28 November 2008

Fozzie Bear and Portfolio Changes

I dunno what Fozzie is doing in this picture, but in Britain, I'm pretty sure it's a quite rude statement unbecoming a Muppet.

I made some changes to the portfolio during today's truncated trading session.

Sold the remaining 5/6 of my position in UYG, the ultra-long financials ETF, at $6.30. Cost basis was $5.14 for a gain of 22.6%.

I was very comfortable booking this healthy profit, as UYG has climbed higher for five straight sessions and the RSI(2) closed at an overbought level of 94.

Instead of picking up shares in SKF, the ultra-short financials ETF, I put some of today's proceeds into FAZ, the financial bear 3X. I previously coined the not-so-catchy name for FAZ, calling them "uber-short financials" but I think the ticker says it all. I'll refer to 'em as shares of FAZ Bear, pronounced "fah-zee" or in Muppet-speak, Fozzie.

Bought 200 shares of Fozzie Bear at $55.98.

So how have shares of FAZ performed in comparison to SKF? Bespoke recently examined Direxion's entire line of 3X-leveraged ETFs. Here's an excerpt:

Although they've been trading for less than a month, the 3x ETFs have already become very popular trading vehicles. And with a market that is averaging a daily change of nearly 4%, these ETFs have already taken traders for a wild ride. Below we highlight price and volume charts of the 3x long and inverse Russell 1,000 and Financial ETFs. As shown, volume has picked up significantly in recent days for all of these 3x ETFs, reaching 10,000,000+ shares per day in some instances.

But the percentage change in these ETFs is what is really crazy. The inverse 3x Russell 1,000 ETF (BGZ) has already had a rally of 114% and a decline of 42% since trading began on November 5th! The Financial ETFs have been even crazier. The 3x long Financial ETF (FAS) declined 80% from its high on 11/10 to its low last Friday. Since then, it's already up 127%! The inverse one has been even crazier. From 11/6 to its high last Friday, FAZ went from $60 to $200 (235%). Since then, it has gone from $200 back down to $70 (-67%).

If you take a click on and take a quick look at the charts of FAZ and SKF below, you'll see that during the brief existence of FAZ, it has traded from ~$60 up to ~$200 and back down to ~$55. That's an upward move of ~233% followed by a drop of ~73%.

During that same 17-day timeframe, SKF traded from ~$120 up to ~$300 and back down to ~$135. That's an upward move of ~150% followed by a drop of ~55%.

FAZ is indeed offering quite a bit more trading juice than SKF, not that the 2X-leveraged SKF is a slouch when it comes to short-term volatility. And I'm now comfortable with FAZ's trading volume (~660K shares traded today, versus ~7.4M SKF shares traded).

I don't plan on keeping Fozzie Bear in the portfolio for long--I'll put him up for a few nights, let him clean up a bit, and then send him on his merry way into someone else's (presumably) short-term trading portfolio.

No comments: