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8

Put simply, VIX is a spot index (fair value to a variance swap on SPX of constant maturity) that you cannot own as a security. Market participants create futures for you to trade. Futures trade higher than the VIX -- if you long VIX futures, you lose when the futures contract converges to VIX. You therefore have a negative roll-down. VIX ETF doesn't avoid ...


3

Your “coffee price” is spot. Your “coffee index” (or ETF) is excess/total returns, i.e. it includes index rolls. That is the impact of the contango or backwardation of coffee futures as they roll from one contract to the next. See: https://www.bloomberg.com/quote/BCOMSP:IND https://www.bloomberg.com/quote/BCOM:IND Commodity prices are down 10% in 5 ...


3

Apologies in advance for being hyper-critical. I have somewhat strong feelings about this =P The purpose of risk parity is to improve portfolio efficiency via achieving better diversification. (We won't delve into philosophical debates about whether or not this is true here...) Mechanically, by leveraging up low risk assets (e.g., US Treasuries) and ...


3

A margin loan and a levered ETF work differently. Suppose you have 1000 cash in your account and you want to buy 2000 dollars of SPY. On margin, the loan will be -1000 and your equity will be 1000. Then your initial leverage will be 2:1. But if the value of your SPY goes to 2200 it will be -1000 loan, 1200 equity, 2200 market value, or a leverage of 2200:...


2

Leveraged ETF have negative gamma: the higher the volatility of the underlying index the bigger the negative drag. This is a big pitfall of those instruments because one can be correct with the overall forward direction of the market for say the next 1 year and still lose money with a LETF. For example if one bets the SPX will go down over next 12 months ...


2

I am going to speculate here. Scale. Say for equities the futures market is bigger than the actual spot market (presumably because you can have cash-settled rather than physically settled contracts); would appreciate if anyone could dig up some numbers. This means more capital can be employed making the strategies more scalable. As far as leverage is ...


2

1) Physical Replication would entail taking actual positions in the full or subset of instruments that comprise the ETF. This method would necessarily require a list of the holdings and weights of the ETF or the Index which the ETF attempts to track. Alternatively, in order to minimize the costs of replication, some will use an optimization approach by ...


2

The market maker's operating model is simple - Buy at Bid, Sell at Ask. Bid is always less than Ask. The Bid/Ask spread generates the profit, and market competition (i.e. presence of other market makers) causes this Bid/Ask spread to tighen (i.e. the spread becomes less as competition increases). How exactly do they sell at the higher ask price? ...


2

Here is my take on trying to answer this question. My backtest goes as far as December 1979 (just before the great bond bull run). I used daily total return index for Wilshire 5000 and 10-year constant maturity treasury rates. Remember you can proxy total bond return for $Yield - Duration*\Delta Rate$. Nevertheless, I agree with Helin that this is a less-...


2

You don't have to back out the expense ratio manually. The expenses are deducted from the ETF NAV and baked into the price of the ETFs. From the link below: You won't find them on your account statement The cost of investing is usually associated with trading commissions and account service fees—items you see as "debits" from your accounts. ...


2

in a previous question you were looking at using the VWAP price of SPY as a possible technical indicator or input variable in your investment decision process. The difficulty that you are going to encounter is that SPY and the S&P 500 future (right now ESU9) are interchangeable. Here is a chart from Bloomberg showing SPY vs ESU9 from Bloomberg. Now ...


1

yahoo finance has downloadable price history for this and others. They include the adjusted price which can be used to calculate the total return without any adjustments.


1

Special Relationship and the added dimension to VWAP. As we know the expiry’s final settlement price is the last 30 minutes-weighted average price of the spot market. Due to this, many investors/traders get confused with the prices and some option prices may look like an arbitrage or free money (options quoting below intrinsic value). This may not be ...


1

If the Index is priced in EUR based on the methodology, then that has an outsized effect on performance versus spot futures priced in USD. From 2001 to 2009, the EUR appreciated from near parity with the dollar to trading around 1.50 in November 2009. The futures roll returns are not important because that particular index BUKCDE is not an excess or total ...


1

This is a very good question, and I don't mean that in the usual academic platitude sense! Imagine you or I wanted to replicate VOO ourselves. To manage the liquidity of inflows and of potential outflows, we'd need to run a few percent of NAV in cash. Which would mean our stock portfolio would have a beta of slightly less than 1. There "should" then be some ...


1

you need to look at the correct data sources. SPY and VOO both charge management fees. These fees will decrease the value of the fund and they are charged every day. The fees are small enough that you will not see them clearly versus the fluctuation from NAV. Let's do this with VOO: Look on Bloomberg at the ticker "VOONV Index" for the actual Net ...


1

One popular strategy and the one that works very well if it can be done is hedging using futures. This can be done on both sides.


1

ETF market-making has a more complex mechanism than 'regular' market-making. This answer deals explicitly with open-ended ETFs. I will refrain repeating the details about market-making that most people know that have already been asked and answered ad nauseum. On top of traditional market-making in the secondary market in which traders trade with each ...


1

Any number of reasons...between vendors, could be small pricing discrepancies, calc differences, etc. Within a given system, it's likely attributable to update frequency. I've seen some providers with data published that was months old. Per the comments, looks like this falls into that camp. When in doubt, download returns and do the calculations ...


1

A partial answer could be legal or accounting reasons: Legal reasons: Certain investors may not be allowed to buy outright derivatives or borrow large amounts of money. Accounting reasons: Similarly, from an accounting perspective (e.g: financial ratios, capital requirements, covenants,…) there may be benefits in materializing an exposure through mutual ...


1

Funds that pay dividends hold each companies dividend until the end of the quarter and pay it as a lump sum. Until this is done the fund has lost no value. But when paid drops the value of the payment. You must remember they are continually taking fees out of this amount.


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