Gamma & leveraged ETFs

UltraETF · September 1st, 2009, 8:07 pm

Can someone explain how a GAMMA Trade works or doesn't work with the leveraged ETFs? I have heard conflicting stories. Some say it is not predictable others say sure-- how do you set it up in a system, etc? Thanks for any guidance.

pdaley2 · September 1st, 2009, 9:58 pm

The gama portion is predictable. Short ETFs and levered ETFs are all short gamma due to their one day return horizon (they need to be rehedged daily). However, the end of day trade for a levered or short ETF is the sum of the gamma and the contribution withdrawal activity. It is the contributions and withdrawals that are unpredictable. If they offset the gamma, you won't know until it is too late.

daveangel · September 2nd, 2009, 9:24 am

you might want to look at this thread which discusses the prcing of Ultra short funds. It did get a bit heated I am afraid but is quite useful.

UltraETF · September 3rd, 2009, 11:39 am

Thank for your help. I only ask because I have been told that it wasn't worth trying to be cause it is unpredictable. I saw this piece on indexuniverse, it seems to discuss some of the returns behind these ETFs. http://www.indexuniverse.com/publicatio ... =11;Thanks again.