I would use these etf's strictly as an insurance policy, not a position to trade around. Out of the money call options to reduce the cost of the premium, similar to the concept of a deductable on insurance policies. I would bto a Jan11 strike with the idea that it would expire worthless and decline in value unless there is a big sell off. If that happens the otm calls should go quickly itm to provide a cushion for my declining long stock positions.
It has been well publicised that these leveraged etf's are not designed to be held long term because of the periodic reset issues. I am looking to own options on the underlying instead to minimize the reset issues. Since these etf's are composed of derivitives, they should explode in value with a big rise in volitility that would come with a big sell off.
The problem is that they have not been around long enough to backtest how they would actually behave. They melted away to almost nothing as the market has gone up the last year. Will they melt up in a similar way if the market goes back to the lows of 2009?
I would appreciate any feed back as to whether this is a viable way to hedge my portfolios.
--- In ConservativeOptionS
>
> Why out of the money? Are you wanting to hold this ETF and keep selling out of the money calls on it?
>
>
>
>
>
> ____________
> From: rayhartl <rhartl@...>
> To: ConservativeOptionS
> Sent: Thu, May 6, 2010 4:06:16 PM
> Subject: [ConservativeOption
>
>
> TZA was over 100.00 back in March of 2009. If we have a big sell off and the market goes back to those lows, what is the chance that TZA would go back over 100.00/share? The same may be true of the other sector 3x inverse leveraged etf's. Would not the purchase of otm call options on these etf's be a cheap insurance policy if the market really does break as many are predicting?
>
> --- In ConservativeOptionS trategies@ yahoogroups. com, "Louis" <loupi3@> wrote:
> >
> > drjoe,
> > I was aware of the high percent cost, but in the interest of keeping my email concise decided not to delve into that aspect (wrong decision I guess). Anyway, I appreciate your answer as your advice and experience have been helpful.
> > My overall thrust was that given the rapid swings of ETF's like TZA, the value I pay for protection would, if the bear market analysis is correct, be quickly overcome by an upward move, at which point I would use a protective stop (and possibly sell any remaining value in the put).
> > At this moment, as I write, TZA has gone up a bit over 7%. If the bear continues, I would, as soon as my gain reaches in the area of 5% plus the cost of the put, switch to a tight trailing stop to protect the profit and sell any remaining value in the put.
> > I haven't done anything yet since my past history is full of examples of entering at the wrong time (so if I should buy TZA, I'll let the board know so that they can load up with TNA :-)). But I'll probably place a limit order for tomorrow.
> > I usually offset the costs of my protective puts, BTW, by selling a CC or CSP, but in this case, in order to keep things simple, I'm just exploring the basics (long on a volatile ETF, protecting it with a long put).
> > Any thoughts?
> > Lou
> >
> > --- In ConservativeOptionS trategies@ yahoogroups. com, "joe & leigh" <gass20@> wrote:
> > >
> > > the may 6 put @ 0.30 is 4.4% (100% annualized) time value paid for 16 days of protection ..the june put @ 0.59 is 8.9% (74% annualized) time value paid for 44 days of protection doesn't sound cheap to me. but cheap is in the eye of the beholder.... drjoe
> > >
> > > --- In ConservativeOptionS trategies@ yahoogroups. com, "Louis" <loupi3@> wrote:
> > > >
> > > > If the market is turning bearish, as one of my subscriptions tells me, then I'm considering buying TZA, which closed @ 6.30.
> > > > The May $6 put is only .033 and even the June is 0.59 so protection is pretty cheap for this 3X contra, which makes for a very nice opportunity.
> > > > What am I missing?
> > > > Lou
> > > >
> > >
> >
>
No comments:
Post a Comment