Using ETFs to Hedge

This is a discussion on Using ETFs to Hedge within the Indices forums, part of the Markets category; I am looking at "hedge" trading where I buy an index ETF (i.e., of the S&P), and then also buy ...

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Old Sep 26, 2011, 3:07pm   #1
 
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Using ETFs to Hedge

I am looking at "hedge" trading where I buy an index ETF (i.e., of the S&P), and then also buy its 'counterpart', meaning an ETF which is shorting that index. I don't know if I would buy them at the same time, and just sell whichever one makes profits that day, etc., Or buy each one separately, depending on whether or not a particular index "should" make money that day, based on the futures pre-trading, etc. I have done some of the latter, which has worked out.
However, don't want to have to reinvent the wheel. Has anyone had any experience doing this?
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Old Sep 26, 2011, 3:13pm   #2
 
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Re: Using ETFs to Hedge

So you want to pay charges to maintain a net flat/nil exposure position? Why not just post money to your broker instead and get on with the rest of your day?
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Old Sep 26, 2011, 3:32pm   #3
 
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Re: Using ETFs to Hedge

Hendl started this thread You don't understand. If Day 1 the Nasdaq goes up, then sometime that day, I sell. If a few days later it goes down, then that day I sell the ETF I've already bought that goes short on the Nasdaq, and pocket those profits. I don't sell each ETF every day.
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Old Sep 26, 2011, 3:42pm   #4
 
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Re: Using ETFs to Hedge

you will lose a lot of money when you think you are flat, just because you can't take a loss

a short etf is NOT the precise inverse of a long etf
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Old Sep 26, 2011, 3:42pm   #5
 
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Re: Using ETFs to Hedge

So then why don't you just close out your initial pisition? You're doubling your commissions.
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Old Sep 26, 2011, 5:57pm   #6
 
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Re: Using ETFs to Hedge

Quote:
Originally Posted by arabianights View Post
you will lose a lot of money when you think you are flat, just because you can't take a loss

a short etf is NOT the precise inverse of a long etf
Unless you work for UBS and your name is Kweku.
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Old Sep 26, 2011, 6:11pm   #7
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Re: Using ETFs to Hedge

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Originally Posted by Hendl View Post
You don't understand. If Day 1 the Nasdaq goes up, then sometime that day, I sell. If a few days later it goes down, then that day I sell the ETF I've already bought that goes short on the Nasdaq, and pocket those profits. I don't sell each ETF every day.
Sounds great if you can do it.

But chances are you're setting yourself to be topped and tailed so you'll find yourself selling (on fear probably) on the lows and then buying (again on fear) on the highs.

The only way to find out is to try, but do it in just 10 shares for the first several months otherwise there's a 99% chance you're doomed. Practice makes perfect in this game and it's one of the reasons why do few make it, they don't put in the practice or trade too large to start with so have nothing left to practice with.
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Old Oct 11, 2011, 9:46am   #8
 
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Re: Using ETFs to Hedge

ekly or monthly or some such seasonal frequency (as in industry or sector flavor of the month), then yep, though I doubt you have that kind of patience.

As for safety, well, if you trade individual stocks now and are looking at ETFs underwritten by some major players (ishares, holdrs, etc.) then these are going to be safer than the individual issues. That is the primary value -- diversification. But, diversification is what dilutes its trading value. So if you are expecting to trade ETFs like steering a skeedoo water speeder, they move more like a big freighter or ocean liner. The value is reflective of the net asset value (NAV) of the stocks the ETF holds. This, then, is the relative slowness of ETFs.
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Old Nov 11, 2011, 3:41am   #9
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Re: Using ETFs to Hedge

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Originally Posted by Hendl View Post
However, don't want to have to reinvent the wheel. Has anyone had any experience doing this?
Opened calls on some banks and shorted with a steep S&P ETF Short.

Issue - and thinking its just one brand. Lets call it Brand X ETF S&P financial shorts for now. The schedule to split or merge shares seems to execute to the detriment of retail holders. Our secret ETF Outfit seems to have done a 10 to 1 reversal on day last may - to every financial short with their label on the waste band. Not really sure -mind you - but it appears that way - and it's only one brand presented that behavior.

On line charts comparing the performance of ETF index shorts against the its sector's index will try the senses. (Some) online chart surfaces, for this one particular ETF brand (at least) seem to automatically switch to a log scale when the ETF is parsed. Makes it looks like an exaggerated reflection of the index. Switch to a percentage scale - if the leverage does fit Archimedes basic precepts (ie no beef), Shop a different ETF brand.
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