With options and futures, you can go broke and then some in minutes.
Thanks now to leveraged ETFs you can produce some amazing results in a day.
Pension Partners reports How to Lose 40% in a Day.
Losing 40% or more in a day was always possible using futures and options, but before June 2006 it was nearly impossible to do so using an exchange-traded fund (ETF). What happened in June 2006? The first leveraged ETFs were introduced.
Fast forward to yesterday and we witnessed the largest one-day decline in history for an ETF: -48.3%. The 3x long Brazil ETF (BRZU) now holds this ignominious distinction.
Thanks to leveraged ETFs, the 1987 crash has become child’s play. For a number of these ETFs, a 20% decline has become a non-event. The 3x long Gold Miners ETF (NUGT), for instance, has had 15 days in which it has declined 20% or more since its inception in late 2010. Its counterpart, the 3x short Gold Miners (DUST) bests this with 16 days with declines of at least 20%.
Before this week, the 3x short Financials ETF (FAZ) had held the record for largest one-day loss, at 45.1% (on March 23, 2009). The record stood for over 8 years. But records, as they say, are made to be broken.
Who will be the first to lose 50% in a single day? The casino is open – place your bets.
One person commented they did not understand the point of my post How High Will Bitcoin Go?
It would have helped if I included the Twitter poll I meant to insert.
Trade of the Century
I was curious where people thought it was headed. So far, 67% think it will more than double from here. Not many readily buyable things go from well well under a penny to $1900.
As late as June 2012, you could have gotten Bitcoin for $7. I didn’t.
Blockchain Technology
For the record, blockchain technology will become widespread. It is perfect for recording things. Mortgages, deeds, titles, etc, are a perfect fit for starters.
Bitcoin itself is widely used as a capital flight mechanism out of China. Outside of that, it is mostly a speculative plaything.
Why not a triple-leveraged Bitcoin ETF? Perhaps Bitcoin could then eventually take out the above ETF records.
Mike “Mish” Shedlock
Many the man lack a proper balance between bold aggressive optimism, and intellectual good sense.
Just looking over that Pension Partners chart and six of twenty of those dreadful days were in the last ten days or so of Nov 08. I remember it well. The full knowledge of Obama becoming president was news, not rumor and it seemed like everything was in full scale meltdown, which it was.
In October, you could post a 20% gain for holding Exxon shares over the weekend. I think it was still the world’s largest company at the time. I made some nice buys in that time period but lost my job so I couldn’t be as aggressive as the conditions warranted.
I like how you threw in the nonsense about the meltdown of the Fall of 08 being due to Obama being elected. Biased much? People didn’t figure out Obama was elected until the last 10days of November?
“People didn’t figure out Obama was elected until the last 10days of November?”
Knowing he was elected president is not the same as knowing what his presidency will mean. For all his popularity, Obama was still somewhat of an unknown.
Markets react to new information and a lot of it was flowing during the stated time period. Decisions begin to get made and announced. White House staff and Cabinet positions get filled. Rumors get squashed and facts become evident. For example, the nomination of former NYFed president Tim Geithner as Treasury Secretary was huge and certainly not a given on Election Day.
Anyone who was around then remembers that, but for the record, that nomination took place Nov 24, 2008. You knew right then there would be no criminal arraignments on Wall Street. I merely observed from Pension Partners data that a lot of the reaction went to the downside. (6 out of the 20 worst drops)
Finally, was there NOT a meltdown underway? Of course there was and the only nonsense would be to say otherwise. I did not state it was “due to Obama” but you read that into my post, revealing your own bias.
Markets always are looking at the future. It’s just the way they work.
Used HDGE, a triple leveraged short hedge on 3 occasions during the 2008-2009 period. it worked well back then if you kept moving your stop points up. Did well the first two times, but the last time I played it I lost my internet connection for a few hours… and that stop came in handy. This particular ETF went up slowly and crashed quickly like you’d expect from a leveraged instrument.
As I said last post, Bitcoin ETF,,,,a derivative bet on an apparition.
I just don’t understand Bitcoin well enough. I’m still waiting for someone to give me one good reason why Jamie Dimon IS A BILLIONAIRE.
What, did he discover a cure for cancer? Cleanup and remediate nuclear fallout at Fukushima? Oh, wait, …that’s right! He’s a banker who creates capital out of thin air and distributes it as he sees fit.
Not everyone can do that!
( sigh )
Think you forgot about Jamie Dimon’s ability to lose $6 billion in SHAREHOLDER money (not his own) when he failed to provide managerial oversight to risk control… only to call the loss of billions of shareholder money “a tempest in a teapot”.
If only Bernie Madoff had hired the same PR group that came up with “tempest in a teapot”…
The Clinton Foundation at least gave its clients something for their money. Superior to Dimon et al.?
Used to be the financial sector supported the economy. Now the economy supports the financial sector.
If you can lose 50% in a day then you can also make 50%. Why so negative?
http://bigcharts.marketwatch.com/kaavio.Webhost/charts/big.chart?nosettings=1&symb=BRZU&uf=0&type=2&size=2&sid=19410216&style=320&freq=1&entitlementtoken=0c33378313484ba9b46b8e24ded87dd6&time=13&rand=840308730&compidx=aaaaa:0&ma=0&maval=9&lf=1&lf2=0&lf3=0&height=335&width=579&mocktick=1.jpg
Maybe?
Image didn’t load… 5yr chart brzu
http://bigcharts.marketwatch.com/advchart/frames/frames.asp?show=&insttype=Fund&symb=BRZU&time=12&startdate=1%2F4%2F1999&enddate=5%2F19%2F2017&freq=1&compidx=aaaaa:0&comptemptext=&comp=none&ma=0&maval=9&uf=0&lf=1&lf2=0&lf3=0&type=2&style=320&size=2&x=60&y=14&timeFrameToggle=false&compareToToggle=false&indicatorsToggle=false&chartStyleToggle=false&state=8
Point being, if there is a 3x bull ETF, then in most cases there is also a 3x bear inverse ETF, which performs at the same magnitude but in the opposite direction.
Not sure about shorts, looks like it is wired to earth…
….what if people shorting it are the ones stopping it reaching 0 !
Nominally true, but the “escalator up, elevator down” behavior of most speculative markets, tend to make large single day down moves, more common and likely than up ones.
100 down to 50 up to 75. Still you have lost 25.
No no KPL , the down to 50 is other people where you short it, then you buy into the up to 75. So you have 75 total and the stock is still worth 75 too. That means it hasn’t lost anything but is actually worth 150 ! You can repeat that the whole way down and you always come out with more, and that is why it is underpriced now.
Guess I should add a /s just in case someone reads that and…
Yes, if it can go up X points it can go down X points. I think that is what you are trying to say.
Mish 6,8,9 months ago I’m guessing here, I alerted everyone on your blog that NUGT had dropped down to 8 and it was time to buy. It dropped to 6, then turned around and took off. My broker would not let me buy it since back in 2009 so many of their clients had lost their ass in etf’s that they had been sued and lost their ass in countless lawsuits. I’m not even sure that NUGT or it’s opposite DUST were trading back n 2009. Now the 52 week range on NUGT is low of 22, high of 142 is misleading since they are always splitting and reverse splitting this ETF. These things are always for gamblers with great timing and deep pockets to say the least!
Mish instead of alerted I should have said mentioned, and instead of time to buy maybe time to take a look-would that matter here-I certainly wasn’t being offensive I don’t think??
Mish, I give you a “f”…
please put it in the midst of “capital light”.
Other than that, I got nothing…
I just want to get moderated now, so I can comment later, without the time delay.
Just sell volatility when the VIX spikes and you will make money. Lots of it.
Easy-peasey.
That has been the case to date but it is not a slam-dunk guarantee. There are ways shorting volatility could blow up in one’s face.
1) Shorting UVXY or VXX
These are heavily shorted as everyone “knows” they will decay towards 0 (they will be liquidated before it is ever reached). One might short into a vol spike, only to see it spike further and get be liquidated at a at a large loss due to a forced buy-in. Forced buy-ins are a risk with any short position but the risk increases the more heavily shorted the instrument and these appear to be very heavily shorted. Recently on Seeking Alpha someone mentioned that TD Ameritrade found themselves in a position where more shares were short in UVXY than were held long and forcibly closed some of the shorts. Once the VIX F1 and F2 futures go into backwardation these things really fly, so getting forcibly closed out could easily result in large percentage losses.
2) Buying XIV or SVXY
XIV is potentially subject to an “Acceleration Event” if its indicative value falls 80% or more in one day, which would cause it to be liquidated if invoked. This event is unlikely but it is not impossible. It’s one of those, “low-probability, high impact” type of events. SVXY does not seem to have a specific liquidation event but they have the boilerplate “we can terminate at any time with written notice” language in the prospectus and it is not far-fetched to assume they would do something similar to XIV.
3) Futures
I’ve never traded them but I’ve looked them over at the CBOE site and the CBOE does not accept stop-loss orders. The futures are $1000 per VIX point. Without stops one had better have plenty of margin for a short because I can’t see FCMs waiting around for someone to meet a margin call – I would expect they would simply close the position if there was any question of margin becoming inadequate during an extreme move up.
Shorting vol has been profitable and will most likely continue to be so. But folks need to understand it is not a guaranteed win. I think it is inevitable that one day it will fail badly.
Sell vol + Time = Keep body bag available.
However, they’re no longer “readily buyable” since there’s a finite amount and demand is greatly increasing. I’d say bitcoin’s rise is anagous to Microsoft stock when it first went public. Astronomical returns were possible, but it took many years to achieve, even though the market price stayed low for some time. (i.e. the value was hidden for many years, even though it was there.)
It wouldn’t surprise me that Pension partners had restrictions on taking short positions and the ETF was a way for the portfolio managers to skirt that control. Cynical on my part but I view ETF’s and ETN’s and other instruments as a way for people to take positions that their investment guidelines don’t permit.
My first CFD trade (something Americans are not allowed to do). Lost the total amount invested in minutes, as the DAX rose by 1.x %. I had bought the big one (futures would require a steep payment to open such a position).
Setting limits makes sense. For opening and closing positions. As we cannot be glued to the screen and those markets trade during the night etc., too.
Trup wanting “everything” like a kid in a candy store concerns me. Military, infrastructure, tax cuts, … Q: how to pay for it all?!?
“Irrational exuberance” again? And the stock & bond markets are never part of inflation calculations? Uhu!
I do not have the temperament for shorting, so I don’t. But according to Seeking Alpha commenters on shipping stocks, the short contracts allow brokerages to close out positions for any reason at any time, and this is most often when the brokerage back office deems the risk has become excessive (for the brokerage). Brokerages vary greatly, some working better with clients and some being heavy-handed and exercising contractual ability to close out the position at any time (usually the worst time for the client; when the stock being shorted is at its highest, just before it collapses).
It is a particularly dangerous game with illiquid stocks where everyone is going the same way at the same time. Some Seeking Alpha traders have said they could not execute their short strategies simply because the brokerages did not have enough shares to loan out. A worse case is when those who loaned the stock sell it, and the brokerage then is forced to close out client positions for lack of underlying stock. In other words, if you do not own shares of the stock you are shorting it adds another level of risk. So, you can get everything right on paper, have the stock price go your way, and still be a big loser. Very high risk, IMHO.
As to 3x leverage, these large moves are the whole point of the ETF, the reason for buying them. I do not do ETFs, but have own listed stocks that have collapsed over 50% in a day (amazing what a piece of bad news can do). Conversely, I have had stocks unexpectedly double in a day. I suspect this is not an uncommon experience with common stocks. Personally, I have no problem with people betting on leveraged ETFs.
It’s obvious to me that stock market trading is rigged. Why anybody would put a sizable chunk of change into one of those volatile highly-leveraged ETF’s is beyond me. They’re just begging to get hammered. Maybe it’s like with gambling addicts. If they’re on a roll they feel invincible. And if they’re down to their last few bucks they feel the need to triple down to get back to even. Either way, they’re screwed.
Sad to watch people lose so much money on emotional impulse.
I don’t know what you mean by a “sizable chunk of change” but I like them as a much less levered version of the futures.
I day-trade the ES. My margin requirement for that is $1000 per contract. At current prices my leverage on the contract is over 118 to 1. Thus my stops must be pretty tight. I currently use 11 ticks, or $137.50 per contract. That’s a mere 2.75 SPX points. When the ES is flying it can make those moves and bigger in a fraction of a second.
When volatility rises those stops are much more likely to get picked off by a random move. If I want to allow for the bigger moves I like to use UPRO or SPXU, which I can size to trade as an equivalent fractional ES and use bigger stops while still getting some gearing on my play.
I can also take longer-term positions with them than I could with the ES, especially with hedging longs or outright shorting (I short stock indices and commodities but never individual stocks). I absolutely will not carry an ES overnight. For one thing the margin requirements increase considerably but my main reason is I simply do not want to wake up and find myself on the wrong side of an explosive overnight move.
I wish you all the luck in the world with your day trading.
LEVERAGE is dangerous it means BORROWING TO BUY STXX
For my part I will never use leverage ie buy derivatives instruments ie dangerous financial products such as options/ leverage long or short etfs etc …
Some people pretend you can make money on both side the long side anticipating a stock price to go up and on the short side sometimes even on the same stock anticipating the price to go down / However I don t buy that it is always more risky statistically to be short than long
so I am either long only or in cash ie out of the game during turmoils
Do not forget stock market is a casino a roller coaster with a up and down stages / seasonal cycles etc / Brokers and market makers are trying to shake you out in order to extract a maximum of fees that s why I rarely use stop loss
If the SEC approves a non-leveraged Bitcoin ETF anytime soon, I think there could be a 100% gain in the BTC price within a couple of days (if the decision is not too much of a surprise…it takes time to transfer fiat to exchanges).
I believe Bitcoin is an invention whose disruptive innovation will rival the internet. It especially appeals to libertarians,and others who believe people should have the right to control their own money. It may also appeal to progressives who believe it is wrong to confiscate the wealth of savers, pensioners, and future generations to bail out the big banks and sovereign debt (which funds wars).
I think it is a good idea for all bright people to learn about Bitcoin and buy a small amount to experience it. Here are some good videos to start a learning journey: https://www.youtube.com/watch?v=l1si5ZWLgy0&list=PLDto3IHr_v57h3FFYlLN3-3_J9H8lMFaH&index=1
Progressives love war and fiat currency. The two go hand in hand. They issue paper to fight the war then issue fiat currency to pay off the debt accumulated when fighting the war. I’m sure we’re still paying for the US Civil war with new debt backed currency even today. For certain we never paid off the debt from WW 2 and Vietnam.
I would have to agree that liberals generally love fiat currency and war , but I think there are some in the Bernie Sanders and Dennis Kucinich wing of the Democratic party who do not.
Most people are financially illiterate. Trading options and leveraged products is funny.
Agree. New Equation:
Most people + options + time = More Body Bags
Another driver of bitcoin is the currency meltdown in Venezuela. People there are able to get goods from Amazon shipped in by exchanging BTC for gift cards. They run extensive mining operations using subsidized electricity.
https://arstechnica.com/tech-policy/2017/01/four-bitcoin-miners-arrested-in-venezuela-for-allegedly-stealing-electricity/
I wonder if the price-to-KW ratio has gotten better lately? For a very long time it was more expensive to power the miners than it was to get new BTC. At $2000 it might be worth it to start up the machines again. I always thought it would be an interesting use of that excess power that wind farms produce that is screwing up baseload generation. After all, in many cases the wind farm will produce when demand isn’t there, but because the government is subsidizing the production they’re willing to pay the grid operator to take the power (and laws require them to take the power even if it isn’t needed). A savvy grid operator might run a few bitcoin miners off peak just to use up the excess. Somewhat convoluted way to get a subsidy from the government but that’s the times we live in.
I’ll get working on that aluminum can deposit scam too…
http://time.com/money/4422277/seinfeld-bottle-deposit-real-michigan/
I just wonder if the the DOW will best its biggest one day drop of 22%.
A drop of 22% from 20,000 would be 4,400 points in one day.
“Not many readily buyable things go from well well under a penny to $1900.”
Not many readily buyable things go from well well under a penny to $1900 without more of them being created or at least knowledge of impending supply increase.
Until Bitcoin or its equivalent becomes state backed, it cannot function as currency. ETF’s are a ticking time bomb. It forms the acronym Everyone Takes Flight. When the stock market tanks, and the s hits the fan causing everyone to head for the front door, these passive funds will turn a crash into a rout.
The danger to the leveraged ETF is not the face leverage ratio. It’s when speculator purchases leveraged ETF’s with borrowed funds. A hard reverse against a position could result in a chain reaction of liquidating OTHER holdings in a portfolio.
It’s the old problem of a liquid vehicle (ETF) holding an illiquid security. Now do it on leverage.