Leveraged Short ETFs... something wrong?

I went and looked around - seems that the .IV tickers are hard to come by in some places. Google shows them, bloomberg shows them but my E*Trade Power Pro does not - unless I don't know how to look them up (because I am a noob :D )

Here's what I pulled quickly. Tickers are simple and you should call your platform and ask for the .IV tickers to be made available to you. I'm not that much of a chart wizard but you will find that there are certain times during the day (specificlly the open & close) when the shares deviate substancially from the Intraday Value Index.

Look at today at the open today for the gaps between the two.

SDS.jpg

SDS2.jpg

BGU.jpg
 
Quote from winstontj:

LEVERAGE ETFs ARE NOT A LONG TERM INVESTMENT AND SHOULD NEVER BE CONSIDERD LONG TERM INVESTMENTS.
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When I look at a 3-6 month or yearly chart, the leveraged ETF's seem to track the unlevered index. For example, I posted a 6 month chart for IYF vs UYG and it seems to match up. I understand that UYG is twice the *daily* movement but that seems to correspond over the long term.

What am I missing?

So the attachment failed but here's the link to Yahoo's website:
http://finance.yahoo.com/q/bc?s=IYF&t=6m&l=on&z=l&q=l&c=uyg
 
You're not missing anything. Technically, leveraged ETFs are not long term investments and for the reason you said but some (almost always the leveraged longs) do correspond fairly well longer term.

I trade these both long and short term so here are my thoughts from a trading perspective.

To trade the Dow Jones U.S. Financials Index I'd look at the ETFs that track it and compare them to see which would best meet my objectives. Because you brought them up let's take the 1x (IYF), the 2X (UYG) and also -2x (SKF).

When I'm looking at holding for more than a few days I'll do a scatterplot of the 1X ETF vs the 2X and -2X. But because leveraged ETFs seek daily performance, the cumulative effect of this over time is that their performance may not correspond well over the long term and this is especially true for the leveraged short ETFs. It's counterintuitive but the math makes them NOT not mirror images and you can check this for yourself by doing drills like jjftw did in this thread.

The following graphs use prices from Aug 1 to yesterday. Based on these I'd feel comfortable holding UYG longer term but wouldn't even consider it with SKF. But SKF is the only one I daytrade (haven't lately) because it can have huge swings.

I'm not recommending that you or anyone else trade these longer term but if you do, make sure you understand what they track and how they behave. I find scatterplots useful.

<img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=2250457>

Quote from sabunabu:

When I look at a 3-6 month or yearly chart, the leveraged ETF's seem to track the unlevered index. For example, I posted a 6 month chart for IYF vs UYG and it seems to match up. I understand that UYG is twice the *daily* movement but that seems to correspond over the long term.

What am I missing?

So the attachment failed but here's the link to Yahoo's website:
http://finance.yahoo.com/q/bc?s=IYF&t=6m&l=on&z=l&q=l&c=uyg
More...
 

Attachments

Sabunabu - you'll find that leveraged products perform well in up & down markets but tend to underperform in sideways or highly volitile markets. It is for that reason, specificlly in the sectors which are thinly traded and considered more illiquid, that many ETF companies advise against looking at leveraged ETFs as a long term buy & hold strategy.

In sideways markets they tend to self-destruct due to daily compounding issues....

http://direxionshares.com/pdfs/Compounding_Article_ETFs.pdf

Quote from sabunabu:

When I look at a 3-6 month or yearly chart, the leveraged ETF's seem to track the unlevered index. For example, I posted a 6 month chart for IYF vs UYG and it seems to match up. I understand that UYG is twice the *daily* movement but that seems to correspond over the long term.

What am I missing?

So the attachment failed but here's the link to Yahoo's website:
http://finance.yahoo.com/q/bc?s=IYF&t=6m&l=on&z=l&q=l&c=uyg
More...
 
Quote from c.chugani:

I guess that these two bear funds issued by SG also work in the same weird fashion?

I was thinking of buying and holding them them as a medium term play.
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ETFs are simply funds with intra-day liquidity. They price once daily just like most mutual funds and they are benchmarked to a daily index, just like most mutual funds. In that light - yes they will perform just as the others - its not wierd, its just a daily beta which means that the fund seeks to acheive a daily multiplier of the index it tracks.

I wouldn't consider holding any leverage products more than 2 weeks (10 trading days) but that's my own personal opinion.
 
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