Shorting Both BULL and BEAR ETF's

[pmsinc 10]

I have done a little backtesting on the concept of Shortng BOTH the FAS and the FAZ. I short each at the open of every day and close them both out at he end ofthe day. I adjust the shares baaed on the ratio of the opening prices otherwise I would have a big differneces in volatility/range. So if the FAZ is $100 and the FAS is $25 I would short 100 shares of FAZ and 400 shares of FAS.

 

Over 199 trades I come up with an expectancy of $0.57 from 11/19/08 to 09/03/09.

% Win/Loss Avg Win/Loss

Win 115 $170.09 57.8% $1.48

Loss 84 $(56.30) 42.2% $(0.67)

Total 199 $113.789

Expectenancy $0.57

 

I am looking for advice from seasoned traders on the viability of this approach.

Short FAS FAZ Equity Curve.pdf

[Frank 10]

it looks to me like there was a price anomaly early in the ETF's life that caused Opening Prices to be 'off' relative to each other. Note that the return in your chart is highly influenced by Nov-Jan 2009. The anomaly was likely the result of a low-volume ETF.

 

These ETF's, once liquid, track benchmarks quite well on a 'closing price to closing price' basis --- so this anomaly is really about 'are open prices of these ETF's consistently mis-stated'. If you plot the volume of these ETF's --- you can see that once volume reached high levels (and pricing therefore more accurate) --- the anomaly of the opening price mis-stating became very marginal at best.

 

Perhaps there is an anomaly with new ETF's before they gain critical mass to be exploited in the future for small nimble accounts -- but more likely, there are just likely a lot of single prints on the opening price which you wouldn't be able to short at that price in a real-time practical example (ie, price opens at $25.00 on 100 share lot and next print is $24.86 and you fill $24.84 and lock in nothing but transaction costs).