jgsgilbert

How to Use Leveraged ETFs to Your Advantage

Given the long term erosion that you mention above why not short these leveraged short ETF's and hold long term?

Is it not possible to short them?

Thanks

The Boons and Banes of Oil ETNs

Thanks again Brad.

Just realised I deserve to fail high school math with my % moving up and down question. Less said about that the better.

Yes it seems the contango to backwardation (and vice versa) swing must have a massive impact.

Great if you can pick the bottom but then as Becky Quick, of CNBC, says "bottoms are better for watching then picking".

All the best.

James

The Boons and Banes of Oil ETNs

Thanks for your quick reply Brad.

If the price of DXO is also based on TBills does that mean that it also has interest rate risk (sorry if wrong term)? With interest rates being so low would that risk be quite high longer term, i.e. interest rates increase therefore TBill value goes down and therefore negatively impacting DXO? Is there a correlation between DBLCI and interest rates?

DXO seemed to trade near the 30 mark for a while when oil was at $147 in July 2008. Now oil is hovering in the $40's and yet DXO is around $2, i.e. approx a 3.5 times drop in oil but approx a 15 times drop in DXO. (The graphs I've found of ^DBOLIX only go back as far as Oct 08). I wonder if this is due to the bias downwards for similar percentage gains versus losses that i noted in my example on my last post?

Thanks for the tip re the market makers spread. I shall watch for those.

cheers

James




On Mar 05 02:54 PM Brad Zigler wrote:

> DXO and its stablemates are based upon the oil subindex of the Deutsche
> Bank Liquid Commodity Index. In addition to the oil return, the ETFs
> reflect the return earned from the T-Bills used to collateralize
> the index futures.
>
> DXO, in particular, is based upon the Optimal Yield varient of DBLCI
> which shops for the best roll target at contract expiration. DXO's
> mandate is to provide twice the MONTHLY, not daily, performance of
> the oil index (plus a single slug of T-Bill return). That probably
> accounts for the pricing disparity you've noted.
>
> As for counterparty risk, the first thing that usually happens when
> an issuer's troubled is a widening in market maker's spreads.

The Boons and Banes of Oil ETNs

Brad

Thanks for the article. Can you please aid my understanding on how DXO is priced?

Is it priced based on supply/demand of the DXO notes themselves (i didn't think so) or from movements in the Deutsche Bank Liquid Commodity Index (DBLCI)?

If it's the later how come the price of DXO can move one way and yet on the same day the DBLCI move the other? Is that somehow related to the monthly TBill index return.

Also, since these are notes and do not represent a claim on hard commodities (versus say ETF such as USO), how is counterparty risk priced into the price of these notes? In the wake of financials being nationalised/bailed out i wouldn't discount the possibility of any of these finanicals going under.

If the DBLCI goes up 50% then does OLO go up 50%? In which case if DBLCI goes down 50% does OLO go down 50%? Then you could have OLO go from say 100 to 150 to 75. A net of down 25, i.e. it will drift down over time.

Sorry if the above isn't very clear but I hope you get the drift of my questions.

Thanks again for your help and your articles.

James