Aiki14.........WEB EXCLUSIVE!

[Horace Kent]

LOL!.........I busted ya man!


Todaytrader on twitter posted the link..........

Anyway.........Check out Aiki with Howard and ppearlman talking stocks and twitter! And his short on the FAZ FAS - nice work dude, I missed you tweetin this.

Gots to love these interwebs!

http://wsmco.com/show.aspx

[Bolimomo]

You look hot Jim! LOL :D

[Mastajab]

Nice, I was wondering how to pronounce Aiki.

[Albert0373]

That's awesome!

[Mbrown10012]

the movie doesn't play for me, anybody knows how to fix this? on the bottom is says ready, but clicking on it doesn't do anything for me

[Albert0373]

It's supposed to play in a streaming windows media player, try this link:

http://wsmco.com/asx.aspx?wsm.1385.wmv

[Bolimomo]

the movie doesn't play for me, anybody knows how to fix this? on the bottom is says ready, but clicking on it doesn't do anything for me

Need to click "Allow" for the Active-X control to view the videos.

[captram]

Nice video Jim!

[yoyomama]

Yeah Jim!

[aiki14]

LOL!.........I busted ya man!


Todaytrader on twitter posted the link..........

Anyway.........Check out Aiki with Howard and ppearlman talking stocks and twitter! And his short on the FAZ FAS - nice work dude, I missed you tweetin this.

Gots to love these interwebs!

http://wsmco.com/show.aspx

Where else can a kid from Long Island with 2 bad knees and a love for the game rise to...
Oops, accidently went into the Mike Schmidt retirement speech
http://ballhype.com/video/mike_schmidt_retires/

Seriously though, thanks Horace and everyone for the kind words. It was fun to do, and I got to spend time with some interesting people.

[useless]

Just watched it, very cool!

Too bad we cant get that type of analysis on the tube.

[yupyup]

That was awesome.

Everyone watch this!

[john_for_u80]

Nice!

[aiki14]

Folks, the response to the video has been nothing short of amazing, except for a couple of fat jokes, enormously positive. (Opening for more using fat jokes and enormously in the same sentence)

I want to say that the feedback that means the most to me is from the folks here. I have a great deal of respect for you guys and the amount of knowledge I have gained from my participation here has been incredibly valuable.

OTF still the best stock/trading forum out there, and it's a great pleasure to be part of it. Thanks All

[Bolimomo]

Jim: How did they find you? And you have to provide your own travel to the studio to tape the program? Just curious.

You are a celebrity now! Don't forget us little people... LOL :D

[aiki14]

Jim: How did they find you? And you have to provide your own travel to the studio to tape the program? Just curious.

You are a celebrity now! Don't forget us little people... LOL :D

Just from tweets I posted as far as I know, and the Interview by OptionsZone probably helped.

I was in NY monday and tues for personal business so it was no problem, and I am only 90 minutes away even if I went just for that it would have been worth it, it was great fun.

[chinaman711]

Good job Aiki, keep it up.

[Albert0373]

If cman and aiki made a TV show, that'll be the only thing I'll watch ever.

[Thierry Martin]

Congratulations aiki14, your rising celebrity is well deserved. I thought you looked great on video and your commentary was direct and honest, which is not what we always get when traders are interviewed.

[Jelly]

Just from tweets I posted as far as I know, and the Interview by OptionsZone probably helped.

I was in NY monday and tues for personal business so it was no problem, and I am only 90 minutes away even if I went just for that it would have been worth it, it was great fun.

Very good, J. Though youse coulda had an obligatory hottie or two talking about green shoots.

[Riddicks]

Good Job Aiki, you have always been the first one to help anybody on here so if anybody needs to get recognized its you.

[avsfan987]

Where else can a kid from Long Island with 2 bad knees and a love for the game rise to...
Oops, accidently went into the Mike Schmidt retirement speech
http://ballhype.com/video/mike_schmidt_retires/

Seriously though, thanks Horace and everyone for the kind words. It was fun to do, and I got to spend time with some interesting people.

Great video discussion aki14. I've been quietly following you on Twitter and these boards and everything you say has been nothing but helpful.

For people like me who have just started out learning the stock market and how to trade it, it's great to learn from a person who knows what he's doing and is more than generous in giving out advice.

Keep up the good work! :top:

[MaryKay1965]

Great and informative video, Aiki. Too bad "the media" doesn't shoot us straight and tell it like it is as you and the other guys did.....

Well, just wanted to give my regards on doing a fine interview.

FYI, I've been out of "trading" for a few months. I took some time off to digest a few things, re-think some of my strategies, and have thoroughly enjoyed the books you sent me a few months back.

I look forward to "easing" back into trading, as well as "catching up" on a few of the posts you, and others, have made in the last couple of months.

Your video presentation seems to be very genuine, and you seemed to be "spot on" with the topics you were discussing.....Congrats on a job well done.......:D

[yupyup]

This video also popped up on my streaming news ticker on Ameritrade Command Center. Popped up under fas and faz.

[LongArm]

You shoulda' delivered a nicely-placed elbow to the little guy in the middle with the annoying case of interruptitis. :mrgreen:

Aiki, you mentioned that there's a guaranteed monthly decay of 2.4% between the two ETFs (FAS/FAZ) regardless of what the market does. I was wondering what exactly you were referring to there.

[Justmakinmoney]

You shoulda' delivered a nicely-placed elbow to the little guy in the middle with the annoying case of interruptitis. :mrgreen:

Aiki, you mentioned that there's a guaranteed monthly decay of 2.4% between the two ETFs (FAS/FAZ) regardless of what the market does. I was wondering what exactly you were referring to there.

I believe it has to do with the way the etf's leverage options to achieve the 3x market move. As the option components close in on expiration the securities have to decay. I may be off base but this is what I have been led to believe.

[LongArm]

I believe it has to do with the way the etf's leverage options to achieve the 3x market move. As the option components close in on expiration the securities have to decay. I may be off base but this is what I have been led to believe.
FAS/FAZ doesn't use options, just swaps.

I know that there's some built-in decay (other than the compounding factor) due to management expenses (which is something less than 1% per year) and costs associated with the daily resetting of leverage, but I'm wondering how he got those numbers.

[aiki14]

FAS/FAZ doesn't use options, just swaps.

I know that there's some built-in decay (other than the compounding factor) due to management expenses (which is something less than 1% per year) and costs associated with the daily resetting of leverage, but I'm wondering how he got those numbers.

To get the 3X multiplier they use total return notes and futures contracts, and take a leveraged short position in the underlyings, these add up to the figures quoted. They don't use options due to the possibility of principle loss.

[LongArm]

Well, according to the N-Q, neither one uses futures for leverage, only swaps, and I've confirmed this with Direxion. And the short position of FAZ is achieved through those same swaps--there is no shorting of actual stocks (if that's what you were saying). Not trying to be a thorn in your side, just trying to get a complete handle on these things myself.

Good video, nonetheless. :)

[englishman26]

Wow I've been away for a few months and I come back and Aiki has turned into the next Jim Cramer!

[aiki14]

Well, according to the N-Q, neither one uses futures for leverage, only swaps, and I've confirmed this with Direxion. And the short position of FAZ is achieved through those same swaps--there is no shorting of actual stocks (if that's what you were saying). Not trying to be a thorn in your side, just trying to get a complete handle on these things myself.

Good video, nonetheless. :)

Don't worry about being a thorn in my side. Direxions is despicable, and I am more than a little pissed off. When they told you they only used "Swaps" they were telling the truth, when they told you they didn't short any stocks, or use futures to achieve leverage, or use total return notes, they were misleading you. Really they are outright full of guano, but I guess in a way they are telling the truth.

So what is a swap? How do you mimic an index, be inverse, with a multiple and not hold any short positions in the underlying?

Here's a link to the FAS holdings, which has long stock positions and some of these same "Swaps"
http://www.direxionshares.com/holdings_fas.csv

Here is what's in the FAZ

RGUSFL,RUSSELL 1000 FINANCIAL INDEX SWAP,
RGUSFLDB,RUSSELL 1000 FINANCIAL INDEX SWAP,
S9999021C,AIM S/T INVEST. TRUST TREASURY
S9999021D,AIM S/T INVEST. TRUST TREASURY
S99990210,AIM S/T INVEST. TRUST TREASURY

That's it, 5 products. No futures, no short stock positions. Here's where it becomes complicated.
What are you "Swapping"?
Well what you're swapping are very complex derivative securities which incorporate leverage, and the inversion, by trading the risk on other contracts, futures contracts, and margined short stock positions. The Bull fund FAS gets its leverage in the same way but doesn't need the inversion so it doesn't hold some of the Swaps, but does hold some of the stocks.

The difference in the 3.2% decay and the 1.8% decay is due to the stock holdings in the FAS.

I'd love to have a conference call where you and I could talk to the same guy who told you they only used "Swaps". It's like he was an egg fund and told you they only invest in those little plastic cartons.
It is in these guys interest to keep this quiet, because the environment for very complicated derivative securities sucking money from you and I into the ether is very unfriendly.(Sounds a lot like the whole F***ing mess that brought down LEH and BSC. Because it's the same type of thing only the basement product is a stock and not a mortgage.)
Now guess who packages and brokers these "Swaps"? Yep Goldman Sachs, see if you can find that on the Direxions website.

Hope that helps, and please don't hesitate to give them a call back and see if they aren't a tad less friendly when you run this up their flagpole.

[Horace Kent]

Yeah, its kind of funny.......

The whole swap thing is kind of a misnomer. Ok the fund itself holds the swap.....but the banker who wrote the swap has to hedge that swap.....How is he going to do it? Shorting, futures, whatever....Remember, there are single stock futures contracts....Or,there were....Haven't checked in on them lately, but around 04 - I think - they introduced them and tried to get a following.

[yupyup]

One point that was brought up a few times on the broadcast but never got addressed. How do they even allow these (what appear to be) very toxic assets to be traded when they will run to $0? I guarantee there are newbs out there holding fas / faz all the way up to $50 or higher.

One additional point: I see how these are good vehicles for traders, however my point being that they will end to $0, and a new player to the market would not know that.

[Horace Kent]

One point that was brought up a few times on the broadcast but never got addressed. How do they even allow these (what appear to be) very toxic assets to be traded when they will run to $0? I guarantee there are newbs out there holding fas / faz all the way up to $50 or higher.

One additional point: I see how these are good vehicles for traders, however my point being that they will end to $0, and a new player to the market would not know that.

And I guarantee that n00b will educate himself on what he's buying next time.

These things have been around a lot longer than you might expect. Rydex has had the 2x bull and bear mutual funds around for about a decade, if not longer.

Oh yeah, AIKI - about the treasury holdings.............futures brokers accept them for margin.

[madcowdisease]

I believe it has to do with the way the etf's leverage options to achieve the 3x market move. As the option components close in on expiration the securities have to decay. I may be off base but this is what I have been led to believe.

That may be a portion of it but also simply look at the mathematics of these funds. For example let's say hypothetical 3X leverage ETF with ticker ABC which IPO'd at 100 a share is tracking an index.

The index rises 2% and ABC rises 6% to 106 per share. The next day the index drops 2% and the managers at ABC position their basket to mimic the move. A 6% decline in ABC brings it down to $99.64 per share. Compound this over a few hundred trading days and this sucker is headed toward zero.

This may be oversimplifying the matter and I'm sure the decay of the derivitives they use as a component of the basket is contributing, but this rudimentary example shows these things are not buy-and-hold vehicles.

[aiki14]

And I guarantee that n00b will educate himself on what he's buying next time.

These things have been around a lot longer than you might expect. Rydex has had the 2x bull and bear mutual funds around for about a decade, if not longer.

Oh yeah, AIKI - about the treasury holdings.............futures brokers accept them for margin.

Thanks HK,
You know, Howard Lindzen in the interview and others have referred to these things as toxic, or "instruments of mass destruction" and I have defended them because they have been really good for me as a trading vehicle. But the warnings that should be being issued by Direxions, and the brokers, are whispered, when they should be trumpeted. The sheer volume traded of these things makes them so lucrative nobody wants to kill the goose that lays the golden eggs.
The victim is the retail guy who is convinced to buy and hold, and I have had them basically spit in my online face when I warned them against it. Some guy on twitter told me to grow a set when I told him I couldn't sleep at night holding FAZ over night, that was apr 9th when it closed at 17.84 it opened the next day at 14.33 and went to 10.49 at close. he hasn't been around much since then. But what really pisses me off is the "advisors/bloggers/pundits that argue for and recommend buy and hold, because they should read the Direxions website at least and see their warning.

I don't know how I end up on the rants or crusades or soapboxes every once in a while, must be a personality flaw.

[Horace Kent]

The bulk of the decay comes from the leverage eating into principle if you will. If you lose 10% one day, you need an 11.1% (more of less) return to get back to even. That difference comes from the principle. So, you'll need an even high return than 11.1% in the underlying because you're posting less margin than you started with.

Likewise.......in a strongly trending market - this will work in your favor. The DTO when oil crashed was able to compound its "principle" each day oil fell, so everyday it was posting more and more margin.......so it could trade more and more contracts........thus actually beating the daily target it was designed for. THIS IS EXPLAINED IN THE PROSPECTUS as well.

[dmmull]

Thank you for some good information. We need more of this! I am learning so thank you Jim for sharing your knowledge! I would rather watch you as Jim Cramer!! :top: (I hope that is a thumbs up! )

[Jelly]

Likewise.......in a strongly trending market - this will work in your favor. The DTO when oil crashed was able to compound its "principle" each day oil fell, so everyday it was posting more and more margin.......so it could trade more and more contracts........thus actually beating the daily target it was designed for. THIS IS EXPLAINED IN THE PROSPECTUS as well.

Excellent point: DXO has done well as a buy and hold over a couple of months but I treated it as an option. Lose it all or get rich.

[LongArm]

What are you "Swapping"? Well what you're swapping are very complex derivative securities which incorporate leverage, and the inversion, by trading the risk on other contracts, futures contracts, and margined short stock positions.
Yeah, I'm definitely no expert on swaps, but I do have a basic understanding of how they work. The thing is, FAS/FAZ are tied to the performance of the Russell 1000 Financial Services Index, and correct me if I'm wrong, but I don't believe futures exist for that index. So how can futures be part of the picture?

The reason I asked my initial question is because you threw out specific (and large) numbers which implies that you must have a pretty good breakdown of the costs somehow. As a knowledge freak, I was sorta' hoping you'd go into a little more detail on that. For instance, in your view, how much of this built-in monthly price decay is attributed to Direxion's interest payments for the swaps, how much to the swapped assets (futures, whatever), management expenses, etc. And I assume you took into account interest EARNED on the treasury holdings. This is what I was curious about, but no big deal.

In response to other posts, I personally don't feel like these things are evil. They're not meant for long or even medium-term holds, only for very short-term trading, and Direxion, Proshares, et al, warn about that. Sure, there are still going to be people buying these for longer-term trading/investing, but then they didn't research what they were buying. One thing I know from frequenting various trading/investing forums is that lots of people like jumping into things without having the first clue about what they're doing. Having said that, yes, the warnings could be "trumpeted," as Aiki says, and that definitely would not be a bad thing. And if there really are advisors & pundits recommending these for long term holds, they be forced to go 3 rounds with Fedor Emelianenko. :eek2:

And yes, of course, the biggest cause of price decay with the leveraged ETFs is definitely the compounding/leverage factor. This has been pretty well covered around the internet and hopefully most traders are aware of that by now. (Well, okay, probably not.)

[Horace Kent]

Long Arm.

There are single stock futures. Although they never quite took off in terms of popularity. That would be one way to gain levered exposure to individual banking names. I haven't researched this........whether or not this is how the leverage is obtained. But, that would certainly be an option.

[LongArm]

They'd have to hold a whole lot of different stock futures to replicate the index, Horace. Doesn't seem likely to me.

[Horace Kent]

They'd have to hold a whole lot of different stock futures to replicate the index, Horace. Doesn't seem likely to me.


I agree.....But, considering it is a market cap weighted index........the top 5 would give you exposure to 90% of the index move.......I'm guessing.

But, the transaction costs each day would be monster........even if you only used the top 5 names....

[aiki14]

Yeah, I'm definitely no expert on swaps, but I do have a basic understanding of how they work. The thing is, FAS/FAZ are tied to the performance of the Russell 1000 Financial Services Index, and correct me if I'm wrong, but I don't believe futures exist for that index. So how can futures be part of the picture?

The reason I asked my initial question is because you threw out specific (and large) numbers which implies that you must have a pretty good breakdown of the costs somehow. As a knowledge freak, I was sorta' hoping you'd go into a little more detail on that. For instance, in your view, how much of this built-in monthly price decay is attributed to Direxion's interest payments for the swaps, how much to the swapped assets (futures, whatever), management expenses, etc. And I assume you took into account interest EARNED on the treasury holdings. This is what I was curious about, but no big deal.

In response to other posts, I personally don't feel like these things are evil. They're not meant for long or even medium-term holds, only for very short-term trading, and Direxion, Proshares, et al, warn about that. Sure, there are still going to be people buying these for longer-term trading/investing, but then they didn't research what they were buying. One thing I know from frequenting various trading/investing forums is that lots of people like jumping into things without having the first clue about what they're doing. Having said that, yes, the warnings could be "trumpeted," as Aiki says, and that definitely would not be a bad thing. And if there really are advisors & pundits recommending these for long term holds, they be forced to go 3 rounds with Fedor Emelianenko. :eek2:

And yes, of course, the biggest cause of price decay with the leveraged ETFs is definitely the compounding/leverage factor. This has been pretty well covered around the internet and hopefully most traders are aware of that by now. (Well, okay, probably not.)

Horace is correct they can use individual stock futures which for RIFIN component stocks.

3.2% and 1.8% are indeed large, almost loan shark large. Here's how they are derived:

Ascertaining the interest on the swaps is impossible essentially, because they are individually constructed, and the price is individually negotiated and then discounts across all the direxions funds are applied and to add to the difficulty they don't trade on exchanges and the reporting of the trades is not immediate and difficult to closely follow.
Interest on the treasury holdings is less difficult but without the swap rates doesn't help much.

In the Direxions prospectus on page 12 it refers to a hypothetical 3X Bear fund being expected to lose 21% of it's value if it's index provided 0 return in one year and 11% for the 3X Bull fund assuming a 20% annualized volatility. That corresponds to a VIX of approx 20 (VIX isn't calculated on an annualized basis so it doesn't work out exactly).

http://www.direxionshares.com/pdfs/DRX_prospectus.pdf

Throughout the life of these funds the vix had never been below 30 til a couple days ago and averaged well above that during this time. So using a conservative projected volatility (less than 30% which at the time was the lowest it had been during the life of the ETF) We arrived at 3.2% and 1.8% monthly. During the life of the fund thus far it has been higher than these figures each month. Unfortunately I can't use the math symbols to show the actual calculation but the Barclays report in post 110 of the FAS FAZ thread has it somewhere.

The ETF's and the RIFIN components are traded on exchanges, and the prices recorded accurately and immediately. Therefore the RIFIN closing price is easily obtainable.
The 3X ETF's are rebalanced nightly, and the NAV is sent to ARCA before premarket trading begins. Using this data we can verify that our calculations were within a pretty small margin of error to the actual decay and this allows us to make the 3.2 and 1.8 figures with a high level of confidence that they will be below the actual figures.

You can do the calculation yourself by taking the ETF closing prices day to day and the Index close day to day and comparing them. If the index went up 10% then down 10% then up 10% you could easily obtain what the value of the ETF should be, and compare it to actual price and get the amount of decay. The reason we used such complicated methodology was to make a prediction of the future decay.


Sorry that this doesn't do much to answer the question of the specific components of the swaps. The thing is, to mimic an index with a multiplier, there is really only one way to do that, leverage. Any time leverage is applied, additional risk is taken on. To spread this risk around they use very complicated derivatives incorporating different products. But it really boils down to margin, or some form of futures contract to get the leverage, and some form of insurance (counterparty agreements) to mitigate the risk, packed together into what are called swaps.

I hope this helps, cause I am a slow typer and it took me almost an hour to write it.

I invite any questions, as I have my own hard earned cash in this and if I have screwed up or overlooked something I'd rather be embarrassed here than lose it.

[LongArm]

In the Direxions prospectus on page 12 it refers to a hypothetical 3X Bear fund being expected to lose 21% of it's value if it's index provided 0 return in one year and 11% for the 3X Bull fund assuming a 20% annualized volatility. That corresponds to a VIX of approx 20 (VIX isn't calculated on an annualized basis so it doesn't work out exactly).

http://www.direxionshares.com/pdfs/DRX_prospectus.pdf

Throughout the life of these funds the vix had never been below 30 til a couple days ago and averaged well above that during this time. So using a conservative projected volatility (less than 30% which at the time was the lowest it had been during the life of the ETF) We arrived at 3.2% and 1.8% monthly.
Aaah, it appears I misunderstood you in the video then. Page 12 of the prospectus is clearly referring to the effect that daily rebalancing, leverage & compounding has on the price, and if you based your decay figures on that, then you're referring to the compounding thing too obviously (at least to a large degree). But in the video you stated (and I'm paraphrasing) that "the x% decay is guaranteed to happen every month, even if the market is flat and there's no volatility." That doesn't jive with the compounding thing and that's why I figured you must be referring to internal costs/expenses ONLY (for the swaps, management fees, etc.). If the market TRENDS for a month, compounding will work in favor of the fund and there will be no 3.2% (or 1.8%) decay--in fact, it will likely be the opposite. And I know you know that, so I'm puzzled by your statement. Did you perhaps mean to say that "there's an AVERAGE monthly decay of x%, even if the market's flat"?

Feel free to correct me if I've misunderstood you yet again, LOL.

You can do the calculation yourself by taking the ETF closing prices day to day and the Index close day to day and comparing them. If the index went up 10% then down 10% then up 10% you could easily obtain what the value of the ETF should be, and compare it to actual price and get the amount of decay.
That's actually a great idea if you mean "obtaining what the value of the ETF should be AFTER TAKING INTO ACCOUNT THE COMPOUNDING ISSUES," because that will tell me how much built-in decay there is due to internal costs ONLY, which is what I'm personally interested in. We already know that compounding causes major decay, but again, that depends on market conditions.

At any rate, Aiki, a big thanks for taking an hour out of your day to respond. I really do appreciate it. I'm going to continue to research this stuff as time permits and I'll post back what I find, if anything.

[aiki14]

Aaah, it appears I misunderstood you in the video then. Page 12 of the prospectus is clearly referring to the effect that daily rebalancing, leverage & compounding has on the price, and if you based your decay figures on that, then you're referring to the compounding thing too obviously (at least to a large degree). But in the video you stated (and I'm paraphrasing) that "the x% decay is guaranteed to happen every month, even if the market is flat and there's no volatility." That doesn't jive with the compounding thing and that's why I figured you must be referring to internal costs/expenses ONLY (for the swaps, management fees, etc.). If the market TRENDS for a month, compounding will work in favor of the fund and there will be no 3.2% (or 1.8%) decay--in fact, it will likely be the opposite. And I know you know that, so I'm puzzled by your statement. Did you perhaps mean to say that "there's an AVERAGE monthly decay of x%, even if the market's flat"?

Feel free to correct me if I've misunderstood you yet again, LOL.


That's actually a great idea if you mean "obtaining what the value of the ETF should be AFTER TAKING INTO ACCOUNT THE COMPOUNDING ISSUES," because that will tell me how much built-in decay there is due to internal costs ONLY, which is what I'm personally interested in. We already know that compounding causes major decay, but again, that depends on market conditions.

At any rate, Aiki, a big thanks for taking an hour out of your day to respond. I really do appreciate it. I'm going to continue to research this stuff as time permits and I'll post back what I find, if anything.

We got the 3.2 and 1.8 (or more) in any market, up, down or flat. It's the difference between the expected returns and the actual returns, which is the thing you were referring to. We take into account the volatility to separate out the partially known factors, and to calculate the expected returns because the relationship is non linear, they use an annualized volatility for the estimates and the daily price change for the NAV, and we can't tell if they pay any of their fees daily, weekly, or monthly. Identical daily moves in the ETF price resulted in different NAV's the next morning, a move twice that of another resulted in NAV's 2.1 or 1.9 times the NAV change. I guess my explanation could have been better, and again we can't actually be sure where they come from because the derivative products are opaque. Notice even that the prospectus states on page 37 the Financial Bear does not take positions in equity securities and that there is shorting risk, and on page 38 it says it may take short positions in securities, what securities we don't know.
We wanted to find the lowest amount of decay we could be reasonably certain was unrelated to the market conditions, and would persist going forward, and arrived at 3.2 and 1.8% per month as that figure.

I don't think there were any days where they finished at the same price so there was no way to backtest a flat market exactly.

In an attempt to find any other things that may contribute to the numbers I note that page 12 refers to 1% per year in expenses, but then later in the prospectus mention fee's .15% 3 times a year and also something called "creation units" which results in another 1% per year. Clearly the actual decay with compounding has been way more than 3.2 or 1.8% per month. Currently it's avg is more than 15% per month with compounding for both ETF's and the RIFIN is down around 8% in the same time (7 months) or less than 1% per month
As I write this a friend mentioned that the ETF reports NAV to ARCA and if there are inflows and outflows of cash it could effect the credit position, margin costs, and transaction fees the ETF is subject to, and that these would be expected to be higher in the bear fund.

Why, if I may ask are you interested in the expenses part of the decay? It is interesting as a product study, but in any reasonable market it is almost data noise. I am interested because it seems to be a lot more than they admit, and if our methodology is inputting a bias or we are miscalculating somehow, or even if seven months is too short a time because they get payments on their treasuries once a year, I'd like to know.

[LongArm]

We got the 3.2 and 1.8 (or more) in any market, up, down or flat. It's the difference between the expected returns and the actual returns, which is the thing you were referring to.
Okay, I gotcha.

In an attempt to find any other things that may contribute to the numbers I note that page 12 refers to 1% per year in expenses, but then later in the prospectus mention fee's .15% 3 times a year and also something called "creation units" which results in another 1% per year.
Well, the .15% fees associated with creation units applies to "authorized participants" only, not those of us trading these on the secondary market. Authorized participants are typically institutions arbitraging spreads between the share price and the NAV by creating & redeeming large blocks of shares (known as creation units) which in turn keeps the spreads narrow (usually). Direxion charges APs for this to cover expenses associated with the transaction, supposedly. So this is money coming IN to the fund, not going out. The only expense I see mentioned that applies to us is the .95% expense ratio (which was originally 1%, but .05% was waived).

Why, if I may ask are you interested in the expenses part of the decay? It is interesting as a product study, but in any reasonable market it is almost data noise.
You're right, I happen to day trade these for a living, and the expenses mean nothing to me and MY trading. The short answer is that I just like knowing how trading & investing-related crappe works. I find it interesting, Gawd help me. I find these particularly interesting because they're different. Also, I do some writing on this kind of stuff and it helps to know what I'm talking about, at least to some degree. ;)

[LongArm]

...or even if seven months is too short a time because they get payments on their treasuries once a year, I'd like to know.
I meant to respond to this. Since the "treasuries" are actually treasury money market funds, it's likely they get paid interest monthly.

[aiki14]

I meant to respond to this. Since the "treasuries" are actually treasury money market funds, it's likely they get paid interest monthly.

Could be, but there's no evidence in the NAV I could find. I would assume you would see a rise in NAV as the payments were received.

[LongArm]

I don't see how you'd notice a payment of .03% (or so) on an ETF that moves several percent per day.

Anyway, it's apparent that the treasury income won't be doing much to stave off price decay these days, LOL.

[Rich]

I just wish Howard would let you finish just ONE THOUGHT without constantly interrupting the guest! It was very interesting and informative but Howard needs to be patient and not micro manage the discussion, or just have a show without guests.
Wish you would start your own training videos, Jim…
Rich

[aiki14]

WARNING, shameless self promotion.
Did another stocktwits video today with Howard Lindzen and Roger Ehrenberg (infoarbitrage) you can find it on the stocktwits webpage under Stocktwits TV click on the Archive drop down and It's on top.

This one's an hour long, but I think there's some value in it. Hope you enjoy it.

[aiki14]

Also in the Stocktwits TV archives is Howard interviewing the Stocktwits TV hostess who is very much worth watching.

[madcowdisease]

Can't find it. Is this available to members only?

[Albert0373]

Can't find it. Is this available to members only?

Yes, once you sign in the videos should appear on the right hand side.

[avsfan987]

WARNING, shameless self promotion.
Did another stocktwits video today with Howard Lindzen and Roger Ehrenberg (infoarbitrage) you can find it on the stocktwits webpage under Stocktwits TV click on the Archive drop down and It's on top.

This one's an hour long, but I think there's some value in it. Hope you enjoy it.

Just finished it and you guys did a great job.

Although I must admit, me being a new trader and all, it scared me a little bit. But I guess all I can do is keep on learning from smart guys like yourselves.

Thanks again.

[aiki14]

Can't find it. Is this available to members only?

Membership is free and can be anonymous, all you need is a twitter account. I hope you'll check it out and give me a critique, kudo's, challenge my positions, agree, or anything else.

Same goes for anyone else, one of my biggest problems is having overstrong opinions, and being a loudmouth folks are reticent to challenge me. I'd love to hear contrary positions or points I may have missed.
Looks like the Stocktwits TV gig will be a regular thing (maybe once a month or so) and if anyone here at the OTF has a topic or question they'd like me to address on that venue please give me a shout.

[ArkhamB]

Just wanted to say thanks Aiki....

Stuff like this and this forum are invaluable to those of us without close friends who trade in the markets everyday.

Brian

[aiki14]

Just wanted to say thanks Aiki....

Stuff like this and this forum are invaluable to those of us without close friends who trade in the markets everyday.

Brian

Don't lose hope, you'll get close friends one day, and I am glad to know you trade in the markets every day. Just remember personal hygiene is important and be a good listener.

[ArkhamB]

LOL thanks...