Silicon Investor (SI) -- The First Internet Community

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 : Option Strategies -- Ignore unavailable to you. Want to Upgrade?

To: TheNoBoB who wrote (918)	12/21/2013 8:43:29 AM
From: Bridge Player	Respond to of 2591

I appreciate the reminder. Sometimes it's hard to remember the built-in flaws in these products when you can get wrapped up in the daily monitoring of price action. The late-day spike in UVXY helped the overall position. If we get another spike next week or perhaps after the holidays I may consider just bailing on the whole idea. Your post reminded me of a great example of one of the characteristics of ultra (2 and 3 times an underlying) products: their magnification of *daily* moves. In a flat market they can carry a built-in loss that may more than offset the generally high option premiums. As in this example I saw one time. Take a triple ETF that attempts to track the following moves in an index. An index starts at 100 and in the following 20 trading days moves 1 point at a time down to 95 then up to 105, and then back to 100. I don't remember the actual math involved, but due to the daily magnification, the tracking ETF will wind up not at 100 but with an actual loss (from recollection) something like 10%!. Edit: A little searching came up with this extensive post on the subject. A wonderful read. blog.quantumfading.com