/actions similar to this are inevitable.

Oh, So Now There Are No Green Shoots?

there's been lots of good comments here already, but i have to side with roger on where the market may be going before it gets better. some analysis i do has indicated the S&P 500 has gotten far more out of balance than where we were at the index lows of 666 this past march relative the top around 950 or so. the time rate at which it will take to get back to equilibrium is unknown. however, there's a very strong likely hood we will overshoot again to the down-side when it comes. that means to me the march lows in the S&P are in jeopardy of being taken out later this year, perhaps around the same time in october as last year.

Exponentially Curb Your Enthusiasm

i agree with your premise & conclusion. generally what you posit is correct. the only thing i can think of at the moment to discount your rational position is that very few people are in control of the market right now. so we're in a golden rule - who has the gold makes the rules - kind of market. these few institutions are sitting a pile of cash given by uncle sam to boost the economy. i'm inclined to be pessimistic and say that instead of making money by using the funds to lend, they are controlling the market to make their gains. who has more many to stop them from doing so? hedge funds? sovereign equity? these institutions know exactly what they are doing.

Replacing Geithner

all the above have some serious good points, particularly 30 vacant (or vacated) treasury position in the lurch. the country does need strong leadership right now in treasury. volker or summers could fill that void. in hindsight, i wonder why that hasn't already happened. there's becoming too much in jeopardy to let this flop around much longer.

The Rally Is at a Crossroads

phenomenal work, chris. the VIX bumped into it's 200 DMA yesterday and recoiled up almost 10%. the S&P slammed into it's 20 DMA and stopped dead. apparently there's an incredible amount of resistance pent up in the markets. if the markets can muster up a strong late day rally today and smash through, there could a HUGH rally on the other side. if not, the bears will claw-back all the gains over the last 2 weeks and some.

Anticipating a Sell-Off

interesting. i had a similar sense in the middle of last week that the market didn't know which way it wanted to so i stayed put. then the sudden run-up on thursday & friday was a bit surprising considering bad economic news over the same period. more evidence the market is still not trading on fundamentals. keep some powder dry cuz this is just a phantom bull.

Is the Bear Market Exhausting Itself?

seriously doubt the bear market is exhausting itself. i agree with moon that the market is still SKUed downward. just when you think all is quite, bad news that gives the market a reason to sell appears and the 24-hour news cycle will go to work on lowering the markets. don't forget, everyone thought bear stearns was THE low 1 year ago.

Leveraged ETFs: Handle with Care

dtrader: dude, i think you're stretching your angst a bit too far and u yourself run the risk of misrepresenting what kevin said. there's nothing fraudulent or nefarious that proshares is passing off. you sound as though proshares is getting away with something anarchistic. it's not like these products just appeared out nowhere. they've been on the MARKET for 2 years now. take a chill pill. you might feel better.


On Mar 23 01:22 PM dtrader wrote:

> Kevin...the ultra 2x and 3x ETFs are at least misleading and at worst
> fraudulent. You are doing a disservice to the public if you allow
> yourself to just buy into their explanation and accept that as being
> ok. As such you are just condoning how Proshares and others mislead
> the public can produce products that are so disingenuous. It you
> or I did did something like this we would be immediately arrested
> . Even your website seeking alpha doesn't get it and as such is
> helping to perpetrate this misrepresentation in the marketplace.
> Here's how Seeking Alpha describes the objective of these ETF's.
>
>
> "What Are They?
>
> Like many traditional index ETFs, leveraged market cap ETFs offer
> a simple way to get exposure to broad US market indexes, in this
> case defined by market cap (small cap, midcap or large cap stocks).
>
> But unlike traditional index ETFs, these ETFs provide double the
> performance of a traditional index. So if the S&P 500 rises by
> 1%, for example, the ProShares Ultra S&P500 ETF (seekingalpha.com/symbo...)
> would rise by 2%.
> Leveraged ETFs are able to do this by using by options and futures
> contracts. Because futures provide leverage (more exposure than the
> actual cash invested), ETFs that use futures contracts have uninvested
> cash, which they usually park in interest-bearing bonds. The interest
> on the bonds is used to cover the expenses of the ETF and to pay
> dividends to the holders."
>
>
> No mention that after one day ProShares and the others say all bets
> are off on 2x and 3x ETF's and that the deviation from the 2x and
> 3x can be as much 40% to 50% within several months. This charade
> shouldn't be allowed to go on with the public unknowingly getting
> into something that will be very costly for them after a short period
> of time.
>
> Kevin you should be going after ProShares and others and not be giving
> them a free pass. If they can actually put out a product that is
> 2x and 3x these indices I love it but as this is it is not and is
> dangerous because it is not what people think it is.
>
> Of course if this is allowed I propose you and I start a 10x ETF
> that tucks away in a disclaimer somewhere this is only valid on Tuesday's
> and Thursdays between 12:00 and 12:15 if there is a full moon.

Triple Leveraged ETFs

the same thing happened with DIG & DUG (the ProShares 2X levered ETFs tracking oil service cos etc) from nov-08 to feb-09. the neutral pair trade is still underwater. don't really understand why either but i've been tracking this pair for over a year now. once this started happening, i liquidated my pairs trade on these two and stuck with SDS-SSO, DXD-DDM, QID-QLD. been doing quite well with these.

Everybody Hates Leveraged ETFs

whiners....whiners...w... a happy medium would be to allow individuals with a certain amount of capital in their accounts to buy leveraged ETFs perhaps even with a required limit down lock on the account. or just require a certain margin ratio between losses & cash in the account. you don't have to be a professional financial planner to know how to use these ETFs. i know many advisers who don't have a clue. many of them don't have a clue about trading options. should options be banned too???

Ruth and Bernie Madoff should remain together, in a jail cell, no matter how much she knew of her husband's swindling, The Ethicist says in a surprising sermon: "All adults should have at least a rough idea of where our food comes from, and our sneakers, and so on."

i agree but that's not the law, ethical or not.

VIX Suggests Changes in Selling Behavior

sicall: interesting comment. it is hard to read what the VIX completely. i might suggest that all the panic sellers left in OCT-NOV 08. now you have a different type of seller - the strategic short seller. they manage their risk better so to place far out of the money puts and calls is not a good calculated risk, especially if an extreme short covering rally is eminent.

Leveraged ETFs: Too Good to Be True?

dear reader, there's been a lot of negative press recently on leveraged ETFs. one reason is because some folks fail to look deeper into the math to discover their usefulness as quantitative hedging tools. therefore take what the nay sayers spout with a grain of salt.

first of all, think about what their saying - they don't work if you buy and hold. that's just about true with anything. the fact that 2X long or short ETFs don't track their index in a linear fashion doesn't mean there is no relationship between the long and short of a particular index - SDS & SSO for example.

second, a real money manager knows - or knows someone - how pair trades work and this is precisely how these ETFs can be used long-term in a portfolio. find someone who understands quantitative analysis and you'll find out how beneficial these ETFs are to the everyday investor/trader.

SDS: A Way to Ensure Peace of Mind

look, the author did say the SDS does not track very well over the long term. he warned the reader of this. so, how is he wrong? "peace of mind" can be found with using SDS and SSO in a delta neutral pair trade. quantitative analysis shows one can precisely arbitrage SDS against the SSO to achieve neutral or slightly positive results in market down turns.


On Feb 22 12:25 PM Aalan wrote:

> Sorry, but this author is completely mistaken. SDS will not provide
> peace of mind, because it does not track the inverse of the S&P
> over a long period of time. In fact, it can produce a loss, even
> when the underlying index goes down, due to leveraged volatility.
> There have been many articles demonstrating this.
>
> I don't know of anything that can produce "peace of mind" in this
> market, but leverage certainly doesn't. And this is supposed to
> compensate for the risk of holding a fund that you expect to decline
> by 30%? Good luck!