Danger of trading FAS and FAZ
 

Hi guys.

I know a lot of you like to trade FAS and FAZ. They have become somewhat of the designer drug of day traders and even swing traders.

I'm sure many of you are already very well familiarized with how FAS and FAZ work (3 times ETF financial bull and bear).

What some of you may not know is the danger of holding onto these bitches for an extended period of time.

FAS and FAZ are rebalanced daily which means that in an up trending market the values are able to do just fine (if you're on the bear side). The fuckups really start to take shape during times like now, where the ETF has been beaten more than my cock on the jailbait thread.

So what? Who cares?

The issue is that the rebalancing causes these ETF's to erode over time. Some of you might look at FAS and think "Hey it used to trade at $55 dollars. If I buy it now at $6 and hold onto it, I can make a lot of money!"

Well, don't get too excited because that's exactly how it does not work.

The rebalancing of the ETF means that on every down day, the ETF is balanced and has LESS money exposed. Being a 3 times ETF, that rebalancing is effected by 3 times.

Essentially, as the ETF drops, the buying power or amount of money in the pot, is diminished.

You might want to check out this video as well.

http://www.hotstockmarket.com/forums...85#post1900985

I'm not saying don't trade it but I just found out a friend of mine is using this as a buy and hold and I was like WOAH buddy WTF. He's fucked big time now because he purchased way too high and there is no chance of him recovering his losses unless the market goes ape shit for like 2 years.

i actually did a little calculation by myself because i have held FAZ for exactly a month now. i have now lost 60% and basically, for me to break even, i have to wait until FAS go somewhere down to the $2 level, which is nearly impossible because of this stupid see-saw market.

i have noticed that 1 day of gain and 1 day of loss really kicks your ass at both ends.

not everybody is wouwou. I'M FUCKED TOMORROW! look at HSI ~3% gain

fingers crossed for stress test to i can get the fuck out of this ETF x3 bullshit (actually, bearshit please)

3x leveraged fund is for pure traders period

I said that in some other thread: I am by no means an expert on these 2 bitches (yes, I call them bitches), and I have lost a fair amount of gold on them.

I could have lost a lot more if I broke the #1 principle, to hold it for 1 day only. the time decay for these 2 bitches are insane. Throw in the management fees (yea I know, they claim they manage these bitches), holding them for more than 3 days is considered insane unless you absolutely have to.

read the charts, study the money flows and the news. If there is any doubt, don't go all in and NEVER DOUBLE UP.

Just my 2 cents.

i have broken ALL of the above rules.
it doen't help when my service charge is about 2-3% of the total pot i put in.. =(

Anyone care to explain Fas and Faz a little. Its actually difficult to find a solid explanation on the net to be honest.

I wish I could see this thread earlier. I'm a newbie, and I think I shouldn't touch FAS/FAZ. I already lost 1/3 of all my money.

+1

So is it a bad idea to hold these ?

^if you are too new to do researches by yourselves, you should not be trading FAZ/FAS.

It takes more than basic understanding of them to not lose money.

You WILL have better luck with blackjack.

Most of these ETF are just like gambling, pure speculation and over the long-term, it is a negative yield game. (on the other hand, stock investing is like gambling too but over the long term, it is generally a positive return game.)

I always wonder if you can short these ETF too....given its nature, shorting them seems like a sure way to make money.

buy put options for both faz and fas...for 3-6months period.

watch the video, it's pretty self explanatory. if you don't understand that, try to work out the math on a piece of paper. eventually, both ETF approaches 0 in the long term.

now, the question is, it is kind of weird today.
FAS -16%
FAZ +14%

where did the 2% gap GO!? even aftertrading hours, there is still a gap.

There will be some inaccuracy with my post in regards to the specific structure of ETF's but I'm trying to explain it in the simplest of terms.

The ETF itself is leveraged which means that while the underlying 'thing' is real, the exponential nature of the ETF (the x2 or x3) is not. It's leverage.

Think of it as using borrowed money to buy more than you can really afford.

Every day, the ETF is rebalanced. At the end of the day, think of the ETF being liquidated to cash as if they were in the Casino and 'finished playing'. They pay off all loans and walk out of the casino either up or down.

If they end higher, then they make 3 times the profit (3 times ETF). If they end lower, it's 3 times lower.

The next day the casino player enters and begins to play again with whatever money they had from before. There is no 'extra' money, just what was left over from the day before.

At first someone thinks okay no big deal, you're up 3 times your down 3 times in the end it's the same thing right? NO!!!! BOB SAGAT!!!!!

This is such a simple form of math and yet somehow it just does not get into the heads of some people. Honestly, not to be an asshole but it is things like this that make people say 'day trading doesn't work!' It's because they really don't spend the time to do the homework :)

If you have $100 and you win 5% and you're leveraged 3 times that means you gain $15 and at the end of the day you have $115.

This works great when there are bullish trends over a long period of time but then things get weird.

The next day you walk in with $115 and the market goes down 5%. You're leveraged 3 times so you're down 5% of $115 which is actually $5.75. You walk out with $99.25.

Most people think if you're up 5% one day and down 5% the next it's $5 up and $5 down but it's not.

Again, this is like learned in math 7 or maybe math 8? The word problems in school are about Dick and Jane not Fas and Faz. Maybe that's the problem.

Anyways over time, the ETF will go to zero or near zero. In theory it can never get to zero (tangent curve) but since you can have a millionth of a penny it's irrelevant. If your boners are generated from math I can even show you the equation used to manage the fund. How about that for some erotic numbers. 2 ETF's 1 cup.

If you're in a bull market, the daily swings eventually will destroy and erode the ETF.

I was conducting a seminar and someone said I'm full of shit. I ask them to explain how can something that is bullish (FAS) and bearish (FAZ) can both be going down?

The guy was like 'oh, okay'. Then got pissed odd at his wife for some reason and starting talking shit about her loud enough other people could hear.

Don't be like this guy. Learn your shit and do not trade otherwise you just end up being raped and rape is not fun.

in theory
If ur broker has these shares for you to short, you would of made a killing...
shorting either one of them..
cos these 2 just bleed and they will keep bleeding till it eventually disappears cos of the wild swings we are still experiencing...:thumbsup:

side note: ever heard of the saying cant trust nething that bleeds for 5 days
and still doesnt die..

well... these bitcches r worst..

Ive been shorting both for a couple months now. Great trade. I rebalance reguarly depending on which way I think the market will go though.

nice...

I received notice on my platform earlier that FAS is undergoing a 1 for 5 reverse stock split and FAS are undergoing a 1 for 10 reverse split.. both effective as of tomorrow.. July 9, 09
for those of you who don’t know what a normal stock split is.. it’s when they break down the shares but market cap remains the same.. so for example .. you have 1 share @ 10 dollars.. undergoes a 2 for 1 split.. you get 2 shares @ 5 dollars.. it’s nothing to really be alarmed about... in reality.. nothing much has really happened.. it’s mostly a psychological effect on share holders.. because the price does usually increase drastically.. but overall market cap has not changed.. it helps maintain a more liquid market..

a REVERSE split is the complete opposite.. you get LESS shares.. but for MORE value.. Last week I was holding AIG from awhile back.. it underwent a 1 for 20 reverse split.. i had 1000 shares @ 90 cents.. that suddenly dropped to 50 shares BUT for 18 dollars... but after the split the price continued to fall .. fortunately i got out before any real damage occurred.. apparently this usually happens to prevent a company from being delisted on an exchange..

so if anyone is holding on FAS or FAZ don’t be alarmed if you see a decrease in a number of shares or a increase value per share.. the stock may plummet.. but like chuck said.. you probably shouldn’t have been holding onto these dogs long term anyways..

good luck and happy trading

well it tracks the financials (rifin.x) so this reverse split wont be like aig where investors get screwed up the ying yang.

also anyone who are unaware of this split is not doing their homework and shouldnt be trading these etfs anyway.

think there is any chance for the faz to go back below 6 again? lol

lol my finance.yahoo.com quote shows FAZ went up 800%+

^ haha.. you were warned

FAZ dropped another 50% from it's peak after reverse split. I can just imagine the many horror stories in those 2x & 3x leverage ETFs.