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Message
re: BOIL has become predictable
Posted on 5/16/15 at 5:09 pm to Iowa Golfer
Posted on 5/16/15 at 5:09 pm to Iowa Golfer
quote:
Slippage helps a short, doesn't much help a long.
But in the case of DGAZ you're shorting an instrument that is the inverse of the long. You're kind of shorting a short. The beta-slippage should be the same between (short DGAZ) and (long UGAZ) because of this. I agree that a short position would benefit from the decay of a long, but you are in an odd scenario by shorting DGAZ, which is basically a short itself, so the decay should be the same between short DGAZ and long UGAZ.
quote:
I guess theoretically this would apply to both short and long, but please give me an example of a scenario where a short is harmed by any of this. I'll even accept a "theoretical" scenario.
I don't even need a "theoretical" example (and I don't understand why you keep putting that in quotes). My real-life example is the exact scenario you have created. I think you've walked in to the only scenario I can think of where this would be the case. You are shorting an instrument that is the inverse of the long. Again, you're basically shorting a short. That would make decay equal. Your short position isn't exactly "harmed" compared to the long UGAZ, but I never said the slippage would be "harmed", only equal.
quote:
I guess "theoretically" I have over 150% on the short, but to my knowledge Reg T only states initial is 50%, and maintenance is 25%. I'm not sure it really speak specifically to shorting a stock.
Reg T speaks specifically to short sales. It's mandatory for short trades that 150% of the value of the position at the time the short is created be held in a margin account. This 150% is comprised of the full value of the short (100%), plus an additional margin requirement of 50% or half the value of the position. (The margin requirement for a long position is 50%.) For example, if you were to short a stock and the position had a value of $20,000, you would be required to have the $20,000 that came from the short sale plus an additional $10,000, for a total of $30,000, in the account to meet the requirements of Regulation T.
quote:
The second scenario costs me $5,002.00.
The first scenario costs me -$4,998.00 + pennies of interest monthly.
The difference in cost is .00008%. It's nothing. And if that's your reason for shorting DGAZ instead of going long UGAZ, then your risking more than your initial investment for 4 dollars. Not a wise move. Plus, the volume on UGAZ is much more than that of DGAZ, so you would make up the trivial $4.00 difference when you buy or sell UGAZ because the spread should be a lot smaller.
quote:
I went in this morning and looked at the margin calculator again. I'm short, and the margin equity in my account is nearly 100%, and funds withheld is $0.00.
If you're short something the margin should be withheld. I don't know all the intricacies of your account, obviously, but to me that doesn't seem right and I would ask your broker why that is. I'm not familiar with every type of account there is but I've never heard of what you're describing.
This post was edited on 5/16/15 at 8:50 pm
1
Posted on 5/16/15 at 11:26 pm to Al Dante
quote:
But in the case of DGAZ you're shorting an instrument that is the inverse of the long. You're kind of shorting a short
Never understood this play either but to each his own.
Posted on 5/17/15 at 10:16 am to jlu03
DGAZ is a note, not a fund. Shorting an inverse note has greater growth historically versus going long.
Long's cost is 100%, plus opportunity costs on this trade. Short's cost on this trade, at least for me, is some funds are not available, but the first 100% of requirement before movement is covered by sale's proceeds, and the next 25%, which is what the maintenance for me is, is covered by either cash or margin equity not available.
So yes, I guess one could argue the difference in cost is .00008%, but in reality, the difference in cost is total cost of 100% = opportunity costs, less 1% interest annual on 25% of short trade. Or based on today's price for 1000 shares excluding the more esoteric costs (opportunity costs, etc.), a debit of $4,830 + commission, versus a credit (not available) of $4,830 less commission, and true tangible carrying costs of about .13 per day, and about $1,250 of actual equity no available. Because the first 100% is not available on a short in any event, except it actually kind of is, and the first 100% on the long has been exchanged. In a best case scenario, the 100% on the long is only available in practice up to 75% (unless the long is liquidated)
Long's cost is 100%, plus opportunity costs on this trade. Short's cost on this trade, at least for me, is some funds are not available, but the first 100% of requirement before movement is covered by sale's proceeds, and the next 25%, which is what the maintenance for me is, is covered by either cash or margin equity not available.
So yes, I guess one could argue the difference in cost is .00008%, but in reality, the difference in cost is total cost of 100% = opportunity costs, less 1% interest annual on 25% of short trade. Or based on today's price for 1000 shares excluding the more esoteric costs (opportunity costs, etc.), a debit of $4,830 + commission, versus a credit (not available) of $4,830 less commission, and true tangible carrying costs of about .13 per day, and about $1,250 of actual equity no available. Because the first 100% is not available on a short in any event, except it actually kind of is, and the first 100% on the long has been exchanged. In a best case scenario, the 100% on the long is only available in practice up to 75% (unless the long is liquidated)
This post was edited on 5/17/15 at 10:37 am
Posted on 5/17/15 at 10:25 am to Iowa Golfer
Especially inversed leveraged notes based on an underlying index.
There is not a lot of research on shorting leveraged notes. There is some about shorting leveraged funds, and in every case I found this morning, it concludes what I state above. Some of this research is complex, with extremely complicated mathematical formulas that are frankly mind boggling. But big picture, the short leveraged short outperforms the long leveraged long.
With respect to the cost to carry, rather than argue mathematical theoretical costs, one trade costs me over $5K for 1K shares, the other trade costs me .13 per day, and funds not available (which would really be available in any event) of 150% (you're correct here), of which the first 100% is addressed by the deposit from my short sale.
I have portfolio margin. It's different than margin on a single equity.
There is not a lot of research on shorting leveraged notes. There is some about shorting leveraged funds, and in every case I found this morning, it concludes what I state above. Some of this research is complex, with extremely complicated mathematical formulas that are frankly mind boggling. But big picture, the short leveraged short outperforms the long leveraged long.
With respect to the cost to carry, rather than argue mathematical theoretical costs, one trade costs me over $5K for 1K shares, the other trade costs me .13 per day, and funds not available (which would really be available in any event) of 150% (you're correct here), of which the first 100% is addressed by the deposit from my short sale.
I have portfolio margin. It's different than margin on a single equity.
Posted on 5/17/15 at 10:35 am to Iowa Golfer
I looked further, and it's not on the hard to borrow list. At least not for me. There were 1.5MM available to borrow at my trading firm at the most dangerous times (3-4PM EST) on Friday.
I suspect it is no the hard to borrow list for many firms such as ScottTrade, I also suspect they don't allow shorting of notes like this.
I do have an Etrade account also, and I placed a short sale this morning, and cancelled it. It allowed me to do it, subject to my approved hard to borrow agreement.
I suspect it is no the hard to borrow list for many firms such as ScottTrade, I also suspect they don't allow shorting of notes like this.
I do have an Etrade account also, and I placed a short sale this morning, and cancelled it. It allowed me to do it, subject to my approved hard to borrow agreement.
Posted on 5/17/15 at 10:40 am to Iowa Golfer
No restrictions at all on IB.
All of this is meaningless if the broker holds the security in their proprietary trading account, which a lot of them still do. You can't convince me they don't. On IB, I can directly route to dark pools, or at least dark pools available to retail guys.
Where it gets interesting is etrade doesn't really allow any type of routing that is sophisticated. And yet, I have order execute that don't show up on the ticker for outside of the inside b/a.
So I suspect they go to mm's who refund based on adding liquidity. The mm's are routing to whomever they please, as they can. And why wouldn't they?
All of this is meaningless if the broker holds the security in their proprietary trading account, which a lot of them still do. You can't convince me they don't. On IB, I can directly route to dark pools, or at least dark pools available to retail guys.
Where it gets interesting is etrade doesn't really allow any type of routing that is sophisticated. And yet, I have order execute that don't show up on the ticker for outside of the inside b/a.
So I suspect they go to mm's who refund based on adding liquidity. The mm's are routing to whomever they please, as they can. And why wouldn't they?
Posted on 5/17/15 at 10:43 am to Iowa Golfer
As poorly as I attempted to explain all of this, all I really need to do is go place trades today, which would be held until market open Monday, and look at what the true dollar outlay of the trades are. In no way ever does shorting a stock cost me more dollars than longing a stock.
Until I have to buy to cover because a trade went against me. But that's no different than selling a long at a loss.
I don't short a bunch, but when I short, I short deliberately, and with purpose.
Until I have to buy to cover because a trade went against me. But that's no different than selling a long at a loss.
I don't short a bunch, but when I short, I short deliberately, and with purpose.
Posted on 5/17/15 at 10:49 am to Iowa Golfer
25% (or 50% as you and Reg T state) versus 100% in practice. In theory 100% versus 150%/125%. Initial immediately dropped to maintenance.
In practice, 150%, of which 100% is immediately covered by sales proceeds, and interest of .13 per day versus $5K.
In theory, to short would cost $4,830 X 150%, and long only costs 100%. But it doesn't. It just doesn't.
In practice, 150%, of which 100% is immediately covered by sales proceeds, and interest of .13 per day versus $5K.
In theory, to short would cost $4,830 X 150%, and long only costs 100%. But it doesn't. It just doesn't.
Posted on 5/17/15 at 11:00 am to Iowa Golfer
In some ways what I've done is replicated a put. Theta mostly. And with a maximum loss. Easy, simple stuff.
I think Theta replication would mitigate decay, or at least it shows it contemplated. I need to think through that a bit.
The decay point of your post is the most interesting. The rest is purely theoretical, and actual costs are actual, not theoretical. Easy to track in real time as trades are made, and markets move with and against trades. They are what they are, stated in dollars.
I think Theta replication would mitigate decay, or at least it shows it contemplated. I need to think through that a bit.
The decay point of your post is the most interesting. The rest is purely theoretical, and actual costs are actual, not theoretical. Easy to track in real time as trades are made, and markets move with and against trades. They are what they are, stated in dollars.
Posted on 5/17/15 at 11:02 am to Iowa Golfer
Pretty interesting topic really. It made me run some scenarios to see actual dollar costs.
Posted on 5/17/15 at 11:55 am to Iowa Golfer
Ah, now it makes more sense. Reg T doesn't apply to me in either account. The SEC's rules on portfolio margin apply in both cases. Margin requirement range between 8-15%, and there is no difference between initial or maintenance on IB for me, and only a very small difference between initial and maintenance on Etrade.
Posted on 5/17/15 at 9:01 pm to Iowa Golfer
quote:
Shorting an inverse note has greater growth historically versus going long.
In the time frame you trade these securities the difference would be nonexistent. And you still haven't explained the reasoning behind going short DGAZ for days while never going long overnight on UGAZ. It still makes no sense. You're saying you're willing to go short DGAZ for longer because of your perceieved slippage/decay advantage? It's next to nothing compared to price movements in the instrument itself. I think you're changing your reasoning as you research a reason for justifying your position.
quote:
Ah, now it makes more sense. Reg T doesn't apply to me in either account. The SEC's rules on portfolio margin apply in both cases. Margin requirement range between 8-15%,
Good point about portfolio margin, I didn't think of that, but it really makes no difference with these particular securities. The portfolio margin requirements for leveraged ETFs are multiplied by the ETF's stated leverage. So a short on DGAZ would require triple those margins, or 24 to 45%, in your example. Again, not enough of a reason to warrant the greater risk of a short DGAZ compared to a long UGAZ. And I still don't believe you can short DGAZ but I guess you found a way. I don't know why you'd go through the trouble when you can just go long UGAZ.
You said earlier you have short positions and your margin equity was nearly 100%. Even with portfolio margin, I don't believe that could happen, and especially if you are short DGAZ because of the steeper margin requirements. I'd talk to my broker to straighten this out.
I don't post here often. I just wanted to know why you would go short DGAZ and not long UGAZ, hoping I'd find some insight to the strategy. You've changed your reasoning multiple times as you've found what you were saying wasn't really valid. Your first reply was "This is real life, not theoretical! Nobody can short DGAZ but I can!", or something to that effect. It's really not a good reason to do it.
I'll just stick with going long UGAZ if I'm particularly bullish on gas and long DGAZ if I'm particularly bearish. As someone said above, to each his own. Thanks for your insight, though. Good conversation. I don't trade in these instruments that much anyway. My question was just off the cuff and thought I'd get a quick answer. Didn't expect this back and forth to go this long.
I'll go back to lurking now.
This post was edited on 5/17/15 at 9:35 pm
Posted on 5/18/15 at 6:09 am to Al Dante
In the example above, one trade would cost $5,000. The other trade is currently costing me $750 plus .13 daily. The portfolio margin is a flat 15%. I see no where that SMA, or my portfolio margin is reserving 45%, nor am I going to call my broker and ask them to reserve more so I can pay more in interest. The first 100% is addressed because I'm selling, not buying, consequently I receive this as sale's proceeds.
I addressed everything else.
I addressed everything else.
Posted on 5/21/15 at 8:33 am to Iowa Golfer
Bought UWTI yesterday and sold this morning for a 5.67% gain.
Posted on 5/21/15 at 10:42 am to white perch
Bought and sold some UGAZ today for a 1.29% gain.
Posted on 5/21/15 at 10:59 am to Iowa Golfer
think I should sell all my UGAZ at a huge loss?? this shite isn't coming back to the double digits..
Posted on 5/21/15 at 11:20 am to b-rab2
Just as predicted. Lower production. Laffy. DGAZ under $5. Probably going to buy to cover at a profit. Extremely low cost way to make the short term trade.
Posted on 5/21/15 at 11:23 am to Iowa Golfer
good for you.. looks like I need to start following you trades more often. bought some puts on IOC today
Posted on 5/21/15 at 11:34 am to b-rab2
I'm long, but closing this inverse long (shorting the short) as I do think it is possible we'll have record injection. Natty gas is the widow maker. I've avoided death by 1000 cuts on my short, I'm taking profit.
Natty gas is a trade based on fundamentals for me. Not a long, long term investment.
Natty gas is a trade based on fundamentals for me. Not a long, long term investment.
Posted on 5/21/15 at 1:11 pm to Iowa Golfer
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