Shorting Leveraged ETFs

J

jones247

Has anyone been able to borrow/short the shares of leveraged (2x or 3x) ETFs?

The only downside I see with this strategy is that the market makes a strong move in the direction of the ETF. For example, bull 3x etfs would be dangerous to short if the market continued to spike without any retracement; or a bear 3x etf would be dangerous to short if the market experienced another 1987 crash.

Nonetheless, as long as the market whipsaws/ranges, it appears that shorting the leveraged etfs is a worthwhile exercise, assuming that you can borrow the shares and withstand the drawdowns.

Any feedback would be appreciated.

thanks,

Walt
 
Quote from jones247:

Has anyone been able to borrow/short the shares of leveraged (2x or 3x) ETFs?

The only downside I see with this strategy is that the market makes a strong move in the direction of the ETF. For example, bull 3x etfs would be dangerous to short if the market continued to spike without any retracement; or a bear 3x etf would be dangerous to short if the market experienced another 1987 crash.

Nonetheless, as long as the market whipsaws/ranges, it appears that shorting the leveraged etfs is a worthwhile exercise, assuming that you can borrow the shares and withstand the drawdowns.

Any feedback would be appreciated.

thanks,

Walt
More...

Why "short" the ETF when you can just go "long" the inverse ETF?

For example the SDS is the 2X inverse of the S&P 500.

There's a bunch of others too -- like FAZ (Financials) and the TYP (3X inverse technology)
 
the daily rebalancing decay is the reason why I'd prefer to short the leveraged etfs in lieu of trading the inverse. As a matter of fact, I'm especially interested in shorting the inverse leveraged etfs...

My main interest is something akin to shortable pairs trading of leveraged etfs. I've searched several threads in an attempt to find discussions on statistical arbitrage opportunities with this strategy, or a similar strategy. However, I've yet to find any such information. Would you mind directing me to the thread with such information? Otherwise, I am hopeful to kindle some discussion on this topic in an attempt to "build a better strategy" from the input of others. In essence, that's why I'm willing to share this strategy.

Walt
 
Quote from jones247:

no takers...???
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run a simple correlation of FAZ/FAS after direxion reset their prices at 40. Short is resulting in drawdown.

You are better off short the inverse as opposed to long the 3x short because of decay.

Do you want cookies as well?
 
yes many firms you can intraday borrow them but the problem is holding them longer term as since they're tough to borrow they can be called in at any time. for instance last year if you shorted skf on one of its $100-$150 runs you could have had the short called in on a huge loss before it dropped
 
It's terrible that they can be called in at any time. What's the benefit of shorting if you won't be given the opportunity to increase or hold your short positions through the drawdown? Is there anything that can be done to prevent them from being called at anytime?

thanks,

Walt
 
how about synthetic longs for inverse (2x & 3x) etfs and synthetic shorts for long (2x & 3x) etfs...???

Although you're paying for the increased spread (bid/ask) with a synthetic and it has an expiration date, I guess it's better than a margin call or forced buy-in...


Any thoughts...

Walt
 
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