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Leveraged Short ETFs... something wrong?
- Thread starter gnome
- Start date
Yes. I highlighted the key parts in asterisks.
This is DUG.
The investment seeks **daily investment results**, before fees and expenses, which correspond to twice the inverse of the **daily performance** of the Dow Jones U.S. Oil & Gas index. The fund normally invests 80% of assets in financial instruments with economic characteristics that should be inverse to those of the index. It may employ leveraged investment techniques in seeking its investment objective. The fund is nondiversified.
This is DUG.
The investment seeks **daily investment results**, before fees and expenses, which correspond to twice the inverse of the **daily performance** of the Dow Jones U.S. Oil & Gas index. The fund normally invests 80% of assets in financial instruments with economic characteristics that should be inverse to those of the index. It may employ leveraged investment techniques in seeking its investment objective. The fund is nondiversified.
here's some funny inverse etf math:
when A moves X % a day, the double inverse B moves 2X %, if they both start at 100, and lets say first day A drops 20%, it will be 80 and B will be up 40% or 140
if next day A goes up 25%, it will be back at 100, but B will drop 50% and trade at 70, SO FOR 2 DAY PERIOD A IS UNCHANGED but B, the double inverse etf is DOWN 30%
now lets take another example when A goes up 25% the first day, it will be 125 and B will trade down 50% or 50, and if next day A is down 20% and back at 100, B will be up 40% and trade at 70, again A UNCHANGED for 2 trading days, B DOWN 30%
when A moves X % a day, the double inverse B moves 2X %, if they both start at 100, and lets say first day A drops 20%, it will be 80 and B will be up 40% or 140
if next day A goes up 25%, it will be back at 100, but B will drop 50% and trade at 70, SO FOR 2 DAY PERIOD A IS UNCHANGED but B, the double inverse etf is DOWN 30%
now lets take another example when A goes up 25% the first day, it will be 125 and B will trade down 50% or 50, and if next day A is down 20% and back at 100, B will be up 40% and trade at 70, again A UNCHANGED for 2 trading days, B DOWN 30%
Whats with SRS? It rockets to 295 in a week, comes back down
to the low fifties and the cat hasn't bounced. The credit crisis is only going to get worse. Resets, Retail, Armageddon!
to the low fifties and the cat hasn't bounced. The credit crisis is only going to get worse. Resets, Retail, Armageddon!
Quote from jjftw:
here's some funny inverse etf math:
when A moves X % a day, the double inverse B moves 2X %, if they both start at 100, and lets say first day A drops 20%, it will be 80 and B will be up 40% or 140
if next day A goes up 25%, it will be back at 100, but B will drop 50% and trade at 70, SO FOR 2 DAY PERIOD A IS UNCHANGED but B, the double inverse etf is DOWN 30%
That can't be right. You're saying if a stock moves down $20, the double inverse moves up $40, but if the stock moves up $20, the double inverse ETF moves down $70. Who invented this idea? The devil himself?
That just can't be right. Where's the upside? If a stock moves up $20 dollars and I'm double short, I better lose exactly $40 or that's it. I'm out. Who would put their money in a vehicle like that?
Quote from gnome:
DUG, EEV, FXP.... all seem like they should be trading at high prices. Instead, they are the opposite.
Something wrong with these vehicles or something I'm missing ??
Why should the DUG be trading higher?
Have you looked at the major integrated oil stock charts lately?
Seen what XOM and CVX have done since the October lows in the DJIA, even as oil collapsed another 50% from $72 to $36?
The DUG tracks the inverse of the Dow Jones U.S. Oil and Gas Index, of which the top four holdings:
XOM (27.9%), CVX (11.7%), COP (7.1%) and SLB (6.4%) make up 53% of the index.
I'm not sure why people are so surprised at where some of these ETF's are trading at, especially when all one has to do is check out a chart or two of the top holdings in the index.
The moral of the story:
Always know what the components ( and their weightings are ) of an ETF index before trading it.
http://www.djindexes.com/mdsidx/downloads/fact_info/Dow_Jones_US_Oil_and_Gas_Index_Fact_Sheet.pdf
Quote from Landis82:
Why should the DUG be trading higher?
Have you looked at the major integrated oil stock charts lately?
Seen what XOM and CVX have done since the October lows in the DJIA, even as oil collapsed another 50% from $72 to $36?
The DUG tracks the inverse of the Dow Jones U.S. Oil and Gas Index, of which the top four holdings:
XOM (27.9%), CVX (11.7%), COP (7.1%) and SLB (6.4%) make up 53% of the index.
The moral of the story:
Always know what the components ( and their weightings are ) of an ETF index before trading it.
http://www.djindexes.com/mdsidx/downloads/fact_info/Dow_Jones_US_Oil_and_Gas_Index_Fact_Sheet.pdf
Jesus, this is supposed to be EliteTrader. Every response up to Landis' is completely irrelevant.
Landis has it exactly right. Know what the hell you are trading.
Quote from 4444CJones4444:
That can't be right. You're saying if a stock moves down $20, the double inverse moves up $40, but if the stock moves up $20, the double inverse ETF moves down $70. Who invented this idea? The devil himself?
That just can't be right. Where's the upside? If a stock moves up $20 dollars and I'm double short, I better lose exactly $40 or that's it. I'm out. Who would put their money in a vehicle like that?
That's what I thought until I bought some TBT (trades double inverse to TLT or the 20year treasury). The inverse is not 2 times the point move, but 2 times the percentage move. From http://www.proshares.com/funds/tbt.html
Objective
UltraShort Lehman 20+ Year Treasury ProShares seeks daily investment results, before fees and expenses and interest income earned on cash and financial instruments, that correspond to twice (200%) the inverse (opposite) of the daily performance of the Lehman Brothers 20+ Year U.S. Treasury Index.
please note the move being inverse double percentage not points, so depending where the underlying is, if they both start from handred its 20 points in A and 40 in B, but when A gets for example to 200 and B is 20, a 20% 40 point move in A will be 40% or 8 dollar move in B
these etf's are great for daytrading, but for long term position trading they are tricky
Quote from MrktObserver4u:
Jesus, this is supposed to be EliteTrader. Every response up to Landis' is completely irrelevant.
Landis has it exactly right. Know what the hell you are trading.
why are other responses irrelevant, landis gave good explanation for DUG, but not for EEV from those mentioned by the treadstarter
Other than a cheerleader for Landis, how is your post relevant?Quote from MrktObserver4u:
Jesus, this is supposed to be EliteTrader. Every response up to Landis' is completely irrelevant.
Landis has it exactly right. Know what the hell you are trading.
And I'm going to go out on a limb and say op's question about today's double inverse ETF valuation had nothing to do with Oct lows.