Y'all might already know this, but... as an alternative to
trading unleveraged ETFs (SPY, SH), you could trade
double-leveraged ETFs (SSO, SDS), investing half as much money in
the double-leveraged ETF as you would in the unleveraged one.
The benefit is that by investing half as much, you have that
much more cash available for whatever. Or take it one
step further with triple-leveraged ETFs (UPRO, SPXU), investing
one-third as much as usual, leaving you with more cash.
1% of $100,000 = 2% of $50,000 = 3% of $33,333.33 =
$1,000. With a short-term trading system (e.g. BPT
SPY System), each of these approaches should produce a similar
long-term profit with similar risk.
Cheers!
(For informational purposes only; not to be interpreted as
investment advice; proceed at your own risk; past performance
does not guarantee future success, etc.)
but before using leveraged funds be sure to do your homework.
Even over short periods there can be tracking errors. On this
chartwhich covers one month (less than the
current trade opened 10/10) SPY is down about 5% but UPRO is down
about 17% and SPXU is up about 13%. For some reason it wouldn't let
me set the start date to 10/10 but if you go to longer periods the
error is worse -- at 3 months BOTH UPRO and SPXU underperform SPY.
So the results may surprise you and it might be better to just use
SPY and keep it simple.
Tracking error exists even in unleveraged ETFs, but
usually to a lesser extent than leveraged ones. Those who
bought SH on Oct 10 are currently worse off than those who shorted
SPY (SPY down 2.5%, SH up only 1.5%), as of yesterday's
close. Tracking error can also work in your favour, depending
on which ETF you happen to use and how you use it
(buy/short). Those who shorted SSO (2X bear) on Oct
10 are currently better off than those who bought SDS (2X
bear). As of yesterday's close, SSO is down 6.0%, which is
more than twice as much as the S&P500 and SPY are down.
By contrast, SDS is up only 2.2%. Hindsight is 20/20, of
course. Trade duration, market direction and volatility
cannot be known in advance, so there's luck involved in choosing
the "best" ETF for a particular trade and in choosing how to use
it. If you want to use leveraged ETFs in order to have more
cash available for other things, it's probably best to be
consistent in which ETF you use and how you use it. Over the
long-term, a consistent approach should reduce the effect of
tracking error. It will work in your favour for some trades
and against you for others. Your long-term profit and risk
should be similar to the system performance. If you don't
want more cash on hand, then buying and shorting SPY will
mirror system performance most closely of course.
ETF Traders - SPY, SH, SSO, SDS,...
Posted by yojimbo on 24th of Nov 2011 at 05:23 pm
Y'all might already know this, but... as an alternative to trading unleveraged ETFs (SPY, SH), you could trade double-leveraged ETFs (SSO, SDS), investing half as much money in the double-leveraged ETF as you would in the unleveraged one. The benefit is that by investing half as much, you have that much more cash available for whatever. Or take it one step further with triple-leveraged ETFs (UPRO, SPXU), investing one-third as much as usual, leaving you with more cash.
1% of $100,000 = 2% of $50,000 = 3% of $33,333.33 = $1,000. With a short-term trading system (e.g. BPT SPY System), each of these approaches should produce a similar long-term profit with similar risk.
Cheers!
(For informational purposes only; not to be interpreted as investment advice; proceed at your own risk; past performance does not guarantee future success, etc.)
but before using leveraged funds
Posted by bkout3 on 25th of Nov 2011 at 09:01 am
but before using leveraged funds be sure to do your homework. Even over short periods there can be tracking errors. On this chartwhich covers one month (less than the current trade opened 10/10) SPY is down about 5% but UPRO is down about 17% and SPXU is up about 13%. For some reason it wouldn't let me set the start date to 10/10 but if you go to longer periods the error is worse -- at 3 months BOTH UPRO and SPXU underperform SPY. So the results may surprise you and it might be better to just use SPY and keep it simple.
Tracking error exists even in unleveraged ETFs,
Posted by yojimbo on 25th of Nov 2011 at 11:37 am
Tracking error exists even in unleveraged ETFs, but usually to a lesser extent than leveraged ones. Those who bought SH on Oct 10 are currently worse off than those who shorted SPY (SPY down 2.5%, SH up only 1.5%), as of yesterday's close. Tracking error can also work in your favour, depending on which ETF you happen to use and how you use it (buy/short). Those who shorted SSO (2X bear) on Oct 10 are currently better off than those who bought SDS (2X bear). As of yesterday's close, SSO is down 6.0%, which is more than twice as much as the S&P500 and SPY are down. By contrast, SDS is up only 2.2%. Hindsight is 20/20, of course. Trade duration, market direction and volatility cannot be known in advance, so there's luck involved in choosing the "best" ETF for a particular trade and in choosing how to use it. If you want to use leveraged ETFs in order to have more cash available for other things, it's probably best to be consistent in which ETF you use and how you use it. Over the long-term, a consistent approach should reduce the effect of tracking error. It will work in your favour for some trades and against you for others. Your long-term profit and risk should be similar to the system performance. If you don't want more cash on hand, then buying and shorting SPY will mirror system performance most closely of course.
Peace.
sorry - should be SSO
Posted by yojimbo on 25th of Nov 2011 at 12:12 pm
sorry - should be SSO (2X bull)