Divergence, ADR Arb Opportunity?

[momothebored]

Hi

What happens when you see a big gap between the ADR and the index?

This is the SSE:
http://finance.yahoo.com/echarts?s=000001.SS+Interactive#symbol=000001.SS;range=6m

This is YINN:
http://www.barchart.com/chart.php?s...ddindicator=&submitted=1&fpage=&txtDate=#jump

 

[JSMITH07611]

Hi

What happens when you see a big gap between the ADR and the index?

This is the SSE:
http://finance.yahoo.com/echarts?s=000001.SS+Interactive#symbol=000001.SS;range=6m

This is YINN:
http://www.barchart.com/chart.php?s...ddindicator=&submitted=1&fpage=&txtDate=#jump

hi there

i am not quite understanding where you see the arb over here. the index is around 3950

the other chart is showing an etf of multiple of 3 leverage
this takes compounding into consideration.

for example if you have an index that starts at 1000 then in

month 1 it goes up 10% =1100
month 2 it goes up 10% = 1210
month 3 it goes down 10% = 1089
month 4 it goes down 10% + 980.1

so on the three times leverage

it goes month 1 =1300
month 2 =1690
month 3 =1183
month 4 =828

so there is a big difference between them although this has nothing to do with an arb

see here http://www.getsmarteraboutmoney.ca/...-funds/Pages/Leveraged-ETFs.aspx#.Vc_QA_l26eg for more infor and long term risks

so i probably have misunderstood you so please explain where is the arb

 

[momothebored]

(i) It's not tracking the index. There were several days when the SSE went up 1, 2% or stayed flat when YINN dropped. There was even a day when YINN dropped 7% while the SSE stayed flat (when the Yuan devaluation was announced).


(ii) The wave-from is completely off. the SSE has formed a nice wave 4 and is nearing it's fibo(23.6%) retracement. YINN is nowhere near. Major difference in waveform / behaviour.

So in this case, because of the reconciliation, are you saying that the ETF is not even going to track the basic wave form of the underlying?

Or even the polarity of the day's close?

hi there

i am not quite understanding where you see the arb over here. the index is around 3950

the other chart is showing an etf of multiple of 3 leverage
this takes compounding into consideration.

for example if you have an index that starts at 1000 then in

month 1 it goes up 10% =1100
month 2 it goes up 10% = 1210
month 3 it goes down 10% = 1089
month 4 it goes down 10% + 980.1

so on the three times leverage

it goes month 1 =1300
month 2 =1690
month 3 =1183
month 4 =828

so there is a big difference between them although this has nothing to do with an arb

see here http://www.getsmarteraboutmoney.ca/...-funds/Pages/Leveraged-ETFs.aspx#.Vc_QA_l26eg for more infor and long term risks

so i probably have misunderstood you so please explain where is the arb

 

[JSMITH07611]

(i) It's not tracking the index. There were several days when the SSE went up 1, 2% or stayed flat when YINN dropped. There was even a day when YINN dropped 7% while the SSE stayed flat (when the Yuan devaluation was announced).


(ii) The wave-from is completely off. the SSE has formed a nice wave 4 and is nearing it's fibo(23.6%) retracement. YINN is nowhere near. Major difference in waveform / behaviour.

So in this case, because of the reconciliation, are you saying that the ETF is not even going to track the basic wave form of the underlying?

Or even the polarity of the day's close?

to answer your questions to be honest i have not studied many indicators on charts as i trade more fundemental and enjoy arbs. i have been in the markets many years though.

so to answer 'i' either you could be correct that there is an arb. or possibly there are terms to the etf. i will try to be as clear as possible. for example a leveraged etf has to have terms how frequently it will snapshot the index. so for example it may follow the index every day or every few days or even possbily every few hours. but it will either do one of those options and not the others. so you might have one leveraged etf following the index at the close every day. or another etf tracking the close every second day. the reason why the etf's cannot track every second is that they will go crazy because of compounding. so in my previous example of +10% +10% -10% -10% if all that happened in one day if the etf would be a close of day index snapshot tracker it would look at the index is holding at 980 and say it went down only 2% over the day and since it is a 3x leverage would go down a total of 6%. if it would track that index every hour the outcome would be very different, so it depends on the terms of the etf. i imaging most leveraged etf's when you place a buy order would only fulfill it after it takes the next snapshot of the index to prevent arbitrage. so that could be the reason that even though the index went up the yinn went down as it was taking an overall snapshot of possibly more than one day. tbh i have not checked the terms of the yinn so i may be totally wrong. i am just suggesting possibilities although it maybe worth researching exactly how the yinn opertates.

to answer ii. well if my previous paragraph is correct then it makes sense that the waves are totally different due to compounding and how frequently it takes a snapshot of the index

do let me know

 

[JSMITH07611]

also as an afterthought i tried looking up a bit of info and it looks a bit confusing.

so it seems here http://www.etf.com/sections/features/20047-direxions-yinn-and-yang-to-undergo-index-swap.html that the yinn wanted to change and track the china 25

but looking here http://www.direxioninvestments.com/products/direxion-daily-china-bull-3x-etf it seems that it tracks the china ftse 50


now the sse https://en.wikipedia.org/wiki/SSE_Composite_Index seems to track all a and b shares which seems different to the ftse china. so it does not look like they are the same indexes. looking at igindex the price of their china 300 is closest to the sse so it probably is the same index with yahoo taking a different closing price.


also it seems here http://www.direxioninvestments.com/products/direxion-daily-china-bull-3x-etf that it tracks once a day at the close. so i imagine it is at the close china time.

regards

 

[momothebored]

SSE +0.77%
YINN -3.10%

There is absolutely no plausible reason

But this is the kind of nonsense that's been happening!

also as an afterthought i tried looking up a bit of info and it looks a bit confusing.

so it seems here http://www.etf.com/sections/features/20047-direxions-yinn-and-yang-to-undergo-index-swap.html that the yinn wanted to change and track the china 25

but looking here http://www.direxioninvestments.com/products/direxion-daily-china-bull-3x-etf it seems that it tracks the china ftse 50


now the sse https://en.wikipedia.org/wiki/SSE_Composite_Index seems to track all a and b shares which seems different to the ftse china. so it does not look like they are the same indexes. looking at igindex the price of their china 300 is closest to the sse so it probably is the same index with yahoo taking a different closing price.


also it seems here http://www.direxioninvestments.com/products/direxion-daily-china-bull-3x-etf that it tracks once a day at the close. so i imagine it is at the close china time.

regards