Cart (0)
business newsDirexion ETFs: Fair and Unbalanced
By
Adam Warner
Apr 28, 2009 10:20 am
We may be left with a bunch of trapped front-runners with no one to sell to.
PRINT
 |
|
e) {}">
That being said, the response to Mike Santoli's piece in Barron's the other day was overwhelming. By overwhelming, I mean many wanted an explanation of how they could make this trade. He ended up sending out an email; I'll excerpt it here:
"I'm sorry if I left the misimpression that I was offering some sort of 'how to' guide to game the ETF action near the close. In fact, I was alarmed and dismayed at the number of folks who seem interested in trying this.
"Don't. The people who employ many PhDs and much computing power in this area have already crunched the math and written the algorithms to try and exploit these factors. Most likely they're busy working on ways to get on the other side of this trade already. If anything, the widening recognition of these effects suggest that the game is getting too crowded to continue 'working' in a reliable fashion.
"As soon as you think you have figured out a way to get a free lunch, the market typically presents you with the check."
One of the materials is the academic paper that really got this whole discussion rolling, which you can see here. The other is a Bespoke post on the topic that you can find here. Let me just say, I totally agree with his take on it. I don't want to dissuade anyone from trading anything where they feel they see an edge. But no question, too many players have discovered this phenomenon and are going to cause a self-fulfilling supply the other way. It's just 2 days, but first Friday we saw FAS get smoked in the last 20 minutes, and then Monday (charted above) we saw FAZ go nowhere at the end of the day, despite yet another volume surge.
And to channel some Thornton Mellon, these "swap" players -- the ones presumably setting up this rebalance to dynamic to begin with -- aren't boy scouts. They're not providing a public service for Direxion; if they see edge rebalancing early or after the bell, or the next open, or whatever, they'll change course and we'll be left with a bunch of trapped front-runners with no one to sell to.
In memory of our fallen friend and trusted colleague, Bennet Sedacca, 100% of the donations made to the RP Foundation through April will be channeled to philanthropic endeavors consistent with the RP mission, working closely with the Sedacca clan in the distribution of those funds. We thank you kindly for your support as we strive to effect positive change in the lives of children.
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
