ProShares Short ETF Short-Term Capital Gains Distributions

Owners of ProShares Short ETFs got a rude awakening this morning when short-term capital gains went ex for their ETFs. And they were huge! Usually funds give investors a little time to make a decision if they want to sell the fund before the ex-date, but ProShares announced the gains yesterday after the close. This didn't allow owners to do anything but be forced to pay the short-term capital gains tax on their shares.

There's definitely a few traders out there who bought these as a short-term play in a taxable account in recent days that are now stuck paying big capital gains taxes on them. Next time ProShares may want to give investors more time between the declaration and the ex-date.

Comments

[mavericks:]

Phew!! Thank God I owned it in my IRA!! I agree, ProShares should give you a week advance like everyone else.

2008 Dec 23 12:26 PM

[lb64:]

Owners of the shares recieve a $23.85 dividend on December 30th..correct?

2008 Dec 23 01:29 PM

[Filmo:]

What a bunch of a*sses

2008 Dec 23 01:51 PM

[Filmo:]

(Proshares, not the authors)

2008 Dec 23 01:52 PM

[fac:]

I agree. Totally rediculous and expensive. I bought a small amount of SRS and QID 2 days ago as a trading hedge and now I am saddled with cap gains on 20% of my own money since I have no actual gains. At least I got into two of the etf's with the smallest distributions.

They probably did this so that traders wouldn't drop these things like a hot potato before the ex-date and pick them up again later. Which I don't understand since the market price is rebalanced to the NAV each night anyway. I didn't even know that it was the ex-date until I looked in my account and saw that the priceI was down like 15% in the flat pre-market and started to freak out. I had to go to their site to find out.

I would guess that somebody knew before the market close yesterday owing to their precipitous drop in the last 10 minutes of trading, but that could just be the usual crazy end of day move, so maybe not.

These are good tools to get a little more leverage, but if this is the way they do business, it comes at too high a cost for me and I'm sure I'm not alone. I won't hold them overnight anymore. I feel bad for anybody that had any size in these things for a short term trade.

2008 Dec 23 07:35 PM

[ClifCham:]

Oh, so that's why my shares dropped 12 to 22% today! What a shock that was!

2008 Dec 23 08:48 PM

[EFT question:]

just checking, I owned qid for weeks and sold it today after it was going ex-dividend,,the short term capital gains will get credited to my IRA on the 30th right? since I was the owner of record when it went ex-dividend...

2008 Dec 23 10:41 PM

[Nikola:]

I also nearly got a heart attack when I saw the price drop 25% on REW before I was able to figure out what happened.

I checked the chart but didn't see a major drop in the price last year around this time.

It's crazy people will have to pay capital gains in this market, instead of getting tax breaks for losses.

I am not sure about not holding them overnight, but I sure as hell am gonna be out of all ProShares cum next December. Of course, they could also do it at any time of the year ("once per year"), but, as our current President said... fool me twice.... can't get fooled again.

2008 Dec 24 12:25 AM

[gatsal:]

Hi,

Same for me : on december 22, I bought 20 january calls 32 ...
What to do now ?
Don't you think that we must be millions of traders in same case, more or less : is an action possible against this kind of acts !?
Bye.


On Dec 23 07:35 PM fac wrote:

> I agree. Totally rediculous and expensive. I bought a small amount
> of SRS and QID 2 days ago as a trading hedge and now I am saddled
> with cap gains on 20% of my own money since I have no actual gains.
> At least I got into two of the etf's with the smallest distributions.
>
>
> They probably did this so that traders wouldn't drop these things
> like a hot potato before the ex-date and pick them up again later.
> Which I don't understand since the market price is rebalanced to
> the NAV each night anyway. I didn't even know that it was the ex-date
> until I looked in my account and saw that the priceI was down like
> 15% in the flat pre-market and started to freak out. I had to go
> to their site to find out.
>
> I would guess that somebody knew before the market close yesterday
> owing to their precipitous drop in the last 10 minutes of trading,
> but that could just be the usual crazy end of day move, so maybe
> not.
>
> These are good tools to get a little more leverage, but if this is
> the way they do business, it comes at too high a cost for me and
> I'm sure I'm not alone. I won't hold them overnight anymore. I
> feel bad for anybody that had any size in these things for a short
> term trade.

2008 Dec 24 01:30 AM

[Ricard:]

I've been looking at the TBT treasury ultra-short ETF offered by ProShares. This article is yet another in a mounting pile that is convincing me to take a different approach. Absolutely piss poor management.

2008 Dec 24 02:48 AM

[fac:]

Ouch, sorry to hear about those calls. I'm not sure about action as I haven't completely read the literature. I'm sure they've covered their asses, but somewhere a securities lawyer is licking his/her chops.


On Dec 24 01:30 AM gatsal wrote:

> Hi,
>
> Same for me : on december 22, I bought 20 january calls 32 ...<br/>What
> to do now ?
> Don't you think that we must be millions of traders in same case,
> more or less : is an action possible against this kind of acts !?
>
> Bye.

2008 Dec 24 09:40 AM

[Illusional ...:]

I'm not sure how this is going to matter much. I happen to have bought SRS in December (any time before that would have been much worse) so accounting for the wash sale rule, I will be taking the loss into 2009 either way unless I close my positions, which opens the gate for me to miss out on the upside of the position that I have taken. Given that most holders believe that there is still sizeable downside risk in the economy, the odds of losing out on the position's upside is a much bigger loss than the dividend's tax. Personally, I'm a small investor, so unless people are talking millions here, maybe I'm missing something...

2008 Dec 24 12:03 PM

[User 70620:]

I was shocked to wake up yesterday and see my shorts down 30-40 %. Thankfully, some ot them were sold at stops on the way down. But how much of the loss will I get back? There seems to be a tinge of illegality in this.

2008 Dec 24 12:12 PM

[hardball22:]

Correct me if I'm wrong, but they adjusted the NAV & share price to reflect the distribution. Thus, it looks from my G/L on SDS (Ultrashort S&P) that I'll just be able to net out those ST Cap Gains Distributions (~$11/sh) against the ST Cap Loss from the adjusted price.
That generates a few contingencies:
1. I realize the position this year
2. I haven't held it LT--but, who holds these long term? Expenses make them ST trading vehicles, LT buy & hold is generally irrational.
3. Do stop orders get triggered? Further, I would assume they adjust option strike prices to account for the price adjustment.

Cheerio

2008 Dec 24 12:29 PM

[crljones:]

I don't think so and if you were dumb enough to be LONG one of the SHORT ETF's over the FYE, you deserve to be surprised (especially after the past 6mths). This happens ever year, and the bleating never stops. What do you mean "Pre Announce the capital gains distribution?" If that happened (like in SJL - a heavy amount) the sponsor could never keep the ETF in line. There would have been a wave of arbing - right at the year-end - and with in today's marketplace - THERE is no liquidity players to lay off on any more! One caveat MAY BE (but I can't see how) that capital gains from SHORT sales/put positions are more likely to be "realized" than in LONG holdings, therefore more prevalent.

2008 Dec 24 02:51 PM

[Bespoke Bul...:]

I think there is another point here to be made... most people who buy these ETFs don't hold them for LT. I speak from experience as I own QID.

2008 Dec 24 06:46 PM

[donider:]

i am a little naive here will we be getting money form the funds or are we just stuck paying?

2008 Dec 25 12:32 PM

[donider:]

I am not gettting this. Do we get a check for the gains or just have to be taxed on them?

2008 Dec 25 12:33 PM

[kurt walter:]

You you rather take a big capital gain or a big capital loss?

2008 Dec 25 02:18 PM

[misterchan:]

I thought I was the only stupid one, having been involved in the market for many years and never knowing anything about these distributions. So all of you have made me feel a little bit better. In return, here's a suggestion. How about looking at ETF'S that do NOT distribute? TZA inverse re small caps and ERX, long oil. I own both of them and I write calls. Of course, I also own DXD and one day before SDS went ex, I wrote a put. Well, what can we do to make things more fair?

2008 Dec 26 12:06 AM

[shihlien:]

My SCC short term capital gain distribution, I understand, will be treated by IRS as ordinary income. Consequently it cannot be used to offset capital losses. I am afraid I'll have to pay a great of tax. It is unfair.

2008 Dec 26 04:30 PM

[misterchan:]

To correct my statement above---- They ALL distribute. But ERX distributed 81 cents. If someone could spell out exactly how to present these monetary tragedies on the income tax form, it would be very helpful. For instance, DXD is a short term cap gain and after reading for a couple of hours, I still can't figure out how to put these things on my tax return. So please help.

2008 Dec 29 08:05 PM

[Krishna:]

I am a newbie to EFT. But the short term gainpayout is still free money ireespective of the tax rate. It's like W2 income. Am I missing anything here? I know that it can not offset aganist other capital loss.But if you think it as a W2 income (without doing much work :-) ), it's a good thing these EFT's pay out 5 to 50 dollar per hare

Let me now if I am missing anything here

Thanks

2008 Dec 31 11:20 AM

[rcalpha:]

Hey, I received the dividends I was supposed to, but the short-term capital gains have not been deposited as yet. I am using Zecco and its almost 2 weeks since it was to be distributed.
Please advise if I am correct in my expectation and if you have received you ST cap gains.

Jan 12 04:46 AM

[samhollow:]

I'm in the same boat. Expected the ST gains but haven't seen them. I'm with OptionsXpress.

Jan 18 04:50 PM

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