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Non-Tech : Bill Wexler's Trading Cabana
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From: Bill Wexler12/17/2008 4:43:18 PM
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SRS - after a phone call and a quick check "under the hood' (i.e. going through the underlying positions), I've come to the conclusion that there really is nothing strange or underhanded going on, the problem lies in the "second order" derivative nature of this ETF. Without going into a long spiel, you can't just track SRS inverse to something like IYR, You must take into account not only direction, but rate of change (velocity) in price of the underlying securities. That volatility is reflected in the large option premiums for SRS, even for contracts relatively close to expiry.

It just so happened that not only did a lot of these real-estate turds go up over the past week or two, but some of them went nearly vertical...very, very quickly.

Naturally, when reality sets back in, SRS will trend higher. However, ideally, we'd want a FAST spike down in these stocks.
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