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Gambling with FAS

February 12, 2009 Equity Trading No Comments

When it comes to triple leveraged ETFs, I tread with caution. However, one that keeps on tickling my pickle is FAS. It is an exchange traded fund (ETF) that seeks daily investment results of 300% of the price performance of the Financial Select Sector Index (“Financial Index”). The Fund seeks to create long positions by investing at least 80% of its net assets in the equity securities that comprise the Financial Index.

With almost everyone’s attention on the United States’ financial institutions, playing FAS is a very quick way to yield an incredible amount of money in a very short period of time, or conversely, a frightening way to wipe out wealth.

In any case, this morning, while going through my watch list, I noticed a big drop in FAS at the stock market open. Scouring all of the relevant news outlets for a brief minute, I could not find a fundamental reason why the market would sell off. So, I watched the chart for a bit, as well as the Bid and Ask orders come through. Noticing an initial support around $8, I took the plunge and started a position at $8.03. Soon after, I was in the green with a plan to make another 20%. However, as the day progressed I saw my position drop and drop and drop. A serious WTF?! moment.

With additional capital to play with, I took on additional shares (1/2 the original order) at $7.60. I was confident that the stock would reach my exit price, and figured I should average down my cost basis (now at $7.89).

Toward the end of the day, news dropped on the wire that the government was working on a plan to help out homeowners with problem loans. That triggered a surge of buying volume to enter the marketplace. FAS followed and went up to close at $8.70,  creating a respectable +10% in paper profits. =)

Again, my goal is to yield at least 20% before I exit the position. Cheers!

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