August 21, 2010 | In: Financial
Having Fun with FAS and FAZ
FAS and FAZ are probably two of the most interesting stocks I’ve seen (but never traded, yet I will definitely trade them as soon as I have some money). They mirror each other (following graphs are for yesterday, courtesy of Yahoo Finance):
FAS is a stock that measures the market sentiment and goes up if it’s bullish (and goes down if it’s bearish), FAS, on the other hand, goes up if it’s bearish (and goes down if it’s bullish).
Having followed these 2 stocks I can tell you that the FAZ is at a very high price right now, while FAS is at a very low price. Buying FAS is an excellent investment, if you don’t believe that the world is going to end in a few weeks. FAS will almost certainly go up next week, it’s easy to notice that it changed the trend during the last few trading hours.
Now how can someone make profit from two stocks that exactly mirror each other?
I would do the following, since FAS is now very low, I would buy 1/3 of my position (of both FAS and FAZ) on Monday morning, buy another 1/3 if it goes down $2, and buy another 1/3 if it goes down another $4, and then wait until it goes up again.
Another scenario is to buy 1/3 of my position on Monday morning, and if it goes up $2, then I’ll sell half my FAS stocks and buy FAZ instead, and if it goes up another $2, I’ll buy more FAZ stocks. I’ll sell all my FAS stocks when it goes up $6 from my original price.
FAS is almost at its yearly low, so it’s a great time to buy.
These 2 stocks are very interesting, and again, I will start experimenting with them once I have sold some of my equities.