March 10th, 2020

2009

GUSH - day 2

1) After yesterday Craze on the stock markets, GUSH dropped further from $0.95/share down to $0.75/share

2) I missed that $0.75/share opportunity and bought 7,000 more GUSH shares in $0.97/share ... $1.00/share range, while chasing bull rally at the end of the day.

3) DRIP (3x Bear Oil&Gas ETF) is inverse to GUSH (3x Bull Oil&Gas ETF)
Normally, drop in DRIP should be ~equal to growth in GUSH.
However today DRIP dropped 23.89% while GUSH grew only 5.26% (see graph).
Most likely, that discrepancy was caused by delayed adjustment from yesterday, when GUSH dropped ~5x (way too much for 3x ETF).

4) I calculated, that yesterday GUSH 5x+ drop caused huge GUSH decay.

On 2020-03-09 GUSH went from $5.06 down to $0.95
That is 5.326x drop.
Which corresponds to 0.188 multiplication factor.
That corresponds to 0.729 drop in the underlying index SPSIOPTR (without 3x multiplication).
If the underlying index gradually returns back from 0.729 to 1.000 (from 1,706.360 to 2,340.720 that SPSIOPTR had on 2020-03-06), then it will be 1.371 increase in the underlying index.
That will correspond to 1.371 ^ 3 = 2.579x increase in GUSH price (assuming no GUSH decay on the way back up)

So 2020-03-09 GUSH decay was: 5.326x / 2.579x = 0.484 (more than 2x irreparable GUSH value loss).
Such huge single-day decay is very unusual.
The only comparable single-day decay I recall was with VIX-tracking bear ETF-s, such as SVXY on 2018-02-06

5) Considering that GUSH decayed more than 2x yesterday, it is a bit optimistic to expect GUSH to recover back to $134 level.
Still, if SPSIOPTR returns back from 1,718.51 (2020-03-06) to its maximum level 9,536.81 (2015-04-30) - it will be 5.54x price increase. Assuming no decay in GUSH, ideally GUSH may grow 5.54x ^3 = 170.90 times from $0.95/share level.
Which is $0.95 * 170.90 = $162.36

Originally posted at: https://dennisgorelik.dreamwidth.org/183268.html