Proshares (Ever wonder what you are 2X Long/Short?)

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$CostAverageMAN

Since most of you young guns have no time on yours hands to do this kind of boring work....I will share this break down for you....Hope you enjoy and I hope it clears up some confusion I keep reading on ET....

I'm posting this, because some people don't know anything about what they are leveraged into with these products.....

Heck, even Dylan Ratigan and the whole fast Money crew mistake this from time to time when they tell people how to get long / short oil with the DIG and DUG....

Lets start with an easy one....Basic Materials.....UYM (2X Long) or SMN (2X Short)

Roughly 40% of the index is MON, FCX, DOW, DD, AA

Yea, it took me for surprise too the first time I saw that breakdown.....

If it were up to me the top 5 would be like......BHP, DD, NUE, WY, MON...That would cover Mining, Chemical, Steel, Wood, Ag....

Well anyways here it is!!!!

$COSTAverageMAN
 

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Hey a few people checked it out so here is the DIG/DUG breakdown....

Same as above......

The point I'm trying to make here is: Oil went up $11 last weak in one day and people drooled over the thought about how to short the dam thing without a futures/margin account.....I can imagine that countless people bought the DUG near the close of the day thinking they were going to cash in on a slide in oil...Well a week later DUG has gone nowhere (Investing) and Oil is down 5 bucks.....I personally went with the DEE(Double Short commodity) that day, but got out of that illiquid new ETF on Tuesday....after watching the 1% spreads all day on Monday...


The point is 50% of DIG/DUG is XOM, CVX, COP, SLB and most people are thinking that they would get at least a .5% or above correlation with oil(USO) one way or the other.....Hate to break it to you, but on daily correlation the numbers don't lie.....Still positive, but no large correlation on any of the 5....

Past year Correlation Coefficient

USO/DUG -0.497180058% (You would of thought this would be at least a little more negative)
USO/XOM 0.321506457%
USO/COP 0.412103554%
USO/SLB 0.384393927%
USO/CVX 0.379510779%

SO......Mr. Dylan Ratigan instead of saying you can short oil with the DUG....You should say to Short XOM....I bet he cost some folks some cash!!!!!!

Correlation
From Wikipedia, the free encyclopedia

In probability theory and statistics, correlation, (often measured as a correlation coefficient), indicates the strength and direction of a linear relationship between two random variables. In general statistical usage, correlation or co-relation refers to the departure of two variables from independence. In this broad sense there are several coefficients, measuring the degree of correlation, adapted to the nature of data.

$COSTAverageMAN
 

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Interesting stuff. I see you recommend XOM. Another others with as much significance/coorelation to oil (inverse relationship)?

Also, I think either dig or dug will stop trading soon. Isn't that in a week or several days actually?
 
Logged back on to see If I had any responses.....

WOW.....did these two previous post just completely make my point.....

UCR and DCR by Macroshares are the Closed End Fund that is getting shut down soon...the 120 price point on oil held for 3 days and DCR owners got taken to the cleaners.....The NAV is 0...

No I'm not recommending XOM......The point is that the ETF (DIG/DUG) consist of 25% XOM....that is the point... Correlation for DUG and USO is negative, but not strong enough to warrant a direct investment in DUG thinking you are only short oil.....Hence, owning DUG is not short oil, It is short XOM, CVX, SLB, and others....(As mentioned on TV)...just clearing things up here!!!!

OK....To the next post.....You must love paying taxes... I didn't get to where I am today by giving the government 30% of my net on each positive trade......If you don't have a ROTH IRA open yet get one...yesterday!!!

I thought I made it pretty clear in the 1st post.....If your primary account is an IRA and you want to be short oil.....RIGHT NOW YOU CANNOT..(No ETF exist in the US)

You can be in this leveraged Canadian ETF for a direct play on NYMEX light sweet crude oil futures contract for the next delivery month..

HBP NYMEX Crude Oil Bull and Bear Plus ETF

http://jovian2.globefund.com/servle...se=JOVIAN_HBPETF&branding=jovianf&product_id=

Why Not just Short USO or be short Oil Futures.....Sounds Easy if you like paying capital gains every year on each trade you made...(I couldn't even imagine the thought)
Because you cannot borrow on an IRA, and shorts require margin which is borrowing.

You cannot borrow, because you cannot pay enough into the account in case of a margin call when your shorts go bad. IRAs have limits on how much you can deposit in them annually, and there is no limit to the amount a stock can go up.

BTW I'm in my 70's...to clear things up for you....don't be the guy who says in 30 years "the old wise man once told me...............But I forgot to take his advice"

http://www.elitetrader.com/vb/showthread.php?s=&threadid=64553&perpage=6&pagenumber=120


$COSTAverageMAN
 
Great analysis - I am only exposed to oil via a hunk of OXY shares in my longterm retirement account but want to give you credit for debunking some of what's shown on TV as "investing advice" for those retailers and amatuers who don't do their homework and want simply to know what to buy or sell.

Good job and thanks!
 
Hi $COST,
the component Quantity#s in your oil_and_gas.xls diverge from what posted on proshares.com (4ex. XOM is 186160 in your speadsheet and 237518 on proshares.com), could you please address a little bit about the # you gave? Thanks a lot!
Did I say awesomest post ?:-)
 
Why does everyone insist on using <a href="http://en.wikipedia.org/wiki/Correlation">correlation</a> when <a href="http://en.wikipedia.org/wiki/Covariance">covariance</a> is the right metric? That would be far more interesting to know...

But all in all, good analysis. These 2x pro-shares are pretty much a scam and only good for short term trades. They lose tracking with the underlying target assets fairly quickly...
 
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