Posted: 14 Feb 2009 04:08
I still ponder if one can short the constant leverage trap and come out better... but haven't the wits to try it.
Where Canadian Investors Meet for Financial Education and Empowerment
https://www.financialwisdomforum.org/forum/
https://www.financialwisdomforum.org/forum/viewtopic.php?t=106130
Those were just easy to grasp, round numbers. The principle is the same with lots of 1% moves up and down, which are pretty common.Lado wrote:When has the S&P/TSX Composite ever moved 20% one day and 25% the next? Never.
So in this example, you would have lost 0.25% compared to an ideal inverse product. That's more than the XIU MER for a year (in two days!). Lather, rinse and repeat.Lado wrote:Let's consider a more reasonable example. If the index dropped 5% one day and then jumped back up 5% the next, the index would end up 0.25% lower and the HBP product would be unchanged.
The product is meant to excel in a declining market on a daily basis. For anything longer than a day, in any kind of market, you make less, sometimes substantially less than first thought.Lado wrote:Furthermore, these products are meant to excel in declining markets. If you hold one of these products in a declining market you will be better off than holding cash.
Which self-directed RRSP provider has leveraged ETFs for shorting?queerasmoi wrote:I still ponder if one can short the constant leverage trap and come out better... but haven't the wits to try it.
Any (discount) brokerage normally provides access to any stock (including ETF's) trading on NYSE / Nasdaq etc.Alexo wrote:Which self-directed RRSP provider has leveraged ETFs for shorting?
Margin is calculated separately for each security, except combinations of options and stock for the same underlying. Shorting both ETF's would not result in a special margin calculation, you would still be required to maintain margin for both positions calculated independently.Alexo wrote:I'm thinking of shorting an equal $ amount of both directions (to avoid margin calls) and riding the trap.
I'm with RBC direct. Called them today and asked if UYG or SKF is available for shorting. The rep checked and said neither.adrian2 wrote:Any (discount) brokerage normally provides access to any stock (including ETF's) trading on NYSE / Nasdaq etc.Alexo wrote:Which self-directed RRSP provider has leveraged ETFs for shorting?
This is not what I understand from the RBC site. Quote (emphasis mine):adrian2 wrote:Margin is calculated separately for each security, except combinations of options and stock for the same underlying. Shorting both ETF's would not result in a special margin calculation, you would still be required to maintain margin for both positions calculated independently.Alexo wrote:I'm thinking of shorting an equal $ amount of both directions (to avoid margin calls) and riding the trap.
Or did I misrepresent it?Margin Investment Account
When you qualify for a Margin Account, we will lend you a portion of the market value of your eligible securities. We offer competitive interest rates on Margin Account loans.
A Margin Account can also allow you to free up funds that would otherwise be used for your investments. Excess margin can quickly and easily be transferred to your RBC Royal Bank account. The margin-eligible securities in your RBC Direct Investing account would be used as collateral for the loan.
The outstanding loan value is initially determined using the purchase price of the security. However, from that point on, the outstanding loan value is generally based on the previous day's closing bid price for Canadian equities and the bid or last trade of the previous day for U.S. equities.
The difference between your present loan value per security and the original loan value per security vs. your debt, represents your Margin Call or Margin Excess position. If the loan value per security, based on present market price, is less than the loan value per security extended to you when you purchased the stock, (i.e. the stock price has dropped), your account is undermargined, unless you have other marginable securities to offset all of the undermargined position. Similarly, if the loan value per security is more now than at purchase, your account has excess margin.
I don't think short selling is allowed in an RRSP - you would have to do this in a taxable margin short account.Alexo wrote: Which self-directed RRSP provider has leveraged ETFs for shorting?
I'm thinking of shorting an equal $ amount of both directions (to avoid margin calls) and riding the trap.
You are correct, no shorting or margin in RRSPs. Mea culpa.queerasmoi wrote:I don't think short selling is allowed in an RRSP - you would have to do this in a taxable margin short account.
I think I understand your point.queerasmoi wrote:Adrian is right - you won't necessarily avoid margin calls. If there is a large movement over several days, your exposure to one of the ETFs will increase considerably, leaving you with net bull or net bear exposure.
Shorting is not allowed in TFSA accounts... they have essentially the same rules as RRSPs.Alexo wrote:... Perhaps the new tax-free account will work though. If not, it's the taxable. ...
You are correct that shorting both will lessen the probability of a margin call compared to using the same capital and shorting only one side; my point was that it lessens it and doesn't eliminate the odds. Contrast this with a bullish option combination spread, say for a $65 stock that you don't own, you sell a $70 strike call and buy a $60 strike call - in this case, no matter what the stock does in the future, the options would not create a margin call by themselves.Alexo wrote:If I allocate 50% of available capital to short each direction and the underlying index moves 10%, after 5 days I'll be short ~145% of my capital and if my margin is say, 150% that's pretty close for comfort.
However, if I had shorted 100% I'd be in the same position after only 2 days so it still gives me some buffer to close my position.
I agree that I haven't worked out all the math yet, it's a work in progress...
But according to my understanding, that was not what Adrian said.
This just means that currently, their clients don't own them in a margin account - most likely because they are not too popular.Alexo wrote:I'm with RBC direct. Called them today and asked if UYG or SKF is available for shorting. The rep checked and said neither.
Can one short this ETF (both types, bear and bull)? If yes, then would we eventually profit?adrian2 wrote:Key word in bold above - for any period longer than a day, in any market direction, the constant leverage trap works always against you.randomwalker wrote:"Our four new single inverse ETFs will offer 100% of the opposite daily performance of Canadian benchmarks," said Howard Atkinson, President of BetaPro."
Simple check:
day 1 - underlying drops 20% => fund gains 20%
day 2 - underlying gains 25% => fund drops 25%
overall underlying stays the same => fund lost money
In reverse:
day 1 - underlying gains 25% => fund drops 25%
day 2 - underlying drops 20% => fund gains 20%
overall underlying stays the same => fund lost money
Unless you plan to day trade, stay away.
If my algebra is correct, the drag from these products is almost the same as that from the double longs. (The double shorts are ~3x worse.)adrian2 wrote:Key word in bold above - for any period longer than a day, in any market direction, the constant leverage trap works always against you.randomwalker wrote:"Our four new single inverse ETFs will offer 100% of the opposite daily performance of Canadian benchmarks," said Howard Atkinson, President of BetaPro."
Simple check:
day 1 - underlying drops 20% => fund gains 20%
day 2 - underlying gains 25% => fund drops 25%
overall underlying stays the same => fund lost money
In reverse:
day 1 - underlying gains 25% => fund drops 25%
day 2 - underlying drops 20% => fund gains 20%
overall underlying stays the same => fund lost money
Unless you plan to day trade, stay away.
They seem to be hard to borrow but IMO it would be pretty much a sure thing. The question I'm mulling is if HBP is coining money by doing exactly this (but they call it "unit creation", not "shorting").milo wrote:Can one short this ETF (both types, bear and bull)? If yes, then would we eventually profit?
meaning hard to short?Norbert Schlenker wrote:They seem to be hard to borrowmilo wrote:Can one short this ETF (both types, bear and bull)? If yes, then would we eventually profit?
Hey Lado,Lado wrote:I issued a "get out of the Canadian market" call on June 12. Since then, the S&P/TSX composite index is down 37.5%, HXD is up 57.3% and had you shorted HXU and covered at today's close you would be up 190%. Too bad HXD is difficult to short!
That being said, it is difficult to get a short call right since, in general, stock markets rise over time. Even one of the Dr. Doom's, Nouriel Roubini, didn't short the market. Heck, he didn't even sell his equities!
I used to be an trader for a NYSE based brokerage. I wasnt the one who made the models, merely routed them and confirmed executions. I remember doing many Iron Condor's...but after seeing the inside of the derivitives market I decided to never play in there.Lado wrote:In a sideways market you have to look for alternatives that pay. I bought Bank of Nova Scotia a few days ago (first time I ever bought BNS) because the yield was 7.1%, I thought the dividend was safe (not that I am a bank analyst), and sold covered calls for a nice premium. Thanks to the rally today, I have an 11% gain in a few days. You're supposed to get lucky occasionally!
If the market gets stuck in a range for a period of months or years, it will be very difficult to make much money in my opinion. You could look for stocks that have a solid dividend (easier said than done) and sell covered calls.
If you are an experienced options trader you could consider iron condors.
You could consider seasonal price trends as I have discussed on my site and look at energy stocks between now and May.
Heres a great link to different option strategies, this used to be my homepage at one time so as I always had to reassure myself I got it right before I pulled the triggerLado wrote:As far as iron condors are concerned, I am in the learning stages and haven't executed any yet. I am in the process of setting up a thinkorswim account to execute these trades.