Ultrashort ETFs

SKF, SDS are both proshares ultrashorts that have the same problem. yes they have done well, but only because they are the only things out there that seem to lack a minus sign in front of their returns. but considering the benchmarks and expectations, they have not done all that well. the unintended consequences of the volatile mkts are creating a self-fulfilling prophecy in which the leveraged etfs are contributing to further volatility and causing themselves to chase their own tail.



YTD through nov 30, the S&P was down 38%. through the same period the SDS was up only 38%. you should expect that return to have been much better considering the volatility. 1x reward for 2x risk would ordinarily be considered very poor results because you could accomplish the same result without the add'l volatility by directly shorting the benchmark or through puts.



what i posted on fri about the etfs is also in a WSJ piece this morning. they might be a very easy and accessible way to short the mkt but just be careful, folks. as bix would say, good luck!



Are ETFs Driving Late-Day Turns?

Leveraged Vehicles Seen Magnifying Other Bets; Last-Hour Volume Surge

<a href="http://online.wsj.com/article/SB122929670229805137.html">http://online.wsj.com/article/SB122929670229805137.html</a>
 
I know the risks of these leveraged ETFs have been mentioned several times already on IHB but I just came across another article that does a good job of explaining this:

<a href="http://www.minyanville.com/articles/index/a/21516">http://www.minyanville.com/articles/index/a/21516</a>



If you are going to trade these vehicles, make sure you understand what you are getting into.
 
Good explanation of the long term pitfalls of these ETF's and how the leverage effects return



<a href="http://media.proshares.com/documents/PS_Compound_012909.pdf">Understanding Long-Term Performanceof of Leveraged and Short Funds</a>
 
<a href="http://finance.yahoo.com/news/UltraShort-ETF-Losses-Go-to-tsmp-14870710.html">UltraShort ETF Losses Go to 'Money Heaven'</a>







<blockquote> We like to think of trading as a zero-sum game -- the money you lose is money someone else has made. But that is not always the case. Sometimes the money you lose simply goes away to "money heaven." Never has that concept been truer than when looking at the levered ultra-short ETFs.



So since the autumn low close on Nov. 20, the IYF is up 8.0% through Friday night. This implies a 2x short return of -16.1%. Yet the SKF is down 69.2% over that period, reflecting an underperformance of 53.1% vs. if one had simply shorted the IYF with two times leverage.</blockquote>
 
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