Substitutes for inverse/leveraged ETFs?

[MathAndLogic]

Inverse or leverage ETFs have undesirable "time decay" and is not suitable to be held for long time in IRA.

Any substitutes that have (-1) correlation to S&P without the "time decay?"

Thanks.

 

[scriabinop23]

Quote from MathAndLogic:

Inverse or leverage ETFs have undesirable "time decay" and is not suitable to be held for long time in IRA.

Any substitutes that have (-1) correlation to S&P without the "time decay?"

Thanks.

Sometimes simple just works. That means sell and get flat.

 

[sambian]

Quote from MathAndLogic:

Inverse or leverage ETFs have undesirable "time decay" and is not suitable to be held for long time in IRA.
Any substitutes that have (-1) correlation to S&P without the "time decay?"

If you understand the probabilities of up and down movements, you will understand the reason for the "time decay". It is because those ETFs seek to replicate daily returns in proportions which are not in their favor (i.e. not the Kelly bet ).
If you just short S&P, you will get -1 correlation for the period in which you hold it. But if you readjust your position for the next period, the correlation will be different.

 

[MTE]

Quote from sambian:

If you understand the probabilities of up and down movements, you will understand the reason for the "time decay". It is because those ETFs seek to replicate daily returns in proportions which are not in their favor (i.e. not the Kelly bet ).
If you just short S&P, you will get -1 correlation for the period in which you hold it. But if you readjust your position for the next period, the correlation will be different.

The OP is asking about an IRA account, which has trading restrictions, hence the question for the substitute that can be held in an IRA account.

 

[nazzdack]

Quote from sambian:
.....the reason for the "time decay".

The "time decay" comes about from price-choppiness in the instrument. Price-trendiness tends to offset the time-decay and allows the leverage to work in your favor.

 

[nazzdack]

Quote from MTE:
.....an IRA account, which has trading restrictions.....

If he can't trade futures in his IRA account, what about a synthetic-short with options ( At-the-money, long put & short call)?....or a greater number of out-of-the-money, long-puts versus a smaller number of at-the-money, covered-calls to pay for the puts? The possibilities are endless.

 

[Rodney King]

Quote from MathAndLogic:

Inverse or leverage ETFs have undesirable "time decay" and is not suitable to be held for long time in IRA.

Any substitutes that have (-1) correlation to S&P without the "time decay?"

There are open-end mutual funds that rebalance less frequently. Surf has written about them. Look at "Monthly Leveraged Index Funds" at http://www.direxionfunds.com/products.html

BTW as another poster correctly commented, there isn't "time decay" but rather sensitivity to +- serial correlation of changes in the underlying, which can work for or against you.

 

[MathAndLogic]

Quote from nazzdack:

If he can't trade futures in his IRA account, what about a synthetic-short with options ( At-the-money, long put & short call)?....or a greater number of out-of-the-money, long-puts versus a smaller number of at-the-money, covered-calls to pay for the puts? The possibilities are endless.

I had thought about synthetic sticks, but in IRA, short calls are not permitted either.

 

[MathAndLogic]

Quote from Rodney King:

There are open-end mutual funds that rebalance less frequently. Surf has written about them. Look at "Monthly Leveraged Index Funds" at http://www.direxionfunds.com/products.html

BTW as another poster correctly commented, there isn't "time decay" but rather sensitivity to +- serial correlation of changes in the underlying, which can work for or against you.

I had put quotation marks around the words "time decay" because inverse and leveraged ETFs behave as if they have time decay, even though the decline in value through time is due to mechanisms other than the time decay we see in options. I will check out the web site you pointed out. Thank you.

 

[MTE]

Quote from MathAndLogic:

I had thought about synthetic sticks, but in IRA, short calls are not permitted either.

You can buy a deep OTM call to protect the short call and thus create a credit spread. So as long as you can trade credit spreads in the account you are OK.

Alternatively, you can just buy deep ITM puts with a couple of years to expiration (LEAPS).