Shorting Bull/Bear ETFs - easy money?

SwingToWin

SwingToWin

Dear fellow traders,

I'd like to hear your opinion on a question that came up.

What if I shorted two ETFs of the same underlying, for example:
- XIV and VXX (Volatility)
- USO and DNO (Oil)
- FAZ and FAS (Shares)

All charts look very beautiful - no matter what the market does, it only goes up - for years :)
Interest and cost of borrowing is not cheap, but it is still about 1/3 of the profit I make in one year.

Still that all sounds too good to be true. Can you tell me where I'm wrong? Or is it really that easy?

Thank you!
 
I think you would have to adjust the position almost everyday to keep the exposure equal, so that might be a lot in transaction costs.
 
I had one clients who tried this with the underlying first then the doing it with options. His P/L had big swings and it was difficult to keep $ neutral. Also the cost of carrying the shorts was very high.
 
Thanks for all your input, I appreciate it very much :)

You were right about rebalancing, that would eat up my profit completely.
I've backtested the strategy with a fixed size now and it is pretty bad.
So yes, it was too good to be true. Thanks for all the input :)
 
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