iBankCoin
18 years in Wall Street, left after finding out it was all horseshit. Founder/ Master and Commander: iBankCoin, finance news and commentary from the future.
Joined Nov 10, 2007
21,398 Blog Posts

Ban the Levered ETF’s

Some of you industry insiders know of the subtle, but pervasive, moves by firms to limit the use of levered etf’s. At many brokerage firms, registered reps are not permitted to buy levered etf’s, without a written consent from the client, expressing full awareness that he will likely be wiped the fuck out playing with the devil’s tools aka 3x upside/downside etf’s.

At first, I was against banning the etf’s, due to selfish reasons. I am fully capable of trading The Great Fuckery, without getting 200’d to 2 inside of a short month. However, after speaking with numerous investors/friends about their experiences with those fucking products, I think the SEC should just wind down those black holes and eliminate them from the menu of bullshit that the average Joe and Jane intoxicate themselves with on a daily basis. Fact: people will NEVER fully understand how these products work, no matter how much Danny and Woodshedder explain the mechanics via spreadsheets. Joey Fuckoff, gas station owner from Jersey, does not have time to read iBankcoin.

I mean, really, it is incredibly irresponsible to launch 2x, 3x etf’s during this environment of deleveraging, effectively enticing the downtrodden retail investor into making big bold bets at a time when he can’t afford to lose anymore. Personally, I’ve refrained from using them for different reasons. Last year I found myself getting “cucumber lazy,” trading in and out of etf’s, while slacking on my research rituals. So, I made a conscious decision to lower the boom, by reducing my exposure to The RAPERY (FAZ, SKF, SRS, TNA, FAS), in exchange for singular publicly traded companies. What can I say, “The Fly” is olde [sic] school.

How many people bought SRS at $200+, went on vacation, then opened a brokerage statement showing an 80% unrealized loss?

Too many.

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91 comments

  1. Mushroomz

    🙁

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    • Mushroomz

      Levered ETFs is like “buying out of the money options for dummies” or something, just another way for the pros to make more money

      I vote we keep them, it is the investors responsibility to know what they are buying

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      • JakeGint

        Eggsactly. What next? Ban put options?

        Maybe short selling?

        Stupid people should not invest in complicated things.

        ______

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        • The Fly

          not true. In order to buy/sell options, one needs to get approved by an options principal. With these fuckers, children could buy them.

          DONT LET KIDS BUY LEVERED ETFS. BAN THEM NOW

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          • JakeGint

            What if your kids are whip smart like mine?

            My eight year old paid for her next year’s tuition with a MON iron condor this morning.

            Now if she can only finish that CPA exam….

            ____________

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        • Woodshedder

          What about high frequency trading?

          Care to go down the rabbit hole with your above logic?

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          • JakeGint

            I think Fly is saying: “We should all just give our dough to Bill Miller, and be done with it.”

            _________

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          • The Fly

            Nothing wrong with high frequency trading. people have been doing that for over 100 years.

            what was that some southern trick question?

            i sense a trap.

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          • JakeGint

            Don’t worry, Danny’s got a spreadsheet forthcoming…

            _______

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          • Danny

            not worth the time, or is it necessary (as Fly alluded to, it would be vastly redundant)

            I could care less if people lose money with trades they don’t understand, it’s like pitying the fool at the casino losing all his money on a proposition bet, or any greater recipient of a Darwin award. Just. Don’t. Care.

            Always amazes me what goes through peoples’ heads.

            Hey, here’s a scalpel, go open an account with an anesthetist and perform surgery on your loved ones. Sounds retarded, yet that’s what millions of seemingly rational people do with trading, their 401ks, etc everyday

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          • Woodshedder

            lol…it wasn’t directed at you Flyseph, but instead to brother Gint.

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  2. Hammy

    Question: Where does all the money go, if they always eventually go down and price of the shares isn’t driven by supply and demand?

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    • The Fly

      Danny will tell you shortly. Spreadsheet forthcoming.

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      • Hammy

        i’ll attempt to research it myself and give a 2-3 sentence answer, at some point.

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        • JakeGint

          Holy shit, are you kidding me?

          ________

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        • Hammy

          The fact that it always loses money due to “decay” or whatever you want to call it isn’t hard to understand–

          what is hard to understand: Conceptualization of the “value” of the shares of these ETFs, which literally always goes down. Like Gio said, it’s like an expiring option (and like Fly said, except for the fact that it will periodically spike up as it dies, poking you in the eye). In a non-arbitrage situation with a stock that always loses money, the value just disappears, and the person who sold it first has the most money. It’s like getting sucked down a funnel… or a BLACK HOLE.

          yeah. i guess “BLACK HOLE” is just about the fastest way to accurately describe them.

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          • JakeGint

            Think of it as an option contract that expires every day, if that helps you get your mind around it easier.

            It’s a reset, that’s all.

            _________

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          • Dubz

            That’s why you short that shit, my broker has been rejecting my attempts and foiling my plans.

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  3. The Fly

    BLACK HOLE

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  4. Aris

    they’re definitely crack-like.

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  5. Gio

    i’ve been saying this all this time. short both of them. they act like expiring options. and whenever they try to do reverse splits, then you know its not a proper fund, but a trap.

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    • The Fly

      shorting both is a bad idea too. During extreme volatility you will get railroaded by one end.

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      • DPeezy

        That’s why you just buy some ITM L.E.A.P.S. puts, cross your arms and wait for the payoff.

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  6. JakeGint

    Not me. I just divide by two or three and allocate risk thereby.

    If Joey Bag gets burnt playing with fire, I should eat cold hot dogs?

    Better you should concern yourself with this Magna Carta from Hell that’s currently being passed through Nancy Pelosi’s intestinal tract, formerly known as the U.S. Congress, thanks in part to your POTUS vote last Fall.

    Time to Wake up America… either that, or it’s time to “Bring out ya dead!”

    ___________

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  7. dave

    How do you reinstate a tax that was ruled unconstitutional? Jefferson County has to figure that one out because 1/3 of their budget relies on it. Now 1/3 of county employees are furloughed for at last 6 weeks.

    http://www.bloomberg.com/apps/news?pid=20601087&sid=aYbjnO7bKCpY

    3X etfs are bad. Mmmmmmkay.

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  8. dave121670

    I have shorted both bull and bear side simultaneously, and it works. These things decay rapidly. The more volatile the market is, the faster they decay. It’s like printing money. The only problem is the lack of shares available to borrow.

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  9. Matt Stone

    They are quite obviously highly speculative & high risk. But so are currencies & any other leveraged investment.

    If this is what people want, then that’s what they shall have. If enough people get burned then the product and concept will die.

    Here that TheDailyTradingReport.com we don’t touch them ourselves; as they are to high risk for us. But that does not make them evil. We have thought about TNA [as we believe there is still quite a bit of upside in the Russell 2000], but are just not comfortable pulling the trigger to invest.

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  10. Hammy

    PS: Do you mean “leveraged” ETFs, or is “levered” used on purpose?

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    • JakeGint

      “Levered” just means that leverage has been applied. Leverage is more commonly used as a noun.

      In the sense of the 3x, it’s a better usage, as the increase is not necessarily attained through the use of debt, but rather through options and other synthetics.

      __________

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  11. j

    Poor old Tim Knight. He seems to be getting a good old fashioned head kicking by the markets. Here’s a question for all the chartists like Tim.

    Charting is supposed be a pictorial representation of the market. If this is so why are people like Tim bearish? Aren’t da charts supposed to be telling you to buy or done so ages ago?

    Here’s the thing, charting is basically for people that have no real understanding of how markets work and what makes them pump blood through the arteries such as the interplay of micro & macro economics, finance and crowd psychology

    Don’t get me wrong, I look at charts to, however I only use them to help me get a picture of what’s happening in the market and to figure out where the rubber meets the road.

    All people like Tim are doing is using some TA to help them cement their personal prejudices which in trading is a toxic combination.

    That’s my rant.

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    • The Fly

      bravo

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      • bravo

        Yes??

        For what it’s worth, once bitten, twice shy for me. ETF’s are not unlike most derivative trades that 95% of the Joey Fuckoffs have no business messing with. I say keep ’em too. What I agree with is the great irony of this supposed transaprency/deleveraging that is called for, and these lumps of decay are still being rolled out.

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    • Yogi & Boo Boo

      i – nice. You nailed the misuse of TA perfectly.

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      • Woodshedder

        Too my knowledge, TK doesn’t bother to quantify any of his patterns.

        The problem with TA is that too often it is based on fuzzy logic. Your head and shoulders may not be my head and shoulders.

        What I do is quantify the patterns. If they can’t be quantified, I don’t trade them. There is a HUGE difference in how I approach TA and how someone like Knight does.

        All that being said, one can still be profitable, and not quantify…Quantification builds in discipline. If you are disciplined, quantification becomes less of a requirement.

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  12. Goin'Fawr

    Hell, I agree with Danny, Mush and (Foookin ell!) Jake on this one:
    Two words anyone, yob or no, should be familair with before they buy anything more than a candy bar:
    Due Diligence.

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  13. Ken Spliffey

    Who cares? Caveat emptor, my friend. Ban levered ETF’s, yet every fucktard can blow their shit up via futures accounts.

    If the majority of people are too stupid to spend the 15 minutes it takes to understand these vehicles while dumping the money they worked a 40 hr week for, they probably deserve to lose it.

    Why not just ban Vegas while you’re at it?

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    • dave

      The daily volume on it for the last 6 days looks like a suspension bridge.

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  14. cebu sun

    I’d like to see a 5 times leveraged fund. I find them invaluable for hedging and buying peace of mind.

    Fly you surprise me with your stance on this one. What of personal choice. Should we ban cigs and alcohol because they harm egregiously?

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  15. Yogi & Boo Boo

    Fly – I think there are bigger fish to fry. Like bad 401-K plans with multiple layers of administration fees.

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    • Cash-N-Guns

      fuck it…lets have 12X levered shit…blow out the assfuckers quicker..who cares really…no one is forced to trade these..its freewill.

      More importantly we need to beat the shit out of Obama, before this socialist muslim fuck ruins our entire economy…Obama care…hey fuck you.

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      • TheArtist

        come on Cash, quit pussyfooting around, 112X levered, damnit…..

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  16. franky

    there are so many financial products that completely fuck the average joe – if we start here, where will it end? i’m an idiot and the only reason i’m in this game is because of great luck in the addictive bastards. i say keep ’em. they are fabulous short-term vehicles…

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  17. Philip

    I’m from Jersey. 🙂

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  18. Rodney Dangerfield
    Rodney Dangerfield

    Are you fcking serious? On vacation? How about buying 10,000 shares of SKF at 260 in the morning before heading out to play a round of golf and coming back to a 10 handle.
    Fuck that

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  19. PURDY

    Allow EVERYTHING. Require full disclosure, then let a free people to do what the fuck they want. Your nannystater proclivities must not prevail.

    If things go wrong for enough investors and the politics of the matter demand retribution, just put Martha Stewart in jail.

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  20. Milktrader

    Strategies that Joe the gas station owner from Jersey may consider instead of long only.

    Go long 3x and its 3x inverse and write OTM calls: you won’t make money, but you won’t lose any either.

    Go short 3x and its 3x inverse: you won’t lose money unless something crazy happens.

    Sell naked OTM calls on 3x and its 3x inverse: you get to earn interest on cash in your account as the market sorts out the winner. If you get assigned, you’re short (see above).

    Sell OTM call spreads in 3x and its 3x inverse. Take advantage of crazy vol while defining your risk. One will win and the other one ‘may’ also win.

    What you do not want to do under any circumstances.

    Go long both 3x and its inverse 3x.

    Sell puts.

    Your welcome

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  21. TheArtist

    Who did Jim Rogers just say has been on TV and wrong about everything he has said for “going on 300 weeks”?

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    • j

      I didn’t see it. Who?

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      • syas

        big ben bernake

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        • j

          Did he? Lol

          I quite like Ben actually. I think he’s done a pretty decent job of swinging a pile of shit around. He’s an excellent main stream economist.

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  22. mmm...glass

    SEOUL (Dow Jones)–The chief executive of LG Display Co. (034220.SE) downplayed ongoing market concerns over the possible return of a supply glut in the flat-panel sector in the fourth quarter of this year, following recent rapid panel output growth.

    “The glass shortage appears to be pretty serious,” LG Display Chief Executive Kwon Young-soo said Thursday. “There could be a slight oversupply in the late fourth or in the early part of the first quarter… but it doesn’t seem easy for Taiwan (LCD) companies to run their factories …

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  23. kidstock

    Bought a slug of AMD Aug 4 calls @ .12 on the back of “Le Fly”

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  24. HenryFool

    DVAX on the run!!!

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  25. dumas

    FLY BUYs:

    1000 shares BGZ
    1000 shares TZA
    1000 shares SRS

    (Just kidding of course!)

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  26. dumas

    Hey! Where is my “default” avatar that was popping up yesterday? I want it back!

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  27. TraderCaddy

    In and out of SMH for about a 1.5% gain.
    I am going to miss these market openings (maybe).
    Was interviewed for a corporate legal position a couple of days ago and will know next week.
    As a reference to my age the three people interviewing me asked for a long term commitment.
    I will hate wearing a tie (haven’t worn one to work,except going to Ct. in the old days) in about 25 years but the challenge to manage a good sized company’s legal matters sounds challenging.
    Was up for hearing officer position in Homeland Security but I was zapped at the end.

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  28. Mushroomz

    Go Yahoo!

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  29. TX Slave Trader

    I agree, we should do away with all leveraged instruments that have the potential to drop 80% and appeal to the regular Joe……….mainly GE, GS, JPM, MS, AIG, BAC, WFC, UBS, CS

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    • TheArtist

      there are two games in town, Vegas and Wall Street. pick your flavor…..

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  30. TheArtist

    DVAX quite radical in fluctuation today….

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  31. kidstock

    ENTR getting ready to rocket to 3+.

    All aboad!

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  32. j

    just sayin… if this market continues to fuck around like this for the next several hours, it’s closing up again and really going to fuck with the shorts/cubs heads.

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    • TheArtist

      despite all fuckery, lies, rumors, asshats from the poisoned vomit toxic puddle of shit called CNBC, despite all reasons for the market to go down, the DOW will go to 10k from here. prepare for it.

      after 10k, who knows….

      by the way (o-shit…oops…I guess I should modernize…..I mean BTW) there are 2 new houses being built in my area…….the only, and first houses started for the last 15 months in my checked areas I follow up on regularly. so….either signs of getting better or 2 people won the national poker championship and are using that money.

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  33. TheArtist

    Ban all Senate Hearings…

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  34. Richy

    If 3x etf’s got banned, addicts would just move onto harder stuff like MOS or POT or any of these other fert stocks that behave like 6x eft’s disguised as bona-fida companies.

    Perhaps the bourses could just introduce an ibankcoin kind of spam protection sum just before the trade gets executed, that would stop many simpletons getting buttfucked in FAZ

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  35. 1MadRussian

    Why ban the levered ETF’s? overall I’m up big on FAS, ERX, EDC, TYH

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  36. July 30, 2009

    remember the date. It will become significant very soon. I will explain more later on, but I assure you that I have cracked this market. We go up every day till July 30. On that day, the market crashes back down to reality. Some of you may know why I am targeting that date, others may think I am nuts. Watch and learn. Stay tuned, I will post this information again later, and when it happens, I will explain how I knew.

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  37. not your mothers chainsaw
    not your mothers chainsaw

    Now you tell me.

    Still getting dropped to the FOOTER of the site when I want to read comments. Don’t you have some Italian dude to fix that for you?

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  38. Mo the Wiesel

    Fly, you cannot legislate against human stupidity, this is free capitalism,……….and anything goes. Think of Wall Street as a scenery of the African tundra. On a daily basis, the stronger survive and the weak and stupid ones do not make it to the end of the day. I agree that those ETFs are not only stupid but also addictive. In my case if I want to raise my blood pressure, I will by futures or options…. short term.

    Moe

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  39. Sure

    Do any of you have a girlfriend/wife or whatever who are kicking your ass in trading? Mine is up 500% for the year. Granted she only bought 300 shares of a dollar stock . . . but still! All I can say is whata ya gonnna do.

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  40. Clay

    Buyer beware

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  41. ILoveDennisKneale
    ILoveDennisKneale

    Just BAN everything that anyone might take a loss on. Close the entire stock market! Ban tobacco, alcohol & guns. Please – ban it all – I need to feel safe. Hand out warm snuggly blankets so we can all be happy.

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  42. Missing_Link

    Why in the hell are you cheerleading those who want to ban leveraged ETFs?

    Leveraged ETFS are BRILLIANT for those who know how to use them properly.

    Of COURSE you’re not supposed to hold them for more than a few days! That hardly means they require legal protections.

    Why do you think Wall Street types are trying to prevent individual investors from accessing these funds? Is it really a “level playing field” if Wall Street has access to tools that ordinary investors can’t touch?

    What absolute garbage!

    Sure, leveraged ETFs have their problems, and shouldn’t be held for more than a week or two.

    This requires a WARNING, not a BAN.

    You can have my leveraged ETFs when you pry them from my cold, dead TD Ameritrade account.

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