Here are the total daily dollar amounts traded as of yesterday in the financial 2X and 3X ETFs:
SKF: $5.1B
FZA: $1.3B
XLF: $2.0B
The volume on UYG ($370M) and FAS ($800M) is small or negligible compared to these.
The SKF and FZA issuers must hedge themselves by shorting stock or using other instruments like CDS. They absolutely have to do it or risk going bankrupt. The effects are obvious on the underlying stock prices.
When those SKF holders start stampeding out, watch out above. All the shorting must be covered. You may see the mother of all rallies.
For similar cause-effect reasons to the downside, it is possible that these 2X derivatives to be outlawed. In fact, a great rally would occur by doing so, except for the ETFs themselves which would drop to $0.
Buying these is like playing with fire. Fire can burn and hurt badly!
Friday, February 27, 2009
Stay Away from 2X ETFs, Cause and Effect Relationships
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February
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- Paul Volcker's Speech In Toronto
- Stay Away from 2X ETFs, Cause and Effect Relations...
- Don't Buy USO or USL, Buy UGA Instead
- UCO Straddles: Proof of Concept
- Mitsubishi Shifts Production from Japan to Brazil,...
- Unemployment in the USA From 2007 to 2009
- Job Market for 2009
- Protect Yourself: Straddles for March
- February Max Pain Update, Demystifying MaxPain
- President Barack Obama Visits Canada
- Update on USO and March Oil Contracts
- SPY and IWM Options Action Today, Max Pain in Prac...
- Buyers of USO Beware
- Max Pain for February, Price Convergence Watch
- Correlation of the Dow 30 Stocks
- UCO Straddles for This Week and March
- Snow Artists, Protectionism, and Obama Visits Canada
- World's Oil Production: Top Consumers and Producer...
- Updated UCO and USO Straddles
- Results for UCO, USO, UNG Straddles
- Straddles for Oil and Natural Gas, USO, UCO, UNG
- Oil Consumption To Drop to Lowest Levels in 27 Years
- Straddles for February 9 and 10
- The Tale of USO, USL and Contango.
- AKAM, AMZN and WY Straddles Analysis
- Ice Artists
- UCO Straddle Results
- Catedral Bar Offers Madoff drinks
- Straddles for Tomorrow Friday
- UCO Straddles for February and March
- The DJIA, DOW 30... or is it the DOW 15? A Skewed ...
- SunLife Insurance Straddles
- Straddles for the Week of February 2 to February 6
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2 comments:
nice blog. very informative; especially about staying away from certain the ETFs. checking out your straddle strategy to see if it works with hypothetical trades.
Thank you "reboot". Paper trading is the best to start with. Try several of them. The hard part is choosing when to sell. Usually the easiest is to have a pre-defined exit profit threshold and/or stop losses, i.e., sell when you achieve +10% (or whatever you choose), or sell if you go down -30%, for example.
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