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Analog Devices, Inc. Message Board

  • howo3579 howo3579 Jan 14, 2013 7:49 PM Flag

    Decay ETF plays

    Guys, I want to start a discussion for us to fully take advantage of Decaying products. Just now I was thinking about my SVXY's decay rate. Assuming there's no contango and there are 20 trading day a month. Since VIX usually range bond between 15 and 20, I'm assuming VIX goes from 15 to 20 in the first 10 days and drops from 20 to 15 the next 10 days.
    x = average daily percentage increase the first 10 days.
    y = average daily percentage drop the last 10 days.
    Here is the equation:
    15(1+x)^10 = 20
    20(1-y)^10 = 15
    That gives us x = 2.92% and y = 2.84%.
    Now if SVXY started out at 75, it'll increase to 55.76 in the middle of the month but by the end of month SVXY will drop to 73.78. If VIX moves up and down and swings larger, SVXY will go down much more.
    I don't dare to play decay in FAS and TNA because they're not range bound. I think UGAZ and DGAZ are much safer since natural gas stays in a range unlike stock market and there's no contango or backwardation to worry about. And also 3X helps decay fast. Has anybody studied these products and short both UGAZ and DGAZ? Or short either one when natural gas is at certain level?

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