MDA - Market Direction Analysis Message Board

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : MDA - Market Direction Analysis

SPY 690.38

+0.4%

Dec 24 4:00 PM EST

Public Reply Prvt Reply Mark as Last Read File

Previous 10 Next 10 Previous Next

To: rgjack who wrote (83260)	7/2/2002 1:18:23 PM
From: Greg Jung	Read Replies (1) of 99985

re: leakage of leveraged funds The Rydex traders & programs work to make the end result rise or fall twice as fast as the targetted index, on each day. Leveraged Rydex funds RYVYX (NDX * 2) and RYVNX (2* (1/NDX)) RYTPX (2* SPC) and RYTNX (2*SPC) They seem to succeed pretty well at this. So eg yesterday, we have RYVYX -10%, RYVNX +10% because of its 200% leverage on the NDX which moved about 5% down. Just by arithmetic, a 5% increase followed by a 5% decrease doesn't leave you flat but down by .25% because on the trip down you have a higher base to take that 5% from. The leveraged trip, 10% up then 10% down, would leave you withe even less, 1st all because its twice as much to begin with but secondly because the dependence is not linear. so a +, - 10% round trip that would follow the +-5% would leave you 1% poorer not 0.5% poorer as would a linear relation of the error. The discrepancy increases with amplitude and always works against the leveraged fund, whether it goes with the index or is contrary. So these should be used as trading vehicles only - eventually the value will be sucked out. Simple tracking funds and their inverses hold up much better, then. I'm considering putting on equal amounts in SP500 and its complement in Rydex through Schwab. In 6 months the capital will be preserved, a little increased for whatever overall market move has occured, but transaction-free and ready to trade. If significant drop has happened and the index was ready to rise one might take some out of the 1/SPX and put it into SPX to weight the bet that way. I wouldn't go that way until at least the IBM/MSFT debacle was played out. The SP500 funds are RYURX (1/SPC) only I guess I'll have to go elsewhere for an SPC fund Rydex doesn't have one it seems.

Report TOU Violation

Share This Post

Public Reply Prvt Reply Mark as Last Read File

Previous 10 Next 10 Previous Next