Wednesday, June 3, 2009
3X ETF's (Treasuries)
Direxion recently launced a few new ETF's that track the Treasuries: TYD, TMF, TYO, TMV. They are also the company that launched the FAS and FAZ, the popular ETF's among many intraday traders. I too have made plays on these ETF's and made some good returns. But they are mostly geared towards the intraday trader, which will be more relevent in my new venture with SMB capital. But I bring up the ETF's for treasuries because as interest rates become the primary discussion in the market because of inflation and the fed tightning up monetary policy these ETF's will definatly be in play. So I think it will be beneficial to keep these on the radar. They are not very popular yet but the volume on these 3X etf's seems to grow pretty quickly.
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I've been long the TBT for a few months, since the 10 year rate was at 1%. This is one of those situations where I felt like putting 100% of my portfolio at it, but I wasn't quite educated enough on how it worked. For instance, I paid $42 for TBT when rates were at 1%, now assuming rates won't go negative, what comprises this ETF to give it a value of $42?
ReplyDeleteI understand that basics of how it's supposed to work, as Treasuries go down in price and thus yield increases, the price of the TBT goes higher as its designed to move inversely to Treasury prices. So I bought long at $42 and sold a June $50 for $4, cost average of $38 and probably will be exercised away in two weeks. I'm happy with my return, but wondering if I missed the boat by not loading up, or am I currently holding more risk than I even understand. I don't know.
I looked at this in a similar manner to the silver trade. Even if rates went negative for a day or two like during the crisis, at some point in time, even if it's a ten year recession, rates go back up. I looked at it as a ticker symbol that literally can't go to zero, and if that's the case then you just write covered calls forever on it. But once again I didn't understand enough about it to play any bigger than 300 shares.
I think that the small size was a smart move as these things are very volatile. They were never intended to be held for long periods of time. They are really designed for the intra-day/short term trader.
ReplyDeleteThanks Dominic. I'll track these for a while before dipping my toes.
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