Kevin Walmsley

FAS/FAZ: Dangerously Crossing the Ultimate Pairs Trade

I use both FAZ and FAS as hedges in our portfolios. Direxion is working on funds that will mimic the trailing 30-day performance of these indices, both up and down, to a 300% magnitude. That will make it considerably easier to use as a hedge.

But I'll make the case that the 8-handle on both FAZ and FAS are irrelevant. Taking a block position in each will result in the same amount of cash on both sides, but you can do that irrespective of relative price: just buy more of the cheaper ETF. So what has the YTD numbers looked like? Awful. FAS year to date is down 78.3%; FAZ down 42%. Just because they are now at price parity--whatever that is for instruments such as these--simply doesn't matter.