Sorry, Mish, but I disagree with your analysis of the Rydex funds.
I have held RYVNX for over two years, and it has --every single trading day-- done almost precisely as advertised, which is to double the percentage gain or loss of the ^NDX, inversely. It works like clockwork. And there is no threat of a margin call, and no expiration date.
I was in a far worse position back in 1999-2000 shorting XLK. I was able to hold on and recover, but it was not fun.
I did short the QQQQs (then QQQ) repeatedly after that, covering each time I had about a 5% to 10% profit and reshorting when the index retraced. I made a lot of short term profits that way and paid a lot of taxes. I also spotted a very profitable anomaly in DJX LEAP puts, which was that they had a NEGATIVE time premium; the people sellign them were so confident of the market's inevitable upward course that they sold them for LESS than rational value (this could happen because they were European-style options and could not be exercised until expiration).
I am probably going to have to take a pretty large loss two weeks from now on some LEAP puts on the QQQQs, which have simply run out of time on me.
RYVNX is, I find, an almost ideal way to play the market short side. You can use it in an IRA and you can also use it for long term capital gains in a taxable account. Short positions are all short term gains no matter how long the position has been held.
There are other points to be made and issues to be addressed, but you may be sure that through careful study and what is now a good many years of experience, I believe that understand this area.
Still, your advice about deep in the money LEAP puts on the indices will probably work out well. But the decay of the time premium of the puts is as least as troublesome as any wasting of capital in RYVNX. The counter-party risk is probably about the same (i.e. low, I hope). |
