Document Type thesis Author Name Posterro, Barry John URN etd-111609-083627 Title Explorations of Trading Strategies for Leveraged Exchange-Traded Funds Degree MS Department Mathematical Sciences Advisors Marcel Blais, Advisor Keywords exchange-traded fund ETF leverage FAS FAZ bootstrap Date of Presentation/Defense 2009-11-16 Availability unrestricted
This paper describes our work in exploring trading strategies for the leveraged exchange-traded funds, Direxion Daily Financial Bull 3X (FAS) and Direxion Daily Financial Bear 3X (FAZ) over the first three quarters of 2009. Using minute-by-minute stock data we are able to verify the accuracy of these ETFs in regards to their target of the Russell 1000 Financial Index (RIFIN). We are then able to quantify the returns and risks involved with trading strategies that seek to exploit the ETFs objectives, specifically momentum trades, tracking-error discrepancy trades, and a combination of the two strategies we term “discount-and-up.” Bootstrap simulation techniques are employed to measure values at risk and conditional tail expectations over 30 day time horizons for each strategy. Lastly, we demonstrate the dangers of traditional buy-and-hold investing with regards to leveraged ETFs.
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