Monday, April 13, 2009

Market Watch: FAZ SKF

Here's an interesting post about the FAZ I found on Minyanville. The nice thing about the financials is the knowledge that sooner of latter they will have to give up the rest of the ghost.


It's time again for our periodic reminder that the FAZ is a derivative product - and it dropped 100 points in roughly a month, ending below 11.


And it's going to take an awful lot to get it back much higher.



Think about it. Let's say XLF erases all of last month's pop off the lows in today's session and closes at 6 or so. FAZ would lift to only about $24.25 (incidently, if XLF declined that much, FAS would go below zero). That's quite a drop from the triple-digit FAZ of early March on a theoretically unchanged financial sector

1 comment:

Dan said...

Your point is well taken... However, the real magic behind these ETFs is in the compounding over a steady trend. Yes, you can make your argument about a one day move in which XLF goes back to $6 and use this to show that FAZ has a hard road ahead. But, what if this happens over 3 days? Or, over 5 days? Then FAZ would, actually, be higher because of the combination of daily leveraged returns and compounding. Of course, in an up-and-down volatile market, this is what eats away at capital as well.

I'm stunned too at the relentless decline in FAZ. I entered at around $20 and made the mistake of going out for lunch at the wrong time and, here we are.

Tyler Durden over at Zero Hedge is predicting a freeze up in market liquidity that should send FAZ and other similarly trading stocks(SKF, SRS) very high.... If you ask me, it's just a matter of time...

Keep it up...