FAZ Reverse Split

market crashFor those that were unaware of the FAZ reverse split, probably woke up yesterday thinking they won the lottery. Unfortunately, not quite. Yesterday, FAZ and FAS, two of the most popular traded leveraged ETFs on the market, both experienced a reverse split to get the stock prices back up, and help make up some ground from all of that time decay. FAZ experienced a 10:1 reverse split and FAS experienced a 5:1. For those of you that are unfamiliar with the term, a reverse split is, essentially, the opposite of when a stock splits. For the example with FAZ, you trade in 10 of your shares, for a new share of FAZ at the new price, which is now 10x what it was. So, you are not technically losing or gaining any anything net, but many companies do it to get their stock price in a range of investors they want to trade it. Under 10, where both funds were at, makes it prime picking for cheap day traders.

This provides a great opportunity for me to make some money. Essentially, with an equity stock, such a move wouldn't change much. However, with these 3x leveraged ETF's, there is serious time decay. This is clearly evident by seeing how both ended up below $10. Considering that both are considerably higher now, writing puts on the ETF, whether you are a bull or a bear can be a great option. Sure you need to "guess" right, in which way the market is going, which for me is bearish, but overtime, we can probably expect both of these funds to both be back under $10 at some point. Be careful, because one could easily run to $100 and beyond, if coupled with a big rally or crash. For me, a FAS put will be coming the next green day of trading.

It looks like today will end up being a pretty solid day for me and my Zecco.com account. For you podcast subscribers, you know already that I was beefing up for a red closing today. Once again, I will be looking for the S&P to be closing under 880 and hoping that the PPT will not get in the way. Next week we have some big data announced and there should be a lot of fireworks. Happy Trading.

4 comments:

  1. Anonymous Says:

    FF: are you going to write puts, or buy puts?

  2. Anonymous Says:

    or you mean write calls .... that is a short position

  3. Finance Fanatic Says:

    buy puts

  4. Anonymous Says:

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