squark62

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???

Understanding Triple Leveraged ETFs

neutral (nearly so anyway) performance is one strategy i use with my model, going 50%-50% in both is not neutral with these ETFs. the real neutral point is constantly moving. the model finds the optimum pair weighting balance and from there i keep track of where and how fast neutral is moving. using this set of information i implement another strategy and amplify the weight of the ETF that is gaining and attenuate the other weighting. when conditions in the model change, i re-balance the other way. i would not be able to do this if i didn't know where neutral was, which way it's moving and how fast. when i'm not sure, i re-weight to neutral for a while. typical re-balancing is done by adding shares, not selling. if you look at a chart of the performance, the contributions of SDS (short) and SSO (long) looks like a motor commutator signal or a superimposed sine-cosine wave pattern. sounds very complicated but implementation of the technique is very easy and effective. that's what counts.

-cheers


On Apr 08 03:48 PM Ron Rowland wrote:

> "...pairing a long & short position that track the same index
> is a prime case..."
>
> Wouldn't it be easier and cheaper to sit in cash than do what you
> are suggesting? Or take a smaller position of just one if you are
> equally weighting the two?

Understanding Triple Leveraged ETFs

FAZ & FAS are extremely broken levered ETFs relative to ProShares index trackers such as SDS & SSO. arbitrage is attainable with these instruments & w/o shorting or trading options. the good thing about these ETFs is they can be traded in retirement accounts. the concept of re-balancing on a daily basis is hideous, too expensive. there are methods to attain delta neutral performance, high beta performance and in between using a concept from the engineering world that requires much less re-balancing and offers greater returns. pairing a long & short position that track the same index is a prime case for using methods in classical mechanics to optimize weights and when to re-balance. i maintain a service for individual investors doing just this.


On Apr 08 01:51 PM Drew Arnold wrote:

> If they both lose money, why not short both of them and collect some
> arbitrage profits?

Leveraged ETF Performance YTD

#1 etfexpert:

1) you've made a lot of incorrect assumptions. first of all the, the data i have initially post on my website is to illustrate results in adverse market conditions. my analysis goes back over 18 months.

2) in this market if you can find a place to be neutral, your way ahead of the game. yes, profits are generated by letting the pair drift at various times. picture a ladder. as long as you know how many steps you've made from ground, you know your not just hanging in the breeze.

3) the subscription service is a data service targeted at individual investors who don't have access to this type of information. i'm an individual investor who figured out how to use this technique and i'm offering to others because nobody else is. are you?

4) the clarus guys are investment advisers which i am not. nor am i a certified financial analyst. so i don't manage other peoples money. that's how i put myself out there and have nothing to hide. plus to benefit from the services at clarus apparently their minimum investment is out of reach for the retail investor.

5) i never claimed i'm the only one to develop such a technique. i figured others have to, but nobody is making their knowledge accessible. i think they're afraid to because they don't have confidence in what their doing anyway.

you can take it or leave it.


On Mar 20 02:31 PM #1 etfexpert wrote:

> squark62, you contradict yourself in the incessant posts you've made
> on this topic and it almost reads like a form response that you copy
> and paste over and over. when you rebalance your positions you might
> be neutral, but by letting your positions drift from thier weightings,
> you are taking a directional bet. you are missing the point of the
> actual phenomenon that's taking place, and ultimately the trade you've
> put on, caused by the degenerative nature of the leverage built into
> these instruments. by shorting the leveraged pair you capitalize
> on the volatility that is otherwise working against you if you were
> long these etf's. The longer you leave the pair unbalanced, the more
> the "math" works in your favor. That's why on the long side you can't
> hold these for any extended period of time. Additionally, you're
> collecting theta in the form of the fund's management fees. And if
> you're doing it right, you should be profitable in either a downward
> or upward trending market, regardless of if there is any mean reversion
> and provided the volatility in the pairs is at a certain threshold.
> The only purpose of rebalancing is to prevent large drawdowns and
> since you aren't rebalancing every day it is wrong for you to say
> that you are market neutral. You are not.
>
> it's almost as if you're trying to intimidate people with your presumed
> sophisticated mathematical application for a profitable trade here.
> First, the trade you've put on is not novel by any stretch of the
> imagination. There are more than a few that are employing a similar
> strategy profitably, myself being one of them. and unless you are
> just paper trading, then you've inevitably run into the issue of
> being able to borrow both sides of each pair in size.
>
> additionally, you've posted that you're going to start a newsletter
> subscription service to your strategy for a nominal fee? your track
> record starts in October of '08. Who's going to buy into such a short
> history? and if this is such a lucrative strategy, shouldn't you
> be trying to attract some real money to manage like the guys at Clarus?
> i'm sure it would be a lot more fruitful than plastering the same
> messages on SA over and over touting the amount of money you are
> making in this trade.
>
> and applying hysteresis to decribe the nonlinear characteristics
> of the returns exhibited by these etfs? you have got to be joking...
>
>

Leveraged ETFs: Is Tracking Error Really So Troublesome?

well marc, you sure stirred up hornets nest. as i've pointed out many times, pairing up long & short ETFs that specifically follow the same index (directly or inversely) is an excellent what to establish a hedge. the hedge can be correlated, non-correlated or neutral. it's up to the trader. weighted properly, using this type of method of hedging you effectively create your own asset class. this enables investors who manage their own ira to hedge since options trading is not allowed in retirement accounts, but holding these ETFs are. interested? checkout www.equityinformatics.com

Leveraged ETF Performance YTD

during volatile periods of time, the advantage to my model is the ability to remain neutral through re-balancing. as a result conditions occur when the pair is weighted in favor of market direction and gains are made with no further re-balancing. the re balancing technique is not too different from covered call or put options. the arbitrage is based on moving averages so re-balancing need only occur once or twice a week.

also, the re-weighting model i developed is based on a non-linear optimization involving calculus of variations. the math is very similar to deriving equations of motion of systems of particles. the model involves solving for minimums as in Fermat's law of least change. from there the math offshoots into the nature of geodesics and wave mechanics. sounds too wild to believe? math and results don't lie.

cheers!


On Mar 17 05:06 PM Ron Rowland wrote:

> squark,
> I disagree with your statement that you...
>
> "can keep your hedge on the +side for extended periods of time. i
> keep pointing this out time and time again."
>
> You rebalance your positions every day. Therefore you are changing
> your positions every day. Therefore this is not "long term". What
> you are describing is actually an endless series of one-day trades.
>
>
> Just look at the relative strength of SDS vs SSO, it is not a straight
> line.

Leveraged ETF Performance YTD

the math doesn't have to work against you if you what to hold leveraged ETFs as a hedge for long periods of time. infact, a optimally balanced index pair trade of a 2X long (e.g. SSO) and a 2X short e.g. SSO) can keep your hedge on the +side for extended periods of time. i keep pointing this out time and time again. check out www.equityinformatics.com/ for some background.



On Mar 17 09:32 AM AndrewBaker wrote:

> I hope that with all the comment over time about leveraged ETF, people,
> at least those on this site, do know that they are for day and short
> term trading only because of the way the math works. If you've got
> a long term trend you want to work, buy the 1x tracker for that index,
> sector, commodity, whatever.

Taking Advantage of Leveraged ETFs with a Risky Arbitrage Strategy

all trader39's example illustrates is if you buy x # of shares of BGU and BGZ and ETFs hold them and do nothing else, you will loose money in the long run. this is not what the article advocates. the options trader readjusts buy buying further out of the money calls at a discount and sells in the money puts for a premium.

an alternative to trading options for an arbitrage risk/reward is to re-balance the pairs trade to compensate for the non-linear tracking errors (i.e. slippage) by quantitatively readjusting the weights of the ETFs. this requires a little more math than h.s. algebra. with patience and a steady hand, holding the leveraged ETFs longterm is no longer a liability but like a coiled up spring ready to release potential energy. follow the web link to learn more.

On Mar 11 03:23 AM trader39 wrote:

> OK I've thought about this a lot in the last day or so, some things
> to consider regarding this arbitrage strategy.
>
> 1. Many of these ETFs have distributions, a lot were fairly large
> and paid out in December, this is not reflected in the graphs shown
> above
>
> 2. This statement is misleading: For example, suppose BGU goes up
> 10%. BGZ should fall 10%. You've neither gained nor lost anything.
>
>
> here is the explanation, suppose you open up a short etf pair position
> in BGU/BGZ and they are both trading at $100. after a 10% movement
> you have $110 in BGU and $90 in BGZ, no problem you say. But then
> on day 2, suppose BGU goes up ANOTHER 10%. now BGU is up to $121
> but BGZ only goes down to $81. Your short position is now at a $2
> loss. any time BGU goes up more, you will lose more money, you need
> a reversal to take advantage of the "slippage"
>
> It seems that this strategy is only valid if it is certain that significant
> reversals will occur in these funds. (Like Augustus mentioned "lots
> of wiggles" are good) In general it appears that in the long term
> with any reasonable momentum either up or down will kill this strategy.
>
>
> Conclusion: the term "risky arbitrage" is an oxymoron

Taking Advantage of Leveraged ETFs with a Risky Arbitrage Strategy

this sort of strategy can be accomplished w/o short selling per se nor using options. check my profile and send me an email.


On Mar 10 03:43 AM trader39 wrote:

> This approach is brilliant! This is like being the "house" in Vegas.
>
> btw, I would suspect you would need to meet full margin requirements
> for both positions even if ofsetting ETFs

Taking Advantage of Leveraged ETFs with a Risky Arbitrage Strategy

On Mar 08 02:07 PM Augustus wrote:

> I'd sure be interested in reading about how the
> positions are adjusted
> to account for a continuing move in one direction.

i've recognized that around the web there aren't many places providing such a service to retail investors. i'm in the process of rolling out a service for a fee to do just this. the plan is not to recommend the sale of certain securities - only information to be used at the traders discretion.

Taking Advantage of Leveraged ETFs with a Risky Arbitrage Strategy

in general the authors approach is a good place to start. there are other ways to hold leveraged ETFs LONGTERM to safely hedge downward market direction without all the hand holding. i hold several leveraged (long & short) ETFs w/o options using a quantitative arbitrage algorithm to the market. have been successful doing so since OCT-08. 1) the algo takes slippage and tracking errors into consideration. weights in the portfolio are based on relative changes and the model will tell when the hedge is about to broken and take everything off the table. 2) proshares SDS, SSO, DXD, DDM are very liquid and make the best pairs to trade based on the model used. bid/ask spreads are very very small so no major concern for arb attacks elsewhere. 3) options can't be traded in retirement accounts so some other method is needed to provide a hedge. bonds currently aren't very much a permanent safe haven here and who wants to hold treasuries or cash when it's possible smoothly hedge your way around volatility. 4) pair trading holding the underlying, not the options, in this manner does NOT require hand holding or watching the market like a hawk. quit the opposite. a quantitatively weighted pair such as SDS & SSO or DXD & DDM can be traded based on EOD results. i will grant that it is prudent to rebalance once a day unless the portfolio is weighted in favor of daily market direction. mathematics is the key and a steady hand. ofcourse most quants don't divulge key components of their plan. but either way, there's no free lunch.

Triple-Levered ETFs: Bomb Shelters, or Bomb-Making Kits?

hi paul,

i see this post has bee out for a minute but i'll comment any way. for an trader who doesn't do options, i think leveraged etfs in this type of market are a great way to hedge and/or make money by doing a delta neutral arbitrage. i've made out fairly well doing over the last 6 weeks with arbitrage scheme i developed by pitting sector based long & short etfs against each other. like anything else, it requires discipline and patience but it has worked for me - i don't trade options. i primarily use 2X etfs that are tightly coupled to each others relative changes. my favorite pairs are SKF-UYG and QID-QLD. plus, these etfs pay dividends and cap gains while you trade them.

Inverse (Short) Sector ETFs

the wisdom in the words of this column is like anathema until lighting strikes. reminds of me so many parables taught by Jesus in the new testament. or for steven seagal movie fans in the movie marked for death, screwface said - "everyone want to go to heaven, but nobody want dead!!"