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Non-Tech : Bill Wexler's Trading Cabana -- Ignore unavailable to you. Want to Upgrade?

To: Dale Baker who wrote (4695)	12/22/2008 4:55:11 PM
From: RockyBalboa	1 Recommendation Read Replies (1) \| Respond to of 6370

No problem... its the persistent level of high implied volatility. Given the trading history of SRS, and the lacklustre performance of the general stock market. 150 is a price which is not out of the world neither for SRS nor for SKF. Remember: the market does not factor in the coming CMBS meltdown which will become visible after the coming bankruptcies of retailers and other, in January and after. I did have my bright moments like in RTP (bought at 67, sold when the going was good, now 79) or some low priced stuff where bullish trades really worked well but in general there is no need that the market trades higher. After three trillions of monetary injections, interest rate easing to zero worldwide, a S&P 871 is all they have to show? Pretty pretty poor. Could be, should be much lower (and yes I did ask Bill whether it would be a bleeping liquidity driven buy Message 25260738 , and he turned it down). Merry Christmas! (if you seek "alpha" which is naturally wrong, as they sell beta: look here: Seeking Alpha Direxion Ups the Ante with 3X International, U.S. Tech ETFs Thursday December 18, 9:48 am ET By SA Editor Jonathan Liss 3X Developed and Emerging International, U.S. Tech... Fresh off a Wall Street Journal piece suggesting many of the end-of-day spikes in equity trading of late have been a direct result of the rapid growth in leveraged ETFs, Direxion launched its follow-up batch of 3X ETFs Wednesday, the first of their kind respectively. The new funds offer investors triple exposure to two MSCI indexes covering Developed ex-U.S. () and Emerging Markets, as well as the Russell 1000 Technology Index. The new ETFs appear below in grey; the non-grayed funds launched in early November and have already accumulated significant volume and assets in roughly six weeks of trading. click to enlarge * data courtesy of Direxion Not for the Faint of Heart Until Direxion came along, the term 'leveraged ETF' meant the aim was to provide investors and traders double an underlying index's performance, or double the reverse of its performance in the case of bearish funds. This leverage is achieved through the use of options, swaps and options on swaps. Direxion has upped the ante, with its 3X leveraged funds; this means the potential risks and rewards of being in one of these funds is amplified that much more. Here's a case-in-point: The ETF that tracks the MSCI Emerging Markets Index (NYSEArca: EEM - News) is down nearly 48% in 2008. If that were extrapolated to Direxion's new 3X bull and bear funds tracking the same index, [[EDC]] and [[EDZ]], the returns would be -144% and +144% respectively. (This is merely a theoretical exercise to make a point; leveraged funds aren't meant to provide an exact multiple-times return over long periods of time.) It's the sort of volatility that makes for a Vegas-like atmosphere, not something anyone other than day-traders would generally tolerate. Use in Longer Term Strategies While Direxion's Marketing Director, Andy O'Rourke, admits the funds aren't aimed at 'buy and hold' types, he feels they can be very useful for longer term investors, though "this requires very active monitoring and constant rebalancing." O'Rourke clarifies a common misconception: "The notion of '3X returns' is a misnomer. Leveraged ETFs are only supposed to provide accurate tracking on a daily basis. Longer term, the funds tend to overshoot or undershoot their stated goals so investors need to consider taking excess funds off the table, or adding in funds as needed to maintain their overall target allocations." O'Rourke points out that 'compounding' occurred within the first two weeks of Direxion's original eight 3X funds launching, with seven of eight funds "overshooting their stated goal - by as much as 75% in one instance." Tracking Error? Longer term, leveraged funds often suffer from 'slippage', which lowers long-term correlations with underlying indexes. Seeking Alpha contributor David Merkel believes, "The higher the amount of leverage [an ETF] attempt[s] to replicate, the greater the amount of slippage they will experience versus their multiplied index. There is also slippage from rolling futures from month to month." This is amplified in the case of ProShares UltraShort Financials ETF (NasdaqGS: SKF - News), which attempts to provide double the inverse return of the Dow Jones U.S. Financial Sector Index. In a long-term comparison to iShares Dow Jones U.S. Financial Sector Index Fund (NYSEArca: IYF - News) dating back to the beginning of 2008, SKF's returns are barely positive, while IYF is down roughly 51% YTD. Both funds track the same underlying index, albeit SKF does so in a leveraged inverse way through options and swaps, while IYF simply buys the index's underlying components on a one-to-one basis. As the blips on the image below shows, leveraged ETFs tend to overshoot their target both to the upside and downside, something swaps and options have the tendency to do when compounded under extreme trading conditions...) biz.yahoo.com