Saturday, November 21, 2009

FAS & FAZ Why Don't They Work?

Have you noticed that the long term performance of these Triple Strength ETFs do not match the underlying index that they are based on? FAS is based on the Russell 1000 Financial Index and is geared to return 3 times the daily return of the index. FAZ is geared to return 3 times the INVERSE of the index, so it goes UP when the index goes DOWN. 3 times the percentage, a neat trick in of itself. In the chart below, FAZ is Blue and FAS is Orange. (July Reverse Splits 1:10 FAZ 1:5 FAS) This is a Sum Chart FAS + FAZ = Price on Left

1 comment:

  1. FAS and FAZ don't work long term. They also don't work as a hedge against the other. If you hold them both for too long, you can see price erosion on both sides, as the gap you hedged gets wider with every net asset value adjustment. Someone once suggested shorting both and watch them melt away over time, but I'm not sure how well that would work, or how long it would take to make a worthwhile return. The best use of these triple strength ETFs is to catch the trend of the day. Ride them as far as you can, and then jump. They have been known to move 10% or more in one day. The trick is being on the right side.