FAS and FAZ next meeting

Like a couple ensnared in a tumultuous relationship, FAS and FAZ are about to get back together again. You can tell they both regret how it’s been lately. They both want to give it another chance, hoping that this time it’s going to be different.

I’m guessing the next meeting pivot is around $7.20. That’s where my regression-like line is pointing. The correlation is currently around -0.86, which is pretty close to being perfectly negatively correlated. I’d like them both to remain below $10 on Friday, as that is options expiry and I’m short both FAS and FAZ calls at the 10 strike in MAY. Readers will recall I collected $1.71 credit for both short calls.

Where is this pair going? Quite frankly, I’m not sure. It’s shaping up as a mean-reverting play, but with a price decay component.

I went long equal shares when FAZ traded at $12.00 and FAS traded at $6.20. I’m becoming convinced that this strategy is mathematically guaranteed to lose. The income from selling covered calls against both longs is reducing the pain just enough for me to keep it alive. How’s that for a trading strategy. Hey, it’s discretionary.

These two little magnets draw each other closer before one switches its polarity and they diverge. All the energy expended on the ritual is wearing both of them out. They have some serious co-dependent issues. It’s like the drunk spouse abusing the enabling spouse. They break up, they get back together. And they’re both worth a little less in the end.

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One Response to “FAS and FAZ next meeting”

  1. top-secret helicopter Says:

    Hadn’t looked at the comparo chart of the two in a while. Interesting trend emerging here, nice catch.

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