Saturday, November 28, 2009

FAZ SKF SRS : 1 Year Ago, Wildest Options Expiration EVER!

              FAZ : Blue=High, Orange=Low, Green=Daily Range
               Blue=High, Orange=Low, Green=Daily Range
November 21,2008 FAZ 
Opened at 143.40 - Low of 143.00 -  High of 201.86 - Closed at 145.25 Down -20.23
The Range on 11/21 was 58.86 points, on 11/24 it was 66.43
The fine print says it was Options Expiration.
NOTE: FAZ doubled in the week before 11/21, and was chopped in half within 2 days afterward.
You think this was crazy, you should see the charts for SKF & SRS.
November 21,2008 SKF 
Opened at 242.92 - Low of 242.24 -  High of 303.82 - Closed at 244.12 Down -18.33
The Range on 11/21 was 61.58 points, on 11/24 it was 70.98
The fine print says it was Options Expiration.
NOTE: SKF doubled in a week, and was cut in half 2 days later.

November 21,2008 SRS 
Opened at 240.27 - Low of 210.41 -  High of 295.72 - Closed at 216.67 Down -42.69
The Range on 11/21 was 85.31 points, on 11/24 it was 87.01
The fine print says it was Options Expiration.
NOTE: SRS doubled in the week of 11/21, and was cut in HALF on the next trading day!
The Plain Facts are: 
The latter parts of 2008 were volatile in the stock market, as well as many other markets.  Large one-day moves and many more intra-days moves became commonplace.  It was under these cloudy skies that the gyrations of the thre ETFs FAZ, SKF, & SRS were able to whip around with little attention.  Since these are "Inverse" ETFs, their prices were bucking the larger trend: instead of going down like the S&P, they were going up. And being "Leveraged", the degree of their movement was much more than their underlying indexes by 2 or 3 multiples.  However, an ETF just doesn't move by itself- its underlying  portfolio of stocks' collective pricing is what makes the ETF's prices change. These "Net Asset Values" are calculated throughout the day, at least every 15 seconds.  Since each ETF's portfolio contains dozens, hundreds, up to 1,000 different stocks, it would seem that only an ocean tide of market currents would be able to move these ETFS. Not True. In each of these indexes there are a dozen or so of key holdings that account for 30% to 50% of the ETF's "weight", even though they only account for a small portion of the list.  Now it should be no surprise that the 3 ETFs mentioned have an overlapping list of top weighted holdings, and these stocks all fell victim to excessive "whack'em & jack'em" on Friday Nov. 21, 2008. Stocks had been falling for most of the 2 weeks prior to the 21st, -200 points on the S&P and by mid-afternoon on Friday, that was enough. Stocks staged a massive rally off the lows of the day and closed higher than the day prior, almost 48 points higher in the S&P, and the range from low to high was much more than that.  And so was the range of FAZ, SKF, and SRS. These "stocks" all had ranges that day of 50 points or more, similar to the S&P. But the S&P was priced at $800 a "share" whereas these ETFs were priced between $150 and $300 (much lower). Yes, it was an options expiration day, although it was not necessary to be in options to go on such a wild ride.  Matter of fact FAZ didn't even have options trading yet.  No, these individual ETFs lived up to their reputation: "Leveraged, Inverse" and WILD on their own.  Seatbelts required!

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