Thursday, April 16, 2009

Why You Should Avoid FAS and FAZ

I know you have all heard it. The 3x and 2x ETFs should be avoided because of decay. Yet, we all have the tendency to put money in to them looking for quick moves. The gambler in us wants to use these tools to make that big hit.

Many of us have experienced gains in very short periods playing FAS and or FAZ. But this blogger is officially done purchasing either. I got out a couple of weeks ago and will never go back.

Why? The decay is staggering. In fact, I don't see how either exist in 4-6 months. Lets look at their relative values to each other over the last few months.

You would think since FAZ is a 3x inverse and FAs is a 3x bull, they would make exact opposite moves. And they do, except for the decay. Currently, FAS is at 9.04. In late January, FAS was around 9.04 as well. But there is a difference. In January, when FAS was at 9.04, FAZ was at 62. Today, FAZ is at 9.32. A tremendous amount of decay.

Even in February, when FAS was around 9, FAZ was around 50. But as time goes on, decay takes hold to a much larger level than can be seen by the naked eye.

So taking 3 moments in time when FAS was about 9, FAZ went from 62, to 52, to 9. Eventually both will be in the 4 or 5 range and eventually both will be in the 1 to 2 range. By then they will have to be reset.

FAZ and FAS are perhaps good tools to play for a day trade to do some scalping, but certainly should not be invested in for any period of time at all. This is obvious to the experienced ultra ETF trader. But I want to reiterate it here with these examples.

FAS and FAZ are best played via puts or playing them short. The decay is then on your side.

SKF also has decay but not to the level of FAS and FAZ. Even so, all of the financial ultra ETF's should be avoided not only because of the decay, but because financials are so unpredictable. There are some bad banks out there. You are much better off playing those individually.


  1. Thank you for this thorough & detailed post on FAZ & FAS.

  2. Nothing like buying puts on SKF and FAZ.

  3. Couldn't agree more, bsen. Calls on UYG is working better than owning FAS, with far less stress.

  4. Keep in mind that Direxion stresses to investors that they are for short-term trading only. It's no secret that the longer the time horizon, the less accurate leveraged ETFs are.

    Just go to and you'll see this:

    Daily Investment Goals
    Not Monthly Investment Goals
    Not Annual Investment Goals

    Direxion Shares ETFs seek daily investment goals and should be used strictly as short term trading vehicles. Please read the prospectus and visit our Education Center before investing.