Monday, March 9, 2009

Zero Reasons To Be Long

the bleeding continues...


Cliffynator said...

Stewie, I've been playing with retirement money that I can't touch for 20 years, so it's been hard to truly think short-term. I bought IVV at 75 and kept believing it would turn around. I finally 'capitulated' today and traded it for SDS. Thanks!
Are you holding overnight?

talcumboy said...

Yowsa, how's that for a contrarian indicator? :)

Hope you've read the prospectus for SDS and are aware it only tracks the daily performance of the SPY. SPY is significantly below its November low, but SDS actually closed below its November high today.

Stewie said...

lol: i think short term we are headed lower.

i had abx short from friday but covered it for a 1 pt gain this morning. i added to FAZ on today's drop. \\

talcumbiy; PLEASE ELABORATE on what you said about SDS. THNX bro.

talcumboy said...

"ProShares UltraShort S&P500 seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of the S&P500® Index"

What this comes down to is that while it is a good short-term way to trade opposite to the market, it's longer term performance does not necessarily reflect twice the inverse performance of the S&P 500.

Also (and I'm not 100% clear on how this works), in times of increased volatility the longer term correlation seems to deteriorate even more. For an example check out SRS vs IYR (ultra inverse and standard real-estate etfs). The peak of SRS was in November at 273 (while IYR had a low of 22.92). Though IYR is again under 23 dollars SRS is only at around 100!

Maybe someone else can explain why the ultra ETFs seem to experience significant NAV (Net Asset Value) loss in periods of higher volatility - I know I've read something about it before, but can't seem to find it.

So, I'd be cautious holding any of the inverse ETF for longer than a couple weeks, especially given how far and fast we have fallen in the last month or two.

PS. As an item of interest I've read of some people shorting the ultra inverse etfs as a way of capturing some of this NAV loss as well as upward movement in the market. Something to think about.

Stewie said...

thnx talc. i rarely hold inverse etfs for more than 2 days.

Cliffynator said...

Thanks for the concern, guys, but I'm trying to play more days.
As for the Ultra ETFs, I'll try to explain it as simply as possible...I tend to get wordy. If the S&P goes up 1%, the Ultra ETF will go up 2% (theoretically). If the S&P then drops 2%, the ETF will drop 4%.
So, $1 in SPY goes from 1 to 1.1, then to 1.078. That same $1 in IVV will go from 1 to 1.2, then to 1.152. Sure, you're still up more in the Ultra, but you've lost .048 in the Ultra compared to .022 in the strait ETF.

Cliffynator said...

---oops, didn't get to finish that last comment.
I was going to say that added volatility will add up those losses, and you could end up worse off. So, yeah, double and triple ETFs are ONLY FOR SHORT TERM.
It's not rocket science, but one could still get burned.
Hey Talcumboy, as soon as I pulled the trigger on that trade, I got sick to my stomach to see if that would be the exact moment of a serious rally. Been lucky so far...

slotmonkey said...

Here's a pretty good explanation

Stewie said...

cliff: sorry about that SDS trade. looks it was a capitulation trade to reverse it. happens to everyone from time to time. gotta be quick to realize the mistake and switch to the right side.

Blog Archive