Zekeko

FAS/FAZ: Dangerously Crossing the Ultimate Pairs Trade

DIVIDIVI-- yep, employment ##'s this week, swine flu scares, lotsa short sellers on the wrong side since March.

I agree with to quote the writer:

"We all know the underlying conditions of the economy and financial system are perilous and wracked with danger going forward. But I think the dichotomy is becoming clear: Professional money managers that missed the move up who are begging for a second chance to buy on a retest, and those that remain short convinced the market has overplayed its hand and will dump on any given notice. I’m an optimist for the most part, so you see where my directional bias remains. However, that does not mean that I take any of the risks for granted to the point that I would trust the market to treat my portfolio with fragile care and consideration."


to me this says if you don't want to get outta the mkt then you better cover your ass with any tools out there and if you don't like OPTIONS then at least with the FAS-FAZ you don't have decay with expiration week

use FAS-FAZ to hedge not make money

On May 03 06:48 PM divi-divi wrote:

> I went long FAZ for the first time a few weeks ago and unfortunately
>
> bought 500 shares at almost the high of the day at 13, I made a stupid
> mistake and pulled the trigger right at the open after FAZ went up
> to 13 and change in the pre-market, and then it tanked to the 9's
> by the close. FAZ has not returned to 13 since that day.
>
> Now I am waiting to get even, but of course I am nervous about the
> stress test this week, I did not plan to be in FAZ this long. I
> thought about doing the exact same trade as this article discusses,
> sell 250 shares of FAZ and buy 250 FAS, to try and at least break
> even on the volatility over the stress test, (I'm a novice trader
> as you can tell from my FAZ mistake) it just seemed to me that the
> trade might work when I noticed FAS dropping lower than FAZ. <br/>
>
> I am a bit confused about the time frame the author of this article
> suggests staying in this trade, because I was hoping to exit this
> week if I break even, but after reading the article I am wondering
> if it would be worthwhile to stay in it in case we test the March
> lows. I don't think the banks will continue to rally unless they
> are being propped up by the gov, even Goldman Sachs says the banks
> are overextended now, and most money managers are saying they are
> going to buy tech. I tend to think that this is a sucker's rally,
> and when more retail investors start to come in as the S&amp;P nears
> 900, the bank stocks will be shorted.
>
> I don't know if I should hold on to FAS and FAZ until one makes a
> big move, or just get out if I break about even.
>
> I am long a few REITS, so I was also thinking about hanging on to
> FAZ as a hedge, but the decay worries me. Some traders say the<br/>decay
> doesn't matter because if the banks tank, FAZ will take off big and
> make up for it.
>
> Any help to get the novice trader back to even or better would be
> greatly appreciated (please don't suggest any option plays, I don't
> want to get involved with them.)
>
> Thanks so much!
>
>
>

FAS/FAZ: Dangerously Crossing the Ultimate Pairs Trade

dividivi-yep i read the article a couple of times b/c it's long and there's a lot in there. I think the writer said he was bullish on the mkt and using the FAZ-FAS trade as a hedge on financial stocks.

If you are long on stocks like reits then you definitely want protection. I think it said in the article something about a flat mkt outcome would disapppoint returns on FAZ-FAS but means that you are makin'--at least not losing--money on your stocks!

If you trade an option STRADDLE AT-THE-MONEY you want one side of the trade to go to zero b/c it means the VOL is in your favor on the other side

FAS/FAZ: Dangerously Crossing the Ultimate Pairs Trade

Oh yeah if you think they both are droppin' to zero then put your money where your mouth is and short both ETFs.

That is a ballsy trade I would like to see. Maybe you'll make money

FAS/FAZ: Dangerously Crossing the Ultimate Pairs Trade

what a "stooopid" comment.

Comments like this indicate you don't trade options. If you ever traded options you would know that buying volatility with straddles and strangles costs a lot of money and most of time you lose money on both sides b/c of decay and expiration. This is why pros sell options instead of buying them b/c they have the advantage of decaying time value.

I'm not gonna defend the trade one way or the other. But I like the idea of using it as a defensive hedge in case this market retests March 9th.

The writer even put in the title "dangerous" and said he didn't want FAZ to make money b/c it meant his stocks were going down. Nobody told you to put FAZ or FAS in your 401K-IRA

Take it from a person that trades options regularly--price does matter. 8 dollars each to enter the equivalent of an AT-THE-MONEY straddle is cheap without stress of expiration

Pick a stock like AAPL or GOLDMAN SACHS or any stock for that matter and try to buy an AT-THE-MONEY STRADDLE and see how much it cost you just in the front month--use JUNE b/c May expires in two weeks.

The only reason to buy VOL is to protect huge swings in the market and buy insurance. Do you stop buying insurance on your house and car every month even if you don't file a claim?






On Apr 29 12:20 PM john the babptist wrote:

> what a stooopid article. there I said it! Someone should stop
> super bad advice like this appreaing on this site. All 3x leveraged
> funs should be viewed as day trades only. As they decay over time
> for sure and will eventually all end up at 0. I think the extreem
> volitility is going out of the market now (could still trend down
> slowly though or sideways) This may be the end of an eara for the
> 3x funds anyway....