Hi Pascal,

The IWM robot sold on the Tuesday morning after the Columbus Day holiday, I’m sure partly due to the weak money flow. IMHO I’m thinking this weak money flow was due in part to the bond market being closed that Monday. If somehow Columbus Day didn’t happen, (had we gone from Friday directly to Tuesday) do you think the IWM robot would have stayed in the trade? If it stayed in, is there a chance it would have held on? Perhaps this question might be impossible to answer. A guess would be fine.

My second question pertains to option trades for TZA/TNA (anyone?)

As Billy pointed out there is a well documented decay effect with leveraged funds. For example a short on TZA started 4 Jan 2010 and covered this past Friday would have returned approximately 79%. The IWM return for the same period is 12.6% and a TNA return for the same period is 9.5%.

Another decay effect is the time premium decay that options loose to expiration. The highest percentage of the time premium decay is lost in the final three months to expiration.

For a long trade, and with this in mind, is anyone shorting naked calls on TZA? We would have these two factors working in our favour and the above returns could be significantly enhanced. Risk factors of shorting naked calls aside, I have a feeling that a regular monthly short on TZA calls (provided the 20 dmf was in the buy mode) makes sense. If anyone is doing this, would you mind commenting?

Thanks,

Dave