Augustus

Taking Advantage of Leveraged ETFs with a Risky Arbitrage Strategy

BobC, thanks for filling in some blanks for me.
When I the SKF was recalled from my short position and I had to sell it, I sold the deep ITM calls. That would make it behave very much as the shart. The problem then came that the IYF did finally rally, the SKF did finally tank, but the calls developed a large time premium and quit tracking correctly. The puts would have really helped to balance that out. I'm not sure about the calculations on the balancing act and predicting how the deltas will change (effect of gamma) but the implied volatility premiums in these can get pretty big. I hate to be a buyer of that.


On Mar 08 05:04 PM BobC wrote:

> This strategy is not a new idea. The difficulty in pulling it off
> (in part) is being able to short the shares. Some of these etf's
> are not very liquid and your broker may have trouble finding shares
> for you to short. A better approach that I have used is to obtain
> the short exposure synthetically by way of a collar (short OTM call
> and buy OTM put). Initially, this trade behaves like actually shorts
> on the stock. Over time, you build up a cushion via the price you
> entered and the OTM strike price.

Taking Advantage of Leveraged ETFs with a Risky Arbitrage Strategy

I have had this trade on for a while. Short both IYF and SKF and also Short both IYR and SRS. The problem with my trade is that the IYF has only gone one way, DN, do that SKF has only gone one way, UP. For the trade to work, there needs to be lots of wiggles both up and down. In those cases, both sides eventually lose as suggested. I'd sure be interested in reading about how the positions are adjusted to account for a continuing move in one direction.

Leveraged ETF Debate Hits the Mainstream

For the earlier hourly periods, the vol seems to have gone up by about 70%. Multiply the June last hour range of 1.8 by 1.7 and the result is 3.06. What is not normal about the increase relative to the other periods?