On Friday, May 31, 2015, I took a short position in the Direxion Financial Bear 3X ETF, ticker symbol $FAZ (I'll use the Stocktwits nomenclature when I post a stock symbol. ) It was a standard size position, the shares were easily available to borrow from my broker. I didn't have to pay any additional fee.
$FAZ is an inverse ETF. It is designed to reflect a negative daily move of 300% of its underlying index.
What this means is that is the aggregate index of financial stocks that it follows goes up 1% in a day, $FAZ should go DOWN 3%. $FAS is the opposite. It should go up when the underlying goes up, on a daily basis.
The important thing to remember is that this relationship is only designed to hold for a day. Over time, leveraged ETFs have not maintained the relationship, and have mostly declined at a greater pace than would be expected.
The first question I always get is why short $FAZ when you can buy $FAS? On a daily basis, they are right, it doesn't matter. If you intend to hold for a longer than that, in my opinion, shorting $FAZ makes greater sense.
Enough explaining, let's get to the details"
5/29/15 shorted $FAZ at $11.45. Day ending price is $11.57, so I am down already. Darn.
I have some other positions I have already entered. I'll work those in later posts.
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