Some of you may have considered selling both the FAZ and the FAS leveraged etfs in order to capture the time decay that is eating these 2 products and will make them both fall to zero, as you can see in the shot above, since august, the FAZ went down 26% while the FAS went up only 20%, if you have bought both you would now have an unrealized loss of 6% but if you shorted both you would have had a risk free profit of 6% but you first have to find a broker that is willing to let you short them, there are 2 brokers that let traders do that, they are Thinkorswim (now owned by Ameritrade) and Interactive Brokers, there are certainly other brokers but these two are the most advanced even if their conditions make this arbitrage not very profitable since the interest charged on shorting them is ridiculous, in the case of Thinkorswim, you have to phone in order to short a stock or an etf which is quite laughable in 2010.
The solution to this is to sell call options on both, you can do that on TOS and IB and as its just options and not stocks/etfs, there is no interest involved. i don't need to tell you though that you first have to try it on a demo account to see if there are any strings attached to this arb trade, for those who are lazy, i will do it myself and bring you the result. stay tunned.
