Comments on: Ultra ETFs and Counterparty Risk http://criticalmas.com/2008/03/ultra-etfs-and-counterparty-risk/?utm_source=rss&utm_medium=rss&utm_campaign=ultra-etfs-and-counterparty-risk Blog for Michael Allen Smith of Seattle Fri, 10 Feb 2012 17:20:48 +0000 hourly 1 http://wordpress.org/?v=3.1.4 By: MAS http://criticalmas.com/2008/03/ultra-etfs-and-counterparty-risk/#comment-786 MAS Wed, 03 Dec 2008 13:50:27 +0000 http://criticalmas.com/2008/03/ultra-etfs-and-counterparty-risk/#comment-786 Brian - Hopefully they thought about that and set it up. But these are new investment tools. The DCR ticker blew up this summer, because they didn't think oil could ever go to $140 a barrel. Brian –
Hopefully they thought about that and set it up. But these are new investment tools. The DCR ticker blew up this summer, because they didn’t think oil could ever go to $140 a barrel.

]]> By: brian http://criticalmas.com/2008/03/ultra-etfs-and-counterparty-risk/#comment-784 brian Wed, 03 Dec 2008 07:26:18 +0000 http://criticalmas.com/2008/03/ultra-etfs-and-counterparty-risk/#comment-784 ok so I have a stupid question. What happens to these ultras when they start to approach zero? Do they just take small penny steps downward and sort of freeze up since they will not truly be able to match the percentage properly or do they split them if it becomes a problem? Has it happened where it was a problem? thx ok so I have a stupid question. What happens to these ultras when they start to approach zero? Do they just take small penny steps downward and sort of freeze up since they will not truly be able to match the percentage properly or do they split them if it becomes a problem? Has it happened where it was a problem? thx

]]> By: Woody http://criticalmas.com/2008/03/ultra-etfs-and-counterparty-risk/#comment-552 Woody Thu, 18 Sep 2008 19:41:50 +0000 http://criticalmas.com/2008/03/ultra-etfs-and-counterparty-risk/#comment-552 Glad to have found this discussion. I checked out of SKF & QID this a.m. because I was afraid of counterparty risk. Hard to leave when you're making money, but would rather live to fight another day. Called Proshares and they won't talk about who they have agreements with, though they did post a note on their website that they have no agreements with AIG or Lehman. Will be looking into bear funds, but GLD doesn't sound too bad as the market gets into panic selling... Glad to have found this discussion. I checked out of SKF & QID this a.m. because I was afraid of counterparty risk. Hard to leave when you’re making money, but would rather live to fight another day. Called Proshares and they won’t talk about who they have agreements with, though they did post a note on their website that they have no agreements with AIG or Lehman. Will be looking into bear funds, but GLD doesn’t sound too bad as the market gets into panic selling…

]]> By: MAS http://criticalmas.com/2008/03/ultra-etfs-and-counterparty-risk/#comment-539 MAS Thu, 11 Sep 2008 21:45:31 +0000 http://criticalmas.com/2008/03/ultra-etfs-and-counterparty-risk/#comment-539 Morry, Nobody knows for certain. I think history is on your side though. Profit estimates are still too high for the indexes. Just take your profits when you can. Don't get greedy at the bottom. MAS Morry,
Nobody knows for certain. I think history is on your side though. Profit estimates are still too high for the indexes. Just take your profits when you can. Don’t get greedy at the bottom.

MAS

]]> By: Morry J http://criticalmas.com/2008/03/ultra-etfs-and-counterparty-risk/#comment-538 Morry J Thu, 11 Sep 2008 21:38:43 +0000 http://criticalmas.com/2008/03/ultra-etfs-and-counterparty-risk/#comment-538 I have a financial advisor who is pretty sure we are about to have a crash. He recommended I stock up on (Dog) an inverse ETF. I bought 10 call contracts in the money. It is just holding its own as of now. I also bought 4 call contracts of SKF in the money (these I picked myself. I would like someone to tell me if I am a fool and about to lose a ton of money. On a good day, I lose a bundle, and on abad day I get it back. Morry J I have a financial advisor who is pretty sure we are about to have a crash.

He recommended I stock up on (Dog) an inverse ETF.

I bought 10 call contracts in the money. It is just holding its own as of now.

I also bought 4 call contracts of SKF in the money (these I picked myself.

I would like someone to tell me if I am a fool and about to lose a ton of money.

On a good day, I lose a bundle, and on abad day I get it back.

Morry J

]]> By: Jim Hancock http://criticalmas.com/2008/03/ultra-etfs-and-counterparty-risk/#comment-55 Jim Hancock Thu, 27 Mar 2008 00:24:01 +0000 http://criticalmas.com/2008/03/ultra-etfs-and-counterparty-risk/#comment-55 Puts - I agree with MAS ...everything I've read says puts have no counterparty risk. Don't know why though. Gold - Pure gold may not have counterparty risk, but you may be buying at the top of the market. Gold is often an inflation hedge ...if we get a seriously nasty recession (with a credit crunch and falling housing prices) we could end up in a deflationary scenario (everything gets cheaper). In this case cash is king. Anyway, just my 2 cents. Thanks for the great entry MAS ...I sold off all Ultra Shorts last week and now own GRZZX (in IRAs) and Puts/Shorts in my cash account. I shorted Ultra Longs when they were available... I'm thinking this could generate a "counterparty dividend." :) Puts – I agree with MAS …everything I’ve read says puts have no counterparty risk. Don’t know why though.

Gold – Pure gold may not have counterparty risk, but you may be buying at the top of the market. Gold is often an inflation hedge …if we get a seriously nasty recession (with a credit crunch and falling housing prices) we could end up in a deflationary scenario (everything gets cheaper). In this case cash is king.

Anyway, just my 2 cents. Thanks for the great entry MAS …I sold off all Ultra Shorts last week and now own GRZZX (in IRAs) and Puts/Shorts in my cash account. I shorted Ultra Longs when they were available… I’m thinking this could generate a “counterparty dividend.” :)

]]> By: Mike http://criticalmas.com/2008/03/ultra-etfs-and-counterparty-risk/#comment-31 Mike Sat, 22 Mar 2008 07:12:19 +0000 http://criticalmas.com/2008/03/ultra-etfs-and-counterparty-risk/#comment-31 Why not just buy gold. Now there is an asset with zero counterparty risk. No! Not GLD. Why not just buy gold. Now there is an asset with zero counterparty risk. No! Not GLD.

]]> By: MAS http://criticalmas.com/2008/03/ultra-etfs-and-counterparty-risk/#comment-29 MAS Fri, 21 Mar 2008 22:34:16 +0000 http://criticalmas.com/2008/03/ultra-etfs-and-counterparty-risk/#comment-29 From everything I've read, Puts are safe from counterparty risk. I'm not an expert on options, so seek out an expert on this topic. From everything I’ve read, Puts are safe from counterparty risk. I’m not an expert on options, so seek out an expert on this topic.

]]> By: Doug http://criticalmas.com/2008/03/ultra-etfs-and-counterparty-risk/#comment-28 Doug Fri, 21 Mar 2008 21:46:31 +0000 http://criticalmas.com/2008/03/ultra-etfs-and-counterparty-risk/#comment-28 Are puts safe from counterparty risk? Who's on the other side of the trade, "the market"? Somewhere you and everyone else who's long puts are balanced by those on the short side of the trade. If a big one goes down, such that there's not enough money to make good all the puts, what happens? Even if you transacted with a market maker who's running a net netural book, he too could fail if the short side isn't covered - then what? Being short actual shares, the other side is long the shares and subject to the usual 50% margin requirements, plus you get his money right away don't you? If he goes down he'll likely be forced to fire-sell his assets which may actually help your short position. Of course, you have unlimited loss potential if the trade goes against you, and you are also subject to a squeeze if shares available to borrow dry up. Nothing in life comes for free... Are puts safe from counterparty risk? Who’s on the other side of the trade, “the market”? Somewhere you and everyone else who’s long puts are balanced by those on the short side of the trade. If a big one goes down, such that there’s not enough money to make good all the puts, what happens? Even if you transacted with a market maker who’s running a net netural book, he too could fail if the short side isn’t covered – then what?

Being short actual shares, the other side is long the shares and subject to the usual 50% margin requirements, plus you get his money right away don’t you? If he goes down he’ll likely be forced to fire-sell his assets which may actually help your short position. Of course, you have unlimited loss potential if the trade goes against you, and you are also subject to a squeeze if shares available to borrow dry up. Nothing in life comes for free…

]]> By: GKM http://criticalmas.com/2008/03/ultra-etfs-and-counterparty-risk/#comment-27 GKM Fri, 21 Mar 2008 14:27:59 +0000 http://criticalmas.com/2008/03/ultra-etfs-and-counterparty-risk/#comment-27 Great post. I've had this niggling feeling about the ultra ETFs for some time, since everyone is piling into them, that something could blow up there as well. I've also been using them to hedge my RRSP (i.e. IRA) account. The grand explosion of ETFs and ETNs is likely to come to an abrupt halt at some point. I've also noticed that some ETFs have started to diverge in a not insignificant fashion from the underlying. I would not be at all surprised if the smart money is starting to put on positions with a bet that some of these will eventually fail. I'll put you on my reading list as you've obviously got some great ideas (quicker than the ticker). Great post. I’ve had this niggling feeling about the ultra ETFs for some time, since everyone is piling into them, that something could blow up there as well. I’ve also been using them to hedge my RRSP (i.e. IRA) account. The grand explosion of ETFs and ETNs is likely to come to an abrupt halt at some point.

I’ve also noticed that some ETFs have started to diverge in a not insignificant fashion from the underlying. I would not be at all surprised if the smart money is starting to put on positions with a bet that some of these will eventually fail.

I’ll put you on my reading list as you’ve obviously got some great ideas (quicker than the ticker).

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