Posted by sschulman on 31st of Jul 2012 at 10:52 am
Trying to find how leveraged ETF's work. One article says that
"given enough time, they'll all go to zero" in a relatively flat
market. I don't get it - do they behave like options?? But
how can they behave like options if there's no strike prices to
trade - you just trade whatever the market is, don't you?
Can anyone direct me to a site that explains this.
Since I'm getting kinda bearish, I'd be interested in
shorting UPRO - but first I better know what the heck I'm doing.
Thanks anybody.
Posted by sschulman on 31st of Jul 2012 at 11:38 am
Thanks Muslhead and Parkridge77 and Bkout3.
I'd be selling a long ETF, not buying a short ETF so I think
the leverage wouldn't work against me so much. I had no idea that
they were based on futures, nor did I consider they might be hard
to find to short. Hadn't heard of spxu. Will look into it. LOL, so
much I didn't know! Will look into all of it.
I remember at first the idea of shorting something that seemed
destined to decay seemed like the perfect solution. However when I
tested a couple of examples (I think with TZA) it still didn't work
out over a period of weeks -- just saying one can't assume this
solves the problem without at least some testing. I tend to stay
with the unleveraged ETFs and just use larger size if needed.
Posted by muslhead on 31st of Jul 2012 at 11:43 am
matt
Which broker are you using? i work with 3 and none
typically have the leveraged etfs available for short. your
strategy is clearly the best but it has been unavailable for me to
follow
Posted by parkridge77 on 31st of Jul 2012 at 11:15 am
Most leveraged ETFs seek to double (or triple) the movement of
an underlying index on a daily basis. This requires these funds to
"reload" every day. If the underlying index goes down, they
decrease leverage; if it goes up, they increase leverage. This
works fine if the market moves the direction you want in a
perfectly monotonic fashion. But in the real world, markets don’t
move monotonically, they fluctuate. So the leveraged ETFs increase
leverage on up days, and de-leverage on down days--which amounts to
“buying high” and” selling low.” As they repeat this process over
time, they suffer "leveraged ETF decay." The chart below
illustrates this decay with the S&P 500 ETF (
SPY) and its 3X
leveraged counterparts (
SPXUand
UPRO). seeking alpha article on internet
Also-- the options comments- probably about the roll yield- some
ETFS do have underlying commod contracts-- like USO-- so there is a
monthly roll- contango /backwardation another factor in
those rolls
Susan -- it has to do with the math involved. The leveraged ETFs
are designed to work off daily performance. Longer periods can vary
and most often work against the holder. I think you can find
articles by Googling "Leveraged ETFs" and I think Proshares has
some articles. But you can play with the numbers yourself if you
compare the net move on a 10% move down one day followed by 10% up
the next day in the underlying. Then compare what the net would be
for the leveraged 2X fund. Start with 100 ....100X90%X110% = 99.
100X80%X120%=96. If the up day came first the numbers work out the
same.
Posted by muslhead on 31st of Jul 2012 at 11:06 am
Susan
I doubt whether or not you will find shares of upro to short. if
not you can use spxu. the reason the levaraged etfs go to
zero eventually is because they use futures contracts to get the
leverage. I will see if i can find an article to help. there are
plenty of articles around describing the reasons (do a search at
seekingalpha). i use them exclusively but dont hold them for
more than a few months at most. I use NUGT and DUST with
the BPT GLD mechanical trading systems.
leveraged ETF's
Posted by sschulman on 31st of Jul 2012 at 10:52 am
Trying to find how leveraged ETF's work. One article says that "given enough time, they'll all go to zero" in a relatively flat market. I don't get it - do they behave like options?? But how can they behave like options if there's no strike prices to trade - you just trade whatever the market is, don't you?
Can anyone direct me to a site that explains this.
Since I'm getting kinda bearish, I'd be interested in shorting UPRO - but first I better know what the heck I'm doing. Thanks anybody.
.....Susan
Thanks Muslhead and Parkridge77 and
Posted by sschulman on 31st of Jul 2012 at 11:38 am
Thanks Muslhead and Parkridge77 and Bkout3.
I'd be selling a long ETF, not buying a short ETF so I think the leverage wouldn't work against me so much. I had no idea that they were based on futures, nor did I consider they might be hard to find to short. Hadn't heard of spxu. Will look into it. LOL, so much I didn't know! Will look into all of it.
.....Susan
maybe consider shorting SSO instead
Posted by frtaylor on 31st of Jul 2012 at 11:53 am
maybe consider shorting SSO instead of UPRO.
that's generally what Steve and
Posted by matt on 31st of Jul 2012 at 11:40 am
that's generally what Steve and I have done, if we play the leveraged ETF's, we tend to short the long ones vs buying the inverse ones
Title: Shorting leveraged ETFs I remember
Posted by bkout3 on 31st of Jul 2012 at 01:57 pm
I remember at first the idea of shorting something that seemed destined to decay seemed like the perfect solution. However when I tested a couple of examples (I think with TZA) it still didn't work out over a period of weeks -- just saying one can't assume this solves the problem without at least some testing. I tend to stay with the unleveraged ETFs and just use larger size if needed.
matt Which broker are you using?
Posted by muslhead on 31st of Jul 2012 at 11:43 am
matt
Which broker are you using? i work with 3 and none typically have the leveraged etfs available for short. your strategy is clearly the best but it has been unavailable for me to follow
Most leveraged ETFs seek to
Posted by parkridge77 on 31st of Jul 2012 at 11:15 am
Most leveraged ETFs seek to double (or triple) the movement of an underlying index on a daily basis. This requires these funds to "reload" every day. If the underlying index goes down, they decrease leverage; if it goes up, they increase leverage. This works fine if the market moves the direction you want in a perfectly monotonic fashion. But in the real world, markets don’t move monotonically, they fluctuate. So the leveraged ETFs increase leverage on up days, and de-leverage on down days--which amounts to “buying high” and” selling low.” As they repeat this process over time, they suffer "leveraged ETF decay." The chart below illustrates this decay with the S&P 500 ETF ( SPY) and its 3X leveraged counterparts ( SPXUand UPRO). seeking alpha article on internet
Also-- the options comments- probably about the roll yield- some ETFS do have underlying commod contracts-- like USO-- so there is a monthly roll- contango /backwardation another factor in those rolls
Title: Leveraged ETFs Susan -- it
Posted by bkout3 on 31st of Jul 2012 at 11:09 am
Susan -- it has to do with the math involved. The leveraged ETFs are designed to work off daily performance. Longer periods can vary and most often work against the holder. I think you can find articles by Googling "Leveraged ETFs" and I think Proshares has some articles. But you can play with the numbers yourself if you compare the net move on a 10% move down one day followed by 10% up the next day in the underlying. Then compare what the net would be for the leveraged 2X fund. Start with 100 ....100X90%X110% = 99. 100X80%X120%=96. If the up day came first the numbers work out the same.
Susan I doubt whether or not
Posted by muslhead on 31st of Jul 2012 at 11:06 am
Susan
I doubt whether or not you will find shares of upro to short. if not you can use spxu. the reason the levaraged etfs go to zero eventually is because they use futures contracts to get the leverage. I will see if i can find an article to help. there are plenty of articles around describing the reasons (do a search at seekingalpha). i use them exclusively but dont hold them for more than a few months at most. I use NUGT and DUST with the BPT GLD mechanical trading systems.
here is a decent article
Posted by muslhead on 31st of Jul 2012 at 11:23 am
here is a decent article ... hope it helps
http://seekingalpha.com/article/286027-stay-away-from-leveraged-etfs