Okay, I'm stupid...
I planned to buy FAS (3x bull financials) to catch a short rebound, since the markets have been mostly down the last 5 days in a row including being down sharply (3%) this morning.
I bought almost perfectly at the bottom at 12.55 before lunch and it immediately shot up to $15.00 before I realized my mistake: I was in such a hurry, I entered 1/10th the number of shares I meant to (because I was used to buying SKF which is in the $100's, not the $10's), so I ended up hardly owning anything. I can't make enough on this to even cover the commissions now, so I'm not sure what to do. I'll probably just wait till tomorrow to see. I think it's too risky to buy right now. If the markets drop again, I'll try to get into it again in the $12 range, this time with a proper number of shares, but I'm probably too late. Bah - so much for my perfect trade.
Lesson: Always review the trade confirmation page to make sure the total order amount makes sense before you click OK.
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2 comments:
FAS is back down the high $12 mark now, so is this a good time to buy in? Also, with something like this, how long do you recommend we keep it? (keeping in mind the unpredictable cycle of stocks right now)
I can't recommend when to buy this. The markets are so volatile and FAS moves roughly THREE times the amount of the financials in a day. As you saw on Tuesday, FAS dropped an incredible 40% in ONE day from Monday's close. Insane! It's fairly close to gambling, although I think it's easier to come out ahead in the long run by properly setting your stops.
One important thing to realize is that these leveraged ETFs track the *daily* percentage change, and in a volatile environment, this usually means over the long run, the fund will likely perform poorly. Why? Here's an example to explain: Say the financials drop 10% in one day and then recover the next day to their price from before (this would mean they need to go back up 11.11% on the 2nd day so they're back where they started. (e.g. 100 * .9 = 90. 90 * 1.1111 = 100). Let's look at what FAS would do now if it starts at $10. Since it moves 3x the financials, this means it drops 30% the first day, and gains 33.33% the next day. $10 * 0.7 = $7. $7 * 1.3333 = $9.33. While the index is back to where it started, FAS ends up to the point where it still down over 6% from it's initial 10.00 value.
As a more exaggerated example, say the financial index drops 33% one day and goes up 50% the next to recover to its starting price (e.g. $100 to $67, and then $67 back up to $100). This would mean FAS starting at $10 would drop 99% on day one (3 times the 33% movement) to 10 cents, and the next day would go up 150% (3 * 50%) to 25 cents. So while the index completely recovered, FAS is worthless, still down 97.5%! I still plan to write about this effect in another post.
The bottom line is that leveraged ETFs are not usually a good idea for long-term investments. The 3x ones such as FAS/FAZ are better suited to day traders.
I'm still bearish on the market as you can tell from my posts and Sprotts articles, so I'm only buying long things like FAS to try to catch short term bounces.
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