Who trades ETFs? Leverage ETFs?
- Thread starter WinstonTJ
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And SPY is a great benchmark;
good trend in past 4th quarter,QQQQ has trend ed well in 4th quarter.
But longer term[wisdom] they USUALLY dont trend that well, not much;
& adding leverage doesnt help,at all. Other ETFs,ETNs do trend better
Not saying there are no index related opportunitys there;
777.7[or exactly 777.68]drop on DOW.......................................
Same direction as the 200 dma.
good trend in past 4th quarter,QQQQ has trend ed well in 4th quarter.
But longer term[wisdom] they USUALLY dont trend that well, not much;
& adding leverage doesnt help,at all. Other ETFs,ETNs do trend better
Not saying there are no index related opportunitys there;
777.7[or exactly 777.68]drop on DOW.......................................
Same direction as the 200 dma.
I trade these a lot. Take home only EARLY in an new trend... Actually better to get in the direction of the new trend everyday, maximize the day's trend and go home flat. Got my blank.. blank.. blank.. blank.. handed to me this past week taking home when we have a trading range..
Anyone here have an explanation for the persistent SRS underperformance??
Anyone here have an explanation for the persistent SRS underperformance??
Without knowing all the details it looks like the shares have been trading at a discount to the underlying fund's value. I don't know about tracking, meaning whether SRS.IV is actually tracking to 2x its benchmark.
Here is the share value compared to the fund's value. If I were to guess I'd say that the market maker is allowing it to trade at a lower price than it should be. If this keeps up it'll only be a matter of time until a different market maker comes in, buys shares and turns them in for the basket of stocks which is worth more than the share price.
http://finance.google.com/finance?c...XNYSE:SRS.IV&cmptzos=-18000&q=NYSE:SRS&ntsp=0
FYI - this happens from time to time. I also noticed that the volume has been up several million shares over average the last few days. If the market calls for a premium or discount trade it may not be the MM's fault. We see this across all ETFs, its more pronounced in 2x & 3x ETFs though.
Good question because it seems like SRS has been underperforming when in fact it has not. At least not how I'd define it.
SRS seeks daily results which correspond to twice the inverse of the daily performance of the Dow Jones U.S. Real Estate index (^DJUSRE). So I took the daily closing prices of ^DJUSRE and calculated what SRS theoretically should be based on this double inverse relationship alone and graphed it against actual SRS:
<img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=2275410>
SRS seeks daily results which correspond to twice the inverse of the daily performance of the Dow Jones U.S. Real Estate index (^DJUSRE). So I took the daily closing prices of ^DJUSRE and calculated what SRS theoretically should be based on this double inverse relationship alone and graphed it against actual SRS:
<img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=2275410>
666 in times of extreme volatility you will find that some of the 2x ETFs have a hard time tracking their underlying index because of how they get their exposure. In the middle I suspect that is what you see.
There are three things to consider when talking about an ETFâs performance. There is the index (^DJUSRE) the ETF is based on, the actual ETF fund (SRS.IV) and then the ETF shares (SRS) which shareholders buy on the secondary market.
The first thing to look at is tracking â does the fund track its benchmark? Does SRS.IV track the ^DJUSRE exactly to -200%? The answer is that tracking is not perfect but it is acceptable in all but the most volatile markets (the middle of 666âs posted graph). The way that the derivatives held in SRS behave in extreme volatility is somewhat less than ideal so you will see the fund move away from its benchmark which may or may not be reflected in the share price of SRS.
Second is do the ETF shares that we all buy track the ETF fund that ProShares manages? Compare SRS.IV to SRS. Answer here is what I think retire45 was getting at since the SRS.IV tracked well and generally speaking SRS traded at a discount to both -200% of the index and a discount to SRS.IV.
You must always compare the index to the managed fund (ETF) which is SRS.IV. It is a known fact that ETF shares trade on the open market and are therefore subject to market conditions such as trading at a premium or a discount. I tried to point this out a few posts up. If the fund SRS.IV does not track its index ^DJUSRE then there is a fund management problem. In this case the fund SRS.IV tracks within acceptable range so you look to the market maker MM and other influences such as abnormal trading volume â which we saw the last few days.
The answer is that the MM either intentionally allowed the price to trade at a discount or that because of volume the market dictated (with lower ask price pushing down the bid) that the shares trade below true value. Again, you see this frequently when there are spike periods of increased volume.
If you want to know specifics Iâd suggest contacting Proshares and asking them if their market maker had any troubles over the last few days â I promise you they will say it was the market pushing the share price around but that SRS.IV tracked well to the index.
There are three things to consider when talking about an ETFâs performance. There is the index (^DJUSRE) the ETF is based on, the actual ETF fund (SRS.IV) and then the ETF shares (SRS) which shareholders buy on the secondary market.
The first thing to look at is tracking â does the fund track its benchmark? Does SRS.IV track the ^DJUSRE exactly to -200%? The answer is that tracking is not perfect but it is acceptable in all but the most volatile markets (the middle of 666âs posted graph). The way that the derivatives held in SRS behave in extreme volatility is somewhat less than ideal so you will see the fund move away from its benchmark which may or may not be reflected in the share price of SRS.
Second is do the ETF shares that we all buy track the ETF fund that ProShares manages? Compare SRS.IV to SRS. Answer here is what I think retire45 was getting at since the SRS.IV tracked well and generally speaking SRS traded at a discount to both -200% of the index and a discount to SRS.IV.
You must always compare the index to the managed fund (ETF) which is SRS.IV. It is a known fact that ETF shares trade on the open market and are therefore subject to market conditions such as trading at a premium or a discount. I tried to point this out a few posts up. If the fund SRS.IV does not track its index ^DJUSRE then there is a fund management problem. In this case the fund SRS.IV tracks within acceptable range so you look to the market maker MM and other influences such as abnormal trading volume â which we saw the last few days.
The answer is that the MM either intentionally allowed the price to trade at a discount or that because of volume the market dictated (with lower ask price pushing down the bid) that the shares trade below true value. Again, you see this frequently when there are spike periods of increased volume.
If you want to know specifics Iâd suggest contacting Proshares and asking them if their market maker had any troubles over the last few days â I promise you they will say it was the market pushing the share price around but that SRS.IV tracked well to the index.
There is no mystery about "tracking error" with the leveraged ETF's. They do precisely what they state. But this does not mean that they will be 2x across any time frame.
Consider:
Example: Let's just say the TLT and the TBT (2x inverse of TLT) are both at $10 (for ease of math). One day, the TLT goes from $10 to $9, so the TBT goes from $10 to $12. All well and good. But then, if the TLT goes back from $9 to $10 the next day it is climbing 11.11%... which means the TBT drops 22.22% from $12, leaving it at $9.36. So you are actually not wrong (the TLT has moved from 10 to 10), but you're still down on the play (TBT goes from 10 to 9.36).
As long as the underlying goes in the same direction each day it works as it should, but as soon as you enter a period of chop in the underlying, the leveraged ETF starts to drop because of the math of how it moves.
For a more extreme example, let's say the IYF falls to $2 as the financial system implodes causing the SKF (2x inverse of the IYF) to skyrocket to $10,000 or something like that. Then the Fed comes out and announces some program that causes the IYF to gap up to $3 (50% gain) the next day. the SKF would go instantly from $10,000 to $0.
Consider:
Example: Let's just say the TLT and the TBT (2x inverse of TLT) are both at $10 (for ease of math). One day, the TLT goes from $10 to $9, so the TBT goes from $10 to $12. All well and good. But then, if the TLT goes back from $9 to $10 the next day it is climbing 11.11%... which means the TBT drops 22.22% from $12, leaving it at $9.36. So you are actually not wrong (the TLT has moved from 10 to 10), but you're still down on the play (TBT goes from 10 to 9.36).
As long as the underlying goes in the same direction each day it works as it should, but as soon as you enter a period of chop in the underlying, the leveraged ETF starts to drop because of the math of how it moves.
For a more extreme example, let's say the IYF falls to $2 as the financial system implodes causing the SKF (2x inverse of the IYF) to skyrocket to $10,000 or something like that. Then the Fed comes out and announces some program that causes the IYF to gap up to $3 (50% gain) the next day. the SKF would go instantly from $10,000 to $0.
winstontj, got all that but I interpreted his question differently because I was wondering about SRS myself... basically the last time the broader market was down at these levels, SRS was a lot higher. Of course SRS tracks DJUSRE, not the broader market, but it still "felt" to me like it should be higher.
On the .IV tickers, as a retail trader I haven't found a way to make them work for me. I've watched them in real time like SKF vs SKF.IV but they're updated every 15 seconds and I've never seen them lead, only lag. Was more practical to watch the banks.
<img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=2275636>
On the .IV tickers, as a retail trader I haven't found a way to make them work for me. I've watched them in real time like SKF vs SKF.IV but they're updated every 15 seconds and I've never seen them lead, only lag. Was more practical to watch the banks.
<img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=2275636>
666 who do you trade through? E*Trade doesn't show .IV tickers and its a pain in the a$$ not having them feed into my charts.
FYI - .IV only updates every 15 seconds from NYSE... so usually it will only lag.
Its just the market makers not having enough shares in their inventory to keep things in line. If there is a lot of volume they may buy back or sell out of their inventory but only at a buy discount or sell premium... its the nature of the business.
If you see trading volume up +5mm shares over average you'll probably start to see the shares deviate from their .IV
FYI - .IV only updates every 15 seconds from NYSE... so usually it will only lag.
Its just the market makers not having enough shares in their inventory to keep things in line. If there is a lot of volume they may buy back or sell out of their inventory but only at a buy discount or sell premium... its the nature of the business.
If you see trading volume up +5mm shares over average you'll probably start to see the shares deviate from their .IV