Patler
08-19-2011, 06:30 PM
Anyone with a lot of experience investing in ETFs?
I'm just learning, but so far I like what I see. For example, you can buy "bear" and "bull" ETFs tied to various market indexes, bulls appreciate in an up market, bears appreciate in a down market. This gives you an alternative to short selling stocks or buying/selling option puts or calls. They buy and sell like a stock, but go up or down with changes in the underlieing indicator.
If you are experienced with options you probably know about an option strangle and an option straddle in which you buy both a put option and a call option on the same stock, to hopefully profit if it moves strongly in either direction. Frankly, with the premiums paid, option dates, strike prices and all, this is more complicated than I want to get into.
What I did instead was buy equal dollar values of both a bear ETF and a bull ETF tied to the same index. While each moves about the same % each day, the increasing one gains more actual dollars over time than the declining one loses. By selling some of the leader after several strong days in one direction and holding the other through the day or two of market correction that followed, I profited during both declines in August and during the market increase between them. I admit to a bit of luck. I sold the bull ETF and re-bought the bear ETF on Wednesday, so profited Wednesday when I sold the bull and today when I sold some of the bear I had bought on Wednesday. I bought back into the bull ETF today and am back in a balanced position. Hopefully I can rework the strategy.
Investing about 40% of one portfolio this way, I not only covered all my losses on my other holdings in August for that portfolio (which includes AAPL) , I am actually up about 7% for the month overall. The ETFs I used were intended to be 3x the indicator, so on a day the market moved 4%, my ETFs moved about 12%.
I'm just learning, but so far I like what I see. For example, you can buy "bear" and "bull" ETFs tied to various market indexes, bulls appreciate in an up market, bears appreciate in a down market. This gives you an alternative to short selling stocks or buying/selling option puts or calls. They buy and sell like a stock, but go up or down with changes in the underlieing indicator.
If you are experienced with options you probably know about an option strangle and an option straddle in which you buy both a put option and a call option on the same stock, to hopefully profit if it moves strongly in either direction. Frankly, with the premiums paid, option dates, strike prices and all, this is more complicated than I want to get into.
What I did instead was buy equal dollar values of both a bear ETF and a bull ETF tied to the same index. While each moves about the same % each day, the increasing one gains more actual dollars over time than the declining one loses. By selling some of the leader after several strong days in one direction and holding the other through the day or two of market correction that followed, I profited during both declines in August and during the market increase between them. I admit to a bit of luck. I sold the bull ETF and re-bought the bear ETF on Wednesday, so profited Wednesday when I sold the bull and today when I sold some of the bear I had bought on Wednesday. I bought back into the bull ETF today and am back in a balanced position. Hopefully I can rework the strategy.
Investing about 40% of one portfolio this way, I not only covered all my losses on my other holdings in August for that portfolio (which includes AAPL) , I am actually up about 7% for the month overall. The ETFs I used were intended to be 3x the indicator, so on a day the market moved 4%, my ETFs moved about 12%.