Leveraged Short ETFs... something wrong?

[Trader666]

What I was saying is, they perform pretty much as they're supposed to on a daily basis which is what they're designed for. But their long term "performance" is a mechanical consequence of the daily tracking and it is what it is.

Which means that if SP500 is up 10% in one month SDS's price will depend on the unique path SP500 took that month to get there and could vary wildly given different paths to the same end point

Quote from arizonadreamer:

So are you saying that the double short ETFs not only do NOT underperform on a daily basis, but they also do NOT underperform on a long-term basis?

 

[WinstonTJ]

Quote from Trader666:

What I was saying is, they perform pretty much as they're supposed to on a daily basis which is what they're designed for. But their long term "performance" is a mechanical consequence of the daily COMPOUNDING and it is what it is.

Which means that if SP500 is up 10% in one month SDS's price will depend on the unique path SP500 took that month to get there and could vary wildly given different paths to the same end point

fixed

 

[Trader666]

Wrong. Playing SDS against SPY could easily blow up if played longer term for the simple reason that SDS's price after X days depends on the unique path SP500 takes over those X days while the price of SPY after X days does not, only the endpoint matters.

I've been talking longer term, his question said nothing about not trading longer term and this thread isn't about arbitraging fleeting inefficiencies.

For someone who can spew trivia about ETFs you don't know shit about trading them

Quote from winstontj:

Arizona - don't let 666 confuse you. Your strategy is spot on, not only is it spot on but it happens all the time.

 

[neveragain]

spy= +1%
sds= -2%
sso= +2% 10000$ SPY = 5000$ SDS

10000$ SPY = 5000$ SSO

it is simple math plus ETFs expenses ratios and dividends

 

[Trader666]

If that's over one day yes. If not then only by a fluke.

Quote from neveragain:

spy= +1%
sds= -2%
sso= +2%

 

[Trader666]

Quote from winstontj:

I know trivia about ETFs but not how to trade them

fixed

 

[Trader666]

P.S. Real life example.

Contrary to what winstontj wrote, this is NOT "spot on."

Had you put this on with the 1x (IYF) and -2x (SKF) ETFs that track the Dow Jones U.S. Financials index over the period leading into Nov 20 and held, it would have failed spectacularly.

This is such a glaring example it's obvious from just looking at the prices without actually calculating the loss.

Quote from arizonadreamer:

If a double short ETF underperforms, wouldn't a strategy of shorting x shares of the short etf and 2x shares of the "underlying" be profitable?

For example, sell short 100 SDS / sell short 200 SPY.

AZD

Quote from winstontj:

Arizona - don't let 666 confuse you. Your strategy is spot on

 

[chrismontez]

I think the original poster on this was addressing a misconception many of us had. When I was looking to take advantage of what I thought would be a drop in in oil from $135 I bought DUG at $27.50 as I had read several articles recommending it as a " safe" play on a drop in oil prices for those not wanting to short oil futures. I got out shortly after with a slight profit as I soon realized my mistake after watching it's correlation to energy stocks more than oil. Kicked myself in the arse when it ran up another 100%, but .... that's trading. DIG / DUG is not a play on oil.

 

[gnome]

Quote from chrismontez:

".. but .... that's trading. DIG / DUG is not a play on oil.

My perception is that DIG correlates reasonably as it should, DUG does not...

 

[arizonadreamer]

Thanks guys for all of your input. Very insightful. This concept of price correlation dependent upon the "path" of the particular underlying instrument is quite interesting. I will have to look into this more.

AZD