January 24, 2013
– Comments (10)
Members..help please....Fidelity has shares available for the FAZ trade but wants 4.5% annual interest to hold the shares in the acct...is this a cost that i should incur or should i use the options to take the position?
as in the triple negative inverse financial etf ???????????
Yes. :) He, probably, wants to short it. It is not available from both my brokers. So, I'm using options from time to time.
WHy would anyone in their right minds want to short a triple negative financial when the financials are on a roar...
it would make sense to simply risk day trading in FAS ????
daytrading is a game not easy to win.
in line with my "non-right" mind, short triple negative financial isn't bad "bull" call for financials. it is working not bad from time to time and risk is limited.
bblbp, best asked on the PRO board specifically as posters there will have the context of the recommended trade. The instuction for this one basically assume you should find interest free shares, or use one of the alternate trades to play this one. (Calls/puts).
See also the PRO FAZ board for info.
Do heed the warning!
"Because this ETF’s shares are leveraged and hard to borrow, one of our largest risks is getting called out of our short on a spike. Should financial stocks fall 20% quickly, this ETF could rise at least 60%, and our shares could be called away at the worst time. Thus, again: Start with a small allocation, no more than 1.5% (less if you want to test the waters)
4.5% sounds like a reasonable borrow for a 3x ETF. However, keep in mind that the margin interest at Fidelity can be over 8.5% depending on your balance (and the 4.5% borrow rate would be on top of that). I wouldn't use margin at any retail broker, too expensive.
Compare to IB here: http://www.interactivebrokers.com/en/index.php?f=interest&p=schedule2
1.64% is a lot more reasonable.
Thanks for the question, I was thinking of getting FAZ shares this year becuase I knwo the market can not sustain this growth. I had no idea they charged 4.5% annual. Is this basedon your initial investment or the total value of the investment?
Jbay76, FAZ shares are ETF, and buying them directly does not require anything besides standard exchange fee.
bblbp is talking about "shorting" them directly where there are often extra costs and "margin" concerns. Differnet brokerages have different requirements.
Another "play" is "Options".
As far as buying directly, the 3X leveraged ETF's are designed with "fuzzy" math on futures contracts, not shares. They are subject to "decay" from management fees, repurchasing the base options etc. No 3X ETF , bull, or bear, should be purchased with any buy/hold mentality longer than a few days at best, and that's a gamble between you and the market, (which is not rational, even if you are).
Good luck, but don't use luck buying/holding any 3X leveraged ETF.