Comments on: Hedging a Canadian Stock Portolio with a Double Inverse ETF http://wheredoesallmymoneygo.com/hedging-a-canadian-stock-portolio-with-a-double-inverse-etf/ A personal finance blog written by Preet Banerjee Wed, 23 May 2012 05:38:46 +0000 hourly 1 http://wordpress.org/?v=3.1.2 By: Steve http://wheredoesallmymoneygo.com/hedging-a-canadian-stock-portolio-with-a-double-inverse-etf/#comment-664 Steve Fri, 10 Jul 2009 16:09:39 +0000 http://symbiantcapital.com/2008/05/14/hedging-a-canadian-stock-portolio-with-a-double-inverse-etf/#comment-664 This article shows little understanding of the dynamics of double up/down funds. While the hedge may work on a 1-day period, the discussion assumes this will continue to work over time. However, the embedded optionality of the ETF will result in a hedge mismatch after market movements occur. For example, if the market experiences volatility but ends up at the same level as it started, the XIU portion will retain its value while the ETF portion will have declined in value. This article shows little understanding of the dynamics of double up/down funds. While the hedge may work on a 1-day period, the discussion assumes this will continue to work over time. However, the embedded optionality of the ETF will result in a hedge mismatch after market movements occur. For example, if the market experiences volatility but ends up at the same level as it started, the XIU portion will retain its value while the ETF portion will have declined in value.

]]> By: Thicken My Wallet » Blog Archive » Are leveraged ETFs for me? http://wheredoesallmymoneygo.com/hedging-a-canadian-stock-portolio-with-a-double-inverse-etf/#comment-663 Thicken My Wallet » Blog Archive » Are leveraged ETFs for me? Wed, 20 May 2009 09:02:47 +0000 http://symbiantcapital.com/2008/05/14/hedging-a-canadian-stock-portolio-with-a-double-inverse-etf/#comment-663 [...] likely buying on speculation or as a hedge. I am going to quote Preet in his excellent post about leveraged ETF’s describingthe difference between the two [...] [...] likely buying on speculation or as a hedge. I am going to quote Preet in his excellent post about leveraged ETF’s describingthe difference between the two [...]

]]> By: richard http://wheredoesallmymoneygo.com/hedging-a-canadian-stock-portolio-with-a-double-inverse-etf/#comment-662 richard Fri, 09 Jan 2009 20:45:41 +0000 http://symbiantcapital.com/2008/05/14/hedging-a-canadian-stock-portolio-with-a-double-inverse-etf/#comment-662 Hi, Great article! How did you get to the answer that you need 1/3 of the portfolio in HXD? What's the formula? And what if the portfolio consists of different stocks (and not just the XIU), what % of HXD would need to hedge? Thanks. Hi,

Great article! How did you get to the answer that you need 1/3 of the portfolio in HXD? What’s the formula?
And what if the portfolio consists of different stocks (and not just the XIU), what % of HXD would need to hedge?

Thanks.

]]> By: Preet http://wheredoesallmymoneygo.com/hedging-a-canadian-stock-portolio-with-a-double-inverse-etf/#comment-661 Preet Mon, 06 Oct 2008 13:44:16 +0000 http://symbiantcapital.com/2008/05/14/hedging-a-canadian-stock-portolio-with-a-double-inverse-etf/#comment-661 @James - Good question and I would agree that it would be better to just hold less XIU if initiating a position. However, if you have a large unrealized gain and did not want to trigger it this would be one way to do it assuming you had cash to invest. Secondly, as noted in my previous comment, I don't think it makes sense to hedge on a continuous basis in most cases. For those who want to try to time the markets for short periods of time, this is one mechanism to do that. Thanks for the question! @James – Good question and I would agree that it would be better to just hold less XIU if initiating a position. However, if you have a large unrealized gain and did not want to trigger it this would be one way to do it assuming you had cash to invest. Secondly, as noted in my previous comment, I don’t think it makes sense to hedge on a continuous basis in most cases. For those who want to try to time the markets for short periods of time, this is one mechanism to do that. Thanks for the question!

]]> By: James http://wheredoesallmymoneygo.com/hedging-a-canadian-stock-portolio-with-a-double-inverse-etf/#comment-660 James Mon, 06 Oct 2008 13:29:54 +0000 http://symbiantcapital.com/2008/05/14/hedging-a-canadian-stock-portolio-with-a-double-inverse-etf/#comment-660 How would this differ from just holding less XIU to begin with? HXD is just negating a portion of our XUI position so why not just buy less XIU? How would this differ from just holding less XIU to begin with? HXD is just negating a portion of our XUI position so why not just buy less XIU?

]]> By: Preet http://wheredoesallmymoneygo.com/hedging-a-canadian-stock-portolio-with-a-double-inverse-etf/#comment-659 Preet Thu, 15 May 2008 23:21:54 +0000 http://symbiantcapital.com/2008/05/14/hedging-a-canadian-stock-portolio-with-a-double-inverse-etf/#comment-659 <p>Over long periods of time I don't believe you should be employing a constant hedge. However, if we flip the graph so that XIU were to lose 10% over the course of the same time period, the whole graph flips upside down and you will instantly see the benefits of hedging!</p><p>Or, take a peak from XIU. Imagine you picked that time to invest $100,000. If XIU decreases in value, all the other portfolio decrease LESS (look at the slopes).</p><p>So to answer your question - people hedge when they thing there is bad news pending. The catch is, how would you ever know for sure? And if you REALLY knew, why wouldn't you just sell your investments and wait out the storm?</p><p>There are other factors as well. If you had held XIU for years and have a large unrealized capital gain, you could add a hedge to keep your portfolio from losing value, while not triggering a gain on your entire portfolio. Once you thought the rough patch was over, you could remove the hedge. You would have a capital gain on the hedge (in this case), but it would be less than realizing a long, built up capital gain of the overall portfolio.</p> Over long periods of time I don’t believe you should be employing a constant hedge. However, if we flip the graph so that XIU were to lose 10% over the course of the same time period, the whole graph flips upside down and you will instantly see the benefits of hedging!

Or, take a peak from XIU. Imagine you picked that time to invest $100,000. If XIU decreases in value, all the other portfolio decrease LESS (look at the slopes).

So to answer your question – people hedge when they thing there is bad news pending. The catch is, how would you ever know for sure? And if you REALLY knew, why wouldn’t you just sell your investments and wait out the storm?

There are other factors as well. If you had held XIU for years and have a large unrealized capital gain, you could add a hedge to keep your portfolio from losing value, while not triggering a gain on your entire portfolio. Once you thought the rough patch was over, you could remove the hedge. You would have a capital gain on the hedge (in this case), but it would be less than realizing a long, built up capital gain of the overall portfolio.

]]> By: Xenko http://wheredoesallmymoneygo.com/hedging-a-canadian-stock-portolio-with-a-double-inverse-etf/#comment-658 Xenko Thu, 15 May 2008 23:08:14 +0000 http://symbiantcapital.com/2008/05/14/hedging-a-canadian-stock-portolio-with-a-double-inverse-etf/#comment-658 <p>Why would you ever hedge? At every point in time, the 100% XIU portfolio is higher than any of the other hedged portfolios, which just seems to indicate to me that you are losing out on returns, and there doesn't appear to be any advantage at all.</p> Why would you ever hedge? At every point in time, the 100% XIU portfolio is higher than any of the other hedged portfolios, which just seems to indicate to me that you are losing out on returns, and there doesn’t appear to be any advantage at all.

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