Monday, July 6, 2009

Direxion Announces Reverse Splits for FAS and FAZ

Direxion formally announced today what has been rumored for awhile now, that its two most popular triple ETFs, FAS and FAZ, will undergo reverse splits after the close of trading on Wednesday, July 8th.

FAS (financial 3x ETF), which closed Friday at 8.34, will split 1-for-5, while FAZ (financial -3x ETF), which closed Friday at 5.13 will split 1-for-10.

For more details, check out the Direxion press release.

11 comments:

Rufus Willy said...

Should one short both ETFs as most reverse splits decline the day after....

Bill Luby said...

Over the long-term, that is a solid strategy, but the problem is that short-term sharp trends can take you out of one of those positions at a very large loss, as compounding works against you if the ETFs keep trending in the same direction.

The short strategy requires a lot of capital and an extremely high risk tolerance.

Cheers,

-Bill

Tushar said...

I have held FAZ for average of 20 per share. I am wondering what do I do, hold it till 200? Can someone help here to understand implications of 3x ETF after reverse split?

Bill Luby said...

Hi Tushar. All the hoopla about splits are overblown. Instead of having 10 dimes in their pockets, everybody now has a $1 dollar bill instead. Nobody has a change in their net worth.

Further, anyone with an odd lot position (not a multiple of 100) should not feel the need to sell some or buy more to get to a round number of shares. With modern commission rates, share counts don't matter.

The bottom line is that nothing should changes. If you like being long FAZ pre-split, you should like the position just as much post-split.

Also, keep in mind that these ETFs still need to track an underlying index, so they are not going in a manner that is inconsistent with that index.

Cheers and good trading,

-Bill

Tushar said...

Many thanks to you for sharing your thoughts on it. I really appreciate that. One question: If I have 315 shares for example, I will have 31 shares post split and half a share (0.5*50 = $25) will be sold in the market? And let's say the commission is $10 then the net proceed will be $15? Or I will have $25 deposited into my account without any sell transaction?

Bill Luby said...

The fractional shares should be automatically converted into cash with no commission charge and the proceeds deposited directly to your account.

In the example you cite, you should see $25 (0.5*50) in cash appear in your brokerage account. When in doubt, it never hurts to check with your broker.

Cheers,

-Bill

Tushar said...

Thanks again; you have a great blog and I am always learning something here. Keep up the good work!

belhana said...

thanks

Artem Dmytrenko said...

does anyone have anyidea how to abuse it on last trading day on wednesday?

Eric said...

So, if I am long 100 FAZ $6 Calls, I will hold 50 at the $12 strike?

Bill Luby said...

Eric,

With a 1-10 reverse split your 100 FAZ $6 calls should translate to 10 at $60.

Either way, you are doing nicely today :)

Cheers,

-Bill

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