Another Way To Look At FAZ, FAS, SKF, UYG

in other words, leveraged financials ETFs. These two charts are the area charts, plotting the weekly combined price of SKF (double short financial) and UYG (double long financial) for the top chart, and of FAZ (triple short financial) and FAS (triple long financial).



Even ignoring the spikes, SKF+UYG's current price level is less than 1/2 of December 08 level. FAZ+FAS's current price level is less than 1/3 of December 08 level. So, if you are not a day trader, the winning long-term trade for these leveraged ETFs since December 08 would have been to short ALL.

If it's any comfort, unleveraged financial ETF combo hasn't fared that well either. The weekly combined price of SEF (unleveraged financial) and XLF (unleveraged financial) for the same duration shows a decline of about 25%, mostly due to the decrease in SEF.

Possible Future for FAZ

by popular request...

Ran the same numbers for FAZ, triple-short financial ETF, a la "Possible Future for SKF" (previous post). Comparison of FAZ, IYF, and BKX, with stock prices and index value as of May 22.

I just did the Case 5, where BKX would run all the way to Sept-Oct 08 level, and reverse all the way back to March low. FAZ would be a 10-bagger if you caught it at top of BKX, and if BKX did indeed drop back down to March low. Otherwise, there will be easier money to be made elsewhere (until P3 hits... for more, go to ex-SKFer Daneric's blog).



The best case for FAZ would still be the one in which BKX corrects right now to March low without going up much. Then FAZ would be about $20.

Leveraged Long ETFs May Not Be What You Think, Either

Danger of leveraged short ETFs has been discussed in this post, but here's more. The focus is on financial LONG ETFs.

XLF is un-leveraged, UYG is double long, FAS is triple long. Looking at their charts, you wouldn't be able to tell that, would you? XLF is almost back to the December level, while UYG is about half that, and FAS is about 1/3.

UYG has more than doubled since March low, and FAS more than tripled while XLF is slightly less than doubled. So if you were able to pick that bottom, good for you, you have bagged the huge gain. On the other hand, if you have been holding XLF since the beginning of the year and didn't sell into the dump in March, you are back to where you started. The same cannot be said for UYG and FAS.

Here's another set of charts, comparing FAS (triple long) and FAZ (triple short). Visually, in the bigger scheme of things, they both seem to be flat-lining. There are enough daily fluctuations for trades, but I'm now more convinced that they are indeed for short-term trades only.

FAS Looks Pretty Good, If You Just Look At It

and don't think about the underlying sector or about the imminent disclosure of bank "stress test" results.

FAS is the ticker symbol for the ETF that tries to replicate 300% of the daily performance of the Russell 1000 Financial Services Index. It is a relatively new ETF (launched last November, in the middle of the crash, as you can see on the chart), but it is increasingly popular particularly since the March low, with the financial sector perceived to have hit the bottom for some time.

I'm in this stock for several weeks, small position, bought in stages. My average is somewhere mid $6. They say double and triple ETF, long or inverse, are just for day trading and not for investment, but I somehow ended up with "investment".

These stocks, double or triple, swings wildly and are decidedly not for the faint of heart. They act more like options, except they don't expire.

I didn't bother to even check the chart when I first bought it in mid March as a partial hedge against FAZ, which is the inverse of FAS (so FAZ is triple short).

Now that FAZ is a miniscule hedge against FAS, I finally bothered to check the chart. And I'm happy with what I see. Too bad the government has to publish the stress test results today (5:00pm EST, I heard).