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Hi Clive,
That worked great. Thanks.
Ray
Hi Tf,
I am not very computer savvy. How does one go about putting the AIM calculator on their desktop?
Thanks,
Ray
Hi Tom,
Your reasons for doing this is the same as was going through my mind and that is what prompted me to post this message.
Evidently this method is more common than I realized.
Thanks for your reply.
Regards,
Ray
Hi Steve,
I knew you didn't use SAFE in your programs. Didn't know you used different miniumu transaction percentages. Gives me something to think about.
Regards,
Ray
Re: Split Minimum Transaction percentage amounts.
Split SAFE percentages have been discussed in the past and even a web page was created for explaining the concept.
My question is has anyone tried using different Minimum Transaction percentages for their Buys and Sells.
The reason the thought occurred to me is that I have some high income funds which do not have as much volatility as some other funds or stocks. Thus, I don’t get many AIM like transactions with these funds. However, they throw off excellent income so they are ones I want to hang on to since I am retired. The thought of maybe using a 5% Minimum Transaction for Sells and a 10% Minimum Transaction for Buys seemed like something which might be useful for both dividend capture and volatility capture.
Has anyone done something similar in the past? If so, how did it work out?
Ray
Is everyone ready for tomorrow? Because of the Standard and Poors downgrade of U.S. debt, these next few days should be interesting.
Ray
Hi Toofuzzy,
Yes, I just messed around with your calculator a little and used some different settings to come up whatever different initial Buy amount I should choose.
For example, if I want to make my first Buy amount $1,000 after my initial shares purchase....using the 0% Sell SAFE, 10% Buy SAFE, and 10% Minimum Transaction settings....then I just make the Portfolio Control $12,000 for my LD-AIM Program initial purchase.
After the first Buy then I adjust the settings some more to make sure that the next Buy price is at least 10% less than the previous Buy price. This can be done with either just not buying until the Buy price reaches that less 10% criteria; or else it can be done by adjusting the SAFE amount.
Your calculator has saved me numerous hours. Thanks for creating it.
Best regards,
Ray
Hi Steve,
You have having an excellent year. Good results.
I thought I would jump in here and tell how I go about putting together a brand new LD-AIM program. Let me know if I am doing this wrong or if you think I can do it better.
First of all, I would decide how much money I wanted to spend on my first Buy. Let’s say that I wanted my initial minimum Buy to be approximately $1,500.
Next I would decide on what settings I wanted to initially use. My initial Sell SAFE would by 0%. My initial Buy SAFE would be 10% and my Minimum Transaction would be 10% of the Program Value (not 10% of the stock value---big difference).
I would use Toofuzzy’s handy calculator which shows that my Portfolio Control would initially be approximately 18,500 to have my first initial Buy to be approximately $1,500.
Let’s say that I wanted to sell out of my LD-AIM program after 3 program sales.
Let’s say that I wanted to buy an S&P 500 Index ETF….symbol SPY. Current price is around $133.15 as I type this. I would then put the following numbers into Toofuzzy’s calculator.
http://www.aim-users.com/calculator.htm
18,507.85 – Program Portfolio Control (139 Shares X Current $133.15 price).
139 Shares – Initial # Program Shares (rounded up)
0% -- Sell SAFE
10% -- Buy SAFE
10% -- Minimum Purchase of Stock Value
The results show that I would sell 14 shares (rounded up) at $147.94.
Since my Portfolio Control remains 18,507.85 I would then enter 125 shares (139 initial shares minus my first sell of 14 shares) into the calculator.
The results show that I would sell 13 shares (rounded up) at $164.51.
Again, my Portfolio Control remains 18,507.85. I would then enter 112 shares (125 shares minus my second sell of 13 shares) into the calculator.
The results show that I would sell 11 shares (rounded down) at $183.61.
So, now I have my 3 Sells of 14 shares, 13 shares and 11 shares for a total of 38 shares.
I would now make my purchase of SPY by buying 38 actual shares @ $133.15 for a total purchase of $5,059.70 (plus commissions).
Now then, in my LD-AIM program I am running it with an initial Portfolio Control of 18,507.85 with an initial total of 139 shares.
Since I actually purchased only 38 shares this means that I have 101 shares left over in my LD-AIM SPY program (139 Program Shares minus the 38 Actual Shares in the initial purchase). Those 101 leftover shares are now my VIRTUAL SHARES. These 101 VIRTUAL SHARES never change throughout the life of this particular Program.
I then set up my worksheet with some of the following columns.
38 – Actual Shares
101 – Virtual Shares
139 – Total Actual and Virtual Shares
18,507.85 – Portfolio Control initial value
$18,505.85 – Program stock initial value
$5,059.70 – Actual Initial Cost of stock shares
I am now running an LD-AIM program
If I were a great picker of stocks or funds and SPY’s value went straight up after I purchased it and never declined enough to make any purchases, then I would sell 14 of my 38 actual shares @ $147.94. My next sell would be 13 of my remaining 24 actual shares @ $164.51. My last sell would be my 11 remaining actual shares @ $183.61.
$6,229.50 – Total Amount of these 3 Sells (less commissions)
$5,059.70 – Actual Cost (plus commissions)
$1,169.80 – Profit (ignoring commissions)
23.12% - Return on this LD-AIM program
(By the way, I did the above using a hand held calculator, so I am not guaranteeing that my numbers are correct).
At this point I still have 101 Virtual Shares. SPY now has a current value of $183.61 (my last Sell price). The Portfolio Control is still at 18,507.85. I can now do one of several things.
I can continue tracking SPY and make a purchase of 10 shares if the price of SPY declines down to $152.70 (my first purchase price using the current settings of a 10% SAFE and a 10% Minimum Transaction amount).
Or, I can forget about SPY and use my proceeds to begin another LD-AIM program with another stock which I believe is more undervalued.
Or, I can take the proceeds to Las Vegas and lose it all.
I am sure you guys can think of other things to do with the proceeds.
LD-AIM advantages: Can run several different programs (3 or more) with that $18,507.85 and diversify much better rather than spending all of the $18,507.85 initial Program Value on only one purchase of SPY and running only one Program.
LD-AIM disadvantage: Sell out of all actual shares purchased…that is, if one considers that to be a disadvantage (which I personally don’t).
Anyway, this is how I run any LD-AIM programs I might set up.
Best regards,
Ray
Hi Conrad,
Thanks for getting back to me. I appreciate you explaining the differences.
I am not the brightest person, so it is going to take me some time to grasp VORTEX investing. I have copied your explanation and will use it to try to work some of my own examples.
Again, thanks a lot.
Best regards,
Ray
Was wondering what are the major differences between the VORTEX method and Constant Value (Constant Dollar) method?
The reason I ask is that it seems to me that the purpose of VORTEX is to eliminate the Residual Buy feature of AIM. Constant Value investing does that because after a Buy is made there is no residual value for the next Buy. The next Buy is based upon the percentage of the last Buy price and the amount being purchased.
For example assume that an investor has $100,000 in an stock. His purchase price was $10 a share and he bought 1,000 shares.
He now decides that he will make that $100,000 investment a Constant Value to base his buys and sells around. The share price for his investment was $10 a share. He also decides he will use a 10% setting to buy or sell ($10,000) of his $100,000 investment. Now then, in the event that the $100,000 Constant Value changes by either a 10% increase or a 10% decrease he will make a transaction.
(By the way, the investor doesn't have to use his actual investment cost as his Constant Value...he can use whatever Constant Value he chooses; much like in LD-AIM investing where he decides if he will use 2X, 3X, or whatever shares whenever he decides how many virtual shares he will use in his LD-AIM program).
Buy = $10 share purchase price decreases 10% to $9.00 a share. He would purchase $10,000 of stock or approximately 1,111 shares.
The $9.00 share price is now the base share price in which he would use to decide his next buy or sell.
Assume the share price now declines another 10% from his last purchase made at $9.00 a share. This means the share price is now $8.10 a share. He would make his next $10,000 purchase at $8.10 a share, which means that he would buy approximately 1,235 shares.
Sell = Assume the stock now increase 10% from $8.10 a share to $8.91 a share. He would now sell $10,000 of stock at $8.91 a share, or approximately 1,122 shares, which had a LIFO accounting cost basis of $8.10 a share.
After this Sell, this means he would have in his stock inventory 113 shares with a $8.10 cost basis, 1,111 shares with a $9.00 cost basis, and 10,000 shares with a $10.00 cost basis.
So, you can see that there is no Residual Value after a buy in Constant Value investing the way there is in AIM. Also, one can change the settings in Constant Value to whatever one chooses to be either aggressive or conservative in their investing approach. Either way they use their settings the next buy is based upon the price of the last buy, not because increasing the Portfolio Control creates a residual buy amount in AIM investing.
Conrad, to be honest I have read the explanation of VORTEX several times and I just can't get the hang of it. If you could tell me how in differs from Constant Value investing I would greatly appreciate it.
Best regards,
Ray
Amen and Amen!!! Same here, Steve. Not a native, but I got here as soon as I could.
Ray
Personally I put Good Til Canceled (GTC) orders in place for any Sells which might be in the horizon. Don't want to miss any sales.
With respect to how often I look at any AIM programs I might have at the moment, it depends. More often than once a month. The once a month rule, for me at least, only applies to making Consecutive Buys. Even then, if there is a compelling enough reason to make a consecutive buy without waiting for the 30 day interval, then I will do it. Much like what happened in the Fall of 2008.
Others probably have their own variation of the once a month rule. Perhaps they will add their own comments to your question.
Ray
Hi Jack,
I am not holding any inverse funds at the moment. The market is just too unsettled for me to take a bet at this time. Seems like it can go any direction from here. In my gut it seems like the bulls are still in charge even though we are entering what is normally the period of the year where the bears come out of hiding.
When I look at the charts it appears that the bears are becoming restless and might take charge. Again, I just feel that the bulls are still running things at the moment, though I could be wrong. These next two weeks should set the tone for the next couple of months.
The knee is doing much better. Last Friday the doc aspirated a lot of fluid off the knee....enough to fill 3 vials for testing. Currently testing it for infections. That aspiration did a lot to give me more mobility and less pain. However, this doc really feels like the consistent pain is due to inflammation of the soft tissue of the ligaments and tendons on the outside of the knee. If there are no infections then he will treat for inflammation.
Overall I am doing much better.
Thanks for asking.
Regards,
Ray
Hi Clive,
Did some buying today, but unfortunately, not at the lows of the day.
Heard on the TV that the company on which that errant order was placed was Proctor and Gamble. The company opened at $61.91, had a high of $62.67, and a low of $39.37. It recovered somewhat and closed at $60.75. Quite a swing from its high to its low.
Ray
Have tried this in the past with mixed results.
To echo what Toofuzzy and Steve said, what I have found is that the shorter the time period used, the better the gains and losses mirrored correlation match. The longer the time period used, the gains and losses lose a lot of the mirrored correlation matching.
I am not really good with numbers, but, as discussed numerous times previously on this forum, I think there are two reasons for it.
First is that from a percentage standpoint it takes a larger percentage gain to make up for the percentage loss than the percentage loss itself. By that I mean that it takes a 11.11% gain to make up a 10% loss. It takes a 33% gain to make up a 25% loss; it takes a 100% gain to make up a 50% loss, etc.
Second is my understanding that these leveraged ETFs, long and short, rebalance every day. The prospectuses for these leveraged ETFs do a good job of explaining how this works. In fact, the Direxion prospectus for their 300% leveraged ETFs says that these leveraged ETFs are useful only for short-term trading……too risky to be a good long-term holding.
If one goes over to StockCharts and use their PerfCharts tool to make some comparisons, the difference between the short-term results and long-term results becomes apparent.
Perfcharts shows the following for QLD and QID:
1 week…..QLD -5.01% QID +4.9%
30 days…..QLD +3.3% QID -3.9%
180 days….QLD +48.4% QID -38.4%
365 days…..QLD +167.3% QID -77.2%
I would make two suggestions:
First, do not use this strategy with leveraged ETFs because of the daily rebalancing aspect. Use this strategy only with unleveraged ETFS, like QQQQ and PSQ. Even then, the first reason I gave; it takes a larger percentage gain to make up the percentage gain loss, distorts the mirrored correlation match the longer these funds are held.
Second would be my suggestion that you should rebalance on small percentages…..no greater than 5%.....to keep the mirrored correlation as close as possible. Even at 5% or lower rebalancing, you have to consider the commissions and the bid/ask slippage. Otherwise, you can really get frustrated on larger percentage rebalancing, believe me.
I have tried this strategy several different ways and have come to the conclusion that doesn’t work for me. Now whenever I use an inverse ETF, leveraged or unleveraged, I use it only as a short-term hedge in order to hedge my long positions whenever I feel the market has been in a very overbought condition for a long period of time….like now.
Just throwing this out for whatever it might be worth to you.
Ray
Hi Clive....well said.
I think you summed up the really critical issue when you said,
"The amount initially paid for stock is critical. Buy at too high a price and longer term rewards can be less than inflation. Buy and sell at fair prices and the rewards are ok (real (after inflation) gains achieved). Buy at a relatively low/cheap price and later sell at a relatively high price and rewards can be outstanding.
A more important factor therefore is not which particular rebalance settings/style are used, but more that you don't overpay for stock in the first place. This is where AIM's cost-averaging coupled with the likes of vWave performs a reasonable job."
There are several different ways.....both fundamental and technical......to decide if one is paying a low or fair price. vWave is one. P/E, price/book, etc. is another. Use of charts and other technical methods are another way. My opinion is one needs to use whichever method suits their own needs and personality to decide whether or not they are overpaying for a stock or fund.
Again, you summed up the essence very well.
Regards,
Ray
Hi Jack,
Re: Lower risk longer term vehicles for working a down cycle.
You might take a look at some of the 1X inverse ETFs from ProShares or Rydex. Some examples are DOG, MYY, PSQ, SH and RWM. Not a recommendation from me.......just throwing it out there for what its worth.
Regards,
Ray
Hi Adam,
You hit the nail right on the head. If one reads the prospectus they will find that the funds themselves say that these are not designed to be long-term holdings....they are designed for short-term trading.
The Direxion website itself says "These funds are intended for use only by sophisticated investors who: (a) understand the risks associated with the use of leverage; (b) understand the consequences of seeking daily leveraged investment results; and (c) intend to actively monitor and manage their investments.
Hopefully this link from the website will show the danger in holding these funds for the long-term. They are definitely not designed as buy and hold funds.
http://www.direxionshares.com/education.html
Ray
Hi Toofuzzy,
You ought to see all the information the surgeon's association supplied me with. Vigorous walking and hiking are to be avoided; recreational walking is allowed.
At this stage of my recovery I am extremely pleased with the amount of flexibility and stretching I have been able to gain. Currently I have gained 17 degrees more flexibility than the average knee replacement patient. The doctor said that I am much further along than the average knee replacement patient and I should be pleased with all my progress.
Strength of the leg is extremely important because weak leg muscles lead to poor knee stability. Because of pain for an extended period of time, both before and after surgery, the leg muscles become very weakened. The pain causes both overcompensation in different movements, plus activity avoidance because of the resulting pain. Also, you have to keep in mind that both the ACL and PCL are cut out and done away with during knee replacement surgery. Therefore increasing leg strength is the goal. That is the first thing the physcial therapists worked with me, along with stretching. I have had two different physical therapists. Initially they paid a lot more attention and time to leg strength than stretching when I began my physical therapy.
Ray
Hi Jack,
I have about 12% of my funds in two bear 3X ETFs...BGZ and TZA. Using those as hedging positions. These were recently purchased. Had EZM ladder type sales on Friday. At this point I am not really sure how much longer I am going to hold them....not very long.
Cash is not earning squat at the present time. Right now my cash position by itself is 47%. Like you, I can't find much out there worth buying that isn't overpriced at the moment. Even with last week's small sell off, the NYSE Bullish Percent reading is still over 70...currently at 73.10. In one of Tom Dorsey's books, he says that when it gets over 70 one should take out some insurance and buy some puts on their long positions, or words to that effect. That is basically what I have done with my two small positions in these ETFs.
Do not expect to hold these funds for the long-term. That would be foolish on my part. None of these 2X or 3X funds are designed to be long-term holdings. They are designed to be strictly short-term trading instruments, so your selling quickly was probably very wise on your part.
Thanks for asking about the knee. It is much, much better. Still have some inflammation in the tendons and ligaments around the new knee replacement implant, but overall I feel great. Saw the doctor this past Friday. He told me to cut down on the amount of exercise I was doing. Said I was over doing it and I needed to let my knee rest and let this inflammation heal. So, I expect to be a couch potato for the next few weeks.
Take care,
Ray
Hi Lost Cowboy,
Thanks a lot. Appreciate it.
Regards,
Ray
Hi Tf,
Understand that.
The particular page which I am thinking of had a graph that showed different settings which could be used...e.g., SAFE, starting cash percentage, minimum transaction, etc. It then showed how far a drawdown could be used with each setting before all the cash was expended. A quick and easy way to visualize cash burn.
Will keep looking for it. It was very instructive.
Ray
Seem to recall that there used to be a "Cash Burn" explanation and graph web page by Tom somewhere in the various explanations of AIM. Can't seem to find it anywhere this morning. Maybe someone else can bring up this web page? It might be of use here.
Thanks.
Ray
Happy Thanksgiving, also.
Don't worry.....no field goal kicking for me for awhile.
Best regards,
Ray
Hi Tf,
Thanks for the advice. My wife is also telling me to slow down. Guess I need to heed what others are saying. My doc has some ambitious goals for me with respect to the amount of flexibility he wants me to achieve with this new knee. Of course, he is not giving me a time frame to achieve these goals.
Take care and have a great week,
Ray
Ken, thanks for inquiring.
Most of the redness throughout the leg is gone. Plus, a lot of the swelling is also gone. Last week the doc put me back on physical therapy and that helps. The pain is not quite as intense as it was just after the surgery. I am able to walk around the house and a little outdoors, mostly with the aid of a cane or walker. Recovery is taking longer than I expected, but then my wife has always accused me of being impatient with most things in life. Just need more patience.
Again, thanks for inquiring. I really appreciate it.
Regards,
Ray
Hi Ken,
Thanks for asking. Wish I could say I am doing great, but that would be a lie. My leg began swelling about the time I got discharged from the hospital. The surgeon's assistant gave me a shot of Rocefrin, plus a prescription of Levaquin....both antibiotics. The antibiotics did not improve the situation.
At first I was doing the physical therapy, but the swelling interfered with the amount of range motion, so the surgeon suggested I cease all activity and therapy....remain inactive with my leg elevated, which is what I have been doing since Wednesday. The pain level is still as intense as it has been since the operation. See the surgeon again this coming Tuesday.
What is so frustrating about this swelling mess is that I am not able to do the necessary exercises in order to improve my use of the new joint and increase its range of motion.
Again, thanks for asking. Really appreciate it.
Best regards,
Ray
Tom, thanks for the well wishes.
Very glad that your neck and back problems got corrected. Really improves the quality of life, doesn't it?
The leg swelling has now gotten "really red" and "angry" looking, phrases used by the home health care nurse. She got me in this afternoon to see the surgeon who did the operation. He spent a lot of time looking at it. Says it appears to him that the infection is caused by bacteria on one of the incision staples. However, said he was not going to take any chances. Gave me a shot of some kind of antibiotic that is supposed to kill everything. Also, another, stronger prescription for even more antibiotics, which I am to take at home in addition to those antibiotics I was already taking (enough pills already).
One day I will be totally fixed up and ready to compete on Dancing With The Stars.
Again, thanks for the well wishes.
Regards,
Ray
Hilarious:!!!!)))
Ray
Hi Ken,
Thanks for the well wishes. Seem to be making some progress today, but have a long way to go. These muscle relaxers and pain pills, plus being strapped into a contraption that flexes the leg up and down...back and forth...for up to 8 hours a day, makes thinking clearly about investing difficult.
Have a good week.
Best regards,
Ray
Hi Clive,
Thanks for the sentiments. One day this pain will be a distant memory for me and I will recommend knee replacement surgeries to all my friends.
That sounds like a simple enough strategy to employ. First thought that comes to mind is wondering if a 44 week MA or even a 200 day MA might be more optimal than a 10 month MA.
Second thought is would an investor be better off checking the prices and MA status daily if the current price is very close to its current moving average rather than just checking it only once a month?
I will experiment around with some of my favorite leveraged ETFs and see how they might have fared in this bull-bear-bull market with this strategy.
Best regards,
Ray
Hi Jack,
Thanks for the well wishes.
"For me, short-term trading is a harder way to make money than the AIM-like method that I use with stocks. However, when there doesn't seem to be very good buys in stocks, then the 2x bear ETF looks appealing to me."
Those are my sentiments exactly, except I would also add the 2X bull ETFs into the mix.
Take care,
Ray
Hi Tf,
Thanks for the well wishes. These mean a lot to me at the moment.
This is one really good forum, IMO.
Regards,
Ray
Hi Aimster,
Thanks for the best wishes. Would be lying like heck if I said there wasn't a lot of pain involved. Right now my biggest problem is a lot of swelling around the new joint. But I am praying that there are no complications from the swelling, like blood clots, etc. Think that I am trying to over do things and I need to stay on my back while keeping my leg elevated in the CPM machine.
You bring up some good points about using using a Constant Value, Core Position, Constant Dollar, or whatever the heck one wants to call it with these mirror funds on steroids. Gave that some thought this past week while lying in the hospital. I think that all one really needs to do is decide the minimum transaction they need to be profitable and put the machine in overdrive. Let me know how this works out for you.
Best regards,
Ray
Hi Jack,
I have been away for a few days, so I am a little late in responding to you. Got a total knee replacement. Quite an experience for this old man. Thank goodness I have a great wife who keeps up with when I am supposed take my next med and tells me when my next doctor appointment is.
You have begun using the 2X and 3X ETFs the same way I have used them in the past. For short term trading profits. Not long term holdings as one normally associates when using AIM.
btw, don't know how many here use Point & Figure charts for your entry and exit points when doing short-term trading. I have used them in the past, but have not relied too heavily because, up until now, I have used the Traditional box size or the percentage box size for determining entry and exit points. However, just before I went into the hospital, I discovered that at StockCharts you can draw your PnF charts using the stock or fund's ATR (Average True Range) for your box size. Using ATR box sizes for 2X, or even 3X, ETFs makes me feel more comfortable going into a short term trade and more comfortable with determining the stop loss box points. This way, when using ATR charts, you use the stock's own volatility to determine its reversal point box size instead of the "one size fits all", as would be the case for traditional box or percentage box charts.
Would like to point out, before some one else points it out to me, that using volatile investments, such as 2X and 3X ETFs, stop-loss orders, etc. for short-term trading is not the way that one should AIM their investments and I totally agree. As I have pointed out here several times in the past, that my ventures into these leveraged investments is only with a small percentage of my investments...my "play money", so to speak.
Best regards,
Ray
Hi Jack.....That is an interesting link.
One thing caught my eye in the information on the website.
"As a result, 200%/-200% benchmark tracking over a longer period is dependent upon the extent of compounding and the underlying benchmark volatility. To minimize these effects, longer-term investors should rebalance their HBP ETF holdings periodically"
The advise to rebalance periodically is similar to what a Constant Value or even an AIM strategy attempts to do. The movement back and forth between ETFs and cash is a form of rebalancing, IMO. What it is really saying is that these ETFs are definitely not buy-and-hold investments.
Best regards,
Ray
Hi Jack....Re: 2X and 3X ETFs.
Another type of comparison I have done in the past is to compare the 2X and 3X Long ETFs with their inverse Short counterparts on a daily basis.
Yesterday it went this way:
-1.41% - SSO
+1.42% - SDS
-2.15% - BGU
+2.11% - BGZ
From what I have seen in the past the leveraged Long and Short ETFs are reasonably close in their mirror percentage change results on a daily basis.
Just thought of something else which might contribute to these ETFs not having the exact mirror percentage change on a daily basis. ETFs are different from closed-end funds, which have a set number of shares available for trading. I could be wrong, but it is my understanding that since ETFs do not have a set number of shares available for trading, they are created and are also retired during intraday trading based upon investor demand. Would the intraday price at the time of an ETF unit creation have a bearing upon the end of the trading day percentage change? ETFs may begin the trading day on equal footing, but does supply and demand during intraday trading help contribute to the trading percentage change at the end of the day?
Suppose that the market declines during the day. Suppose that trading during that particular day creates a demand for more of the Short leveraged ETFs, while, in turn, there is less demand for the Long leveraged ETFS. Since stock prices change minute to minute, second to second, during the day, would that also have an impact on the ETF's percentage change at the end of the day? Since these ETFs are leveraged, which intensifies the results, would that also have an impact on the percentage differences because of intraday trading?
For example, yesterday was a "down" day. The above mentioned ETFs traded the following shares yesterday.
SSO - 26.4 million shares
SDS - 36.2 million shares
BGU - 6.1 million shares
BGZ - 10.2 million shares
Since yesterday was a "down" day overall in the markets, did investor demand during the day for more of these Short leveraged ETFs cause more of these ETFs units to be created for intraday trading based upon the intraday prices, which in turn might have help add to the end of the day percentage discrepancy between the mirror counterpart ETFs?
Don't have the answer to that question, or if this intraday ETF unit creation even has an impact on the percentage change at the end of the day. Maybe someone else more familiar with these leveraged ETFs does.
Best regards,
Ray
Hi Jack...Re-read your message. I replied that it is difficult to make a "long-term" comparison, while, in fact, you were discussing a one-day comparison of the 2X fund and its underlying index.
That is a tough one. Haven't seen that much discrepancy in the past with the few comparisons I have made. Probably difficult to make any sort of comparison because of daily rebalancing...balancing buy and sell orders, etc.
Sorry I did not directly answer your question.
Best regards,
Ray
Hi Jack...Re: 2X and 3X funds.
Think it is really difficult to make a "long-term" comparison between the leveraged fund and its underlying index. IMO, the reason is because the leveraged fund is rebalanced on a daily basis.
Here is another comparison to ponder.
IWB - Russell 1000 Index ETF
BGU - 3X the Russell 1000 Index ETF
SPY - S&P 500 Index ETF
SSO - 2X the S&P 500 Index ETF
Went over to PerfCharts to see how these ETFs compared since the market low on March 9, 2009. Here are the results:
IWB - +65.56%
BGU - +291.43% (4.45 times the underlying index ETF instead of 3 times the underlying index tracking ETF)
SPY - +63%
SSO - +156.62% (2.59 times the underlying index ETF instead of 2 times the underlying index tracking ETF)
Pretty sure all this has to do with daily rebalancing of the leveraged index. However, the math whiz types who frequent this forum would probably be able to give a much better answer than I just did.
Someone on this forum recently remarked that the 3X funds were the closest we could come to Lichello's 10-8-5-4-5-8-10 volatility, or words to that effect. There might be something there. Others have remarked that some brokers won't even sell these leveraged funds. Recently I had to sign a statement at Fidelity Brokerage that I understood these were very volatile investments when I made some short-term trading purchases of BGU and TNA.
Anyway, I find these leveraged funds to be interesting. Something out of the ordinary. Evidently others find them to be worthwhile investments. Over at Yahoo it shows BGU's average daily volume to be 8.5 million shares.
Best regards,
Ray
Hi Jack,
There used to be a website created and ran by a guy who did some complicated hedging strategies using 1X long and short funds. He was a math whiz and frankly it all went straight over my head. A few years ago he decided to give up the website and has since shut it down. In his last message he said that if someone wanted to "hedge" their long positions for the long term, they easily could do it by buying and holding a 2X S&P 500 inverse bear ETF, like SDS, with 25% of their investments. At the time he thought that should be a sufficient hedge for their long positions.
Seems to me that his last message on his website was around the beginning of 2007, but I could be wrong about that. Gave it some thought, but it did not seem feasible at the time. Sure wish I had done it back then, but when do you liquidate the entire position?. Who would have known we would have a 50% bounce off the March lows?
Since this market has come so far so fast that might possibly be a reasonable strategy at this time. However, I am not nearly as good with math as most readers here, so someone else would need to take out their pencil and calculator to see how that might work. Especially if they AIM'ed the 2x inverse bear fund.
Just throwing this out there for whatever it might be worth.
Regards,
Ray