By: Larry MacDonald
“Grrrrrr,” I feel like saying. A hefty gain slipped through the fingers today. My leveraged ETF position, in the Horizon BetaPro 60 Bull Plus (HXU) fund, opened up 45% on the Toronto Stock Exchange this morning over Friday’s close (Monday was a holiday in Canada).
The gain was due to the TSX 60 opening up 18% (HXU provides 2x the index return) and the ETF market makers apparently letting a 9% premium slip (in as the rush of buy orders likely overwhelmed their arbitrage operations at the open).
I knew I should have been watching the open in case there were some oversized profits to take. With world markets up 10% and more the day before, a big opening was a foregone conclusion. I even made a mental note to log on at 9:30 am.
But I got wrapped up with some work assignments and editing my wife’s course assignment (it’s her fault, I’m saying). By the time I looked at the clock, it was 10:30 am and by then HXU was down to a 20% gain. Too late, I thought. So I went back to work and did some errands. By the time trading closed today, the gain stood at 13%.
Note to readers: The HXU is in the explore part of a core & explore portfolio. I don’t recommend taking large positions on short-term trades with leveraged ETFs.
3 Responses to “ 45% gain slips by ”
What do you think about the difference after the close, with HXU up 13% and the index up 10%?
By Mark on Oct 14, 2008
I was thinking of adding a comment on that difference in the post. H, Atkinson of HBP told me a while ago their ETFs sometimes have tracking problems at the open and close. At the open, index constituents may still not have any prices. At the close, “they may have trouble putting on the hedge.” I’m going to ask for more detail and about today’s closing.
LM
By Larry MacDonald on Oct 14, 2008
Could you find out what happens once it gets out of skew with the index. Is the difference ever closed? If so, is it automatic based on their holdings or would there be arbitrage to narrow the gap?
By Mark on Oct 15, 2008