The Traderszone Network

23 April, 2009 by James McBride

Outperforming The Market: Is More Leverage Better?

Over the past year or so, leverage has been a key component in many new and top-performing ETF’s. Astute traders using leveraged and/or inverse funds have seen outsized gains compared to more traditional vehicles.

However, owning a leveraged or inverse ETF definitely won’t guarantee a profit. In fact, with leverage, if your underlying isn’t on any of the latest “hot” lists or pundit-promoted investment-of-the-week picks, there’s a good chance you could wind up disappointed. Or, if you’re a faithful adherent of the risk reduction philosophy, spending a long time fighting your way back to some type of profitability.

Leverage (TV series)

Part of the problem (and the benefit) of going for the super-sized returns that pumped-up inverse and leverage funds offer is that if you’re right, you can become wealthy—fast. But if you’re wrong, well, the inverse can happen, with a multiplier effect.

As new ETFs come out offering an ever-widening array of ways to deal with the markets, it’s going to become imperative that independent-minded traders understand the long-term implications of these vehicles. And that means putting into perspective how a well-rounded sector allocation will play out, employing robust risk-management (most likely longer-term puts and collars) and simply knowing what you’re buying and why you’re buying it.

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20 April, 2009 by James McBride

Most Actively Managed Equity Funds Fail To Perform

According to a new report from Standard & Poor’s, more than 70% of all actively managed U.S. equity mutual funds trailed their benchmarks for the five years ending 2008. The S&P’s Index Versus Active Fund Scorecard (SPIVA) showed that 71.9% of actively managed large-cap funds lagged the S&P 500, while 75.9% of actively managed mid-cap funds trailed the S&P MidCap 400. In addition, 85.5% of actively managed small-cap funds fell behind the S&P SmallCap 600.

The only bright spot was Large-Cap Value ETFs, which did better than the S&P 500 Value index in 2008, with 78% of actively managed funds beating their benchmark. S&P says the results were consistent with the previous five-year cycle which ran from 1999 to 2003. The results of the study prompted an S&P spokesperson to speculate that the belief that bear markets strongly favor active management is largely a myth.

Check out for more on this story.

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12 February, 2009 by admin

U.S. Stocks, Overseas Trading Dismal

Equity option activity on the CBOE saw 1,194,387 call contracts traded on Wednesday, compared to 925,811 put contracts. The put/call ratio rose to 0.78, while the 21-day moving average slipped to 0.76. Gold futures have reached their highest price in 7 months as uncertainty over the bailout plan jump-started a new round of safe-haven buying. The April contract piled on $30.30, or 3.3%, to finish at $944.50 per ounce, while the front-month February contract gained $30.10 to settle at $943.80 per ounce.

Overseas trading has been dismal. Stocks plunged in Tokyo and Hong Kong with exporters and financials leading the downtrend. Strength in the Japanese yen helped pressure a number of companies. In addition, Japan’s wholesale inflation rate fell more than expected in January, dipping into negative territory for the first time in more than 5 years. In Europe, indices racked up their third day of losses as falling oil prices hold back the energy sector and corporate earnings create additional drag on stocks.

Against this backdrop, we again feel that the Direxion Shares Financial BEAR 3x ETF (FAZ) 09 MAR 65.0 covered calls continue to look interesting. They are currently up +4.93 to 48.48 and offer a 174.6% if unchanged annual return and a 585.5% if assigned annual return.

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