It is, of course, an ill wind that blows nobody any good, and the balmier breezes of the US Securities and Exchange Commission’s emergency short-selling order wafted up Wisconsin Ave, all the way to Bethesda, Md, and the offices of leveraged/inverse ETF provider ProShares (SKF). To the tune of a cool 70 percent gain — from $2.0 billion to $3.4 billion — in the assets of SKF, the double-inverse financial sector ETF, between Jul. 15 and Jul. 29.
Counter-intuitively, the largest share of SKF’s asset gain took place between Jul. 15 and Jul. 23 when financials ripped higher after SEC chairman Christopher Cox’s announcement of an emergency order, which prohibited the ‘naked’ short selling of 19 financial stocks.
IYF (IYF), the vanilla ETF which tracks the same index which SKF is designed to match with double the inverse of its daily performance, put on a svelte 33 percent from its intraday low on Jul. 15 to its intraday high on Jul. 23. Over the same period, SKF was cut almost in half, from an all-time high of $211.75 to an intraday low of $111.30 on Jul. 23, while adding $2 billion in new money.
By contrast, the assets in UYG (UYG) — ProShares’ double long financial ETF — actually fell 20 percent over the full Jul. 15-Jul. 29 time frame, and were down as much as $400 million during the heart of the ramp.
Go, as they say, figguh.
Disclosure: Long UYG. (To be clear, not because the bottom is in, values are compelling at these levels and the worst is over, but to hedge against certain short positions which are, currently, early rather than wrong.)
finance.yahoo.com/q/hl...
Puts or shorts on UYG holdings might work as a proxy.
SKF:
The investment seeks daily investment results, before fees and expenses, which correspond to twice the inverse of the daily performance of the Dow Jones U.S. Financials index. The fund normally invests 80% of assets in financial instruments with economic characteristics that should be inverse to those of the index. It may employ leveraged investment techniques in seeking its investment objective. The fund is nondiversified.
UYG produces 2x the Dow Jones U.S. Financials index. You buy this if you think that the index is going up.
Some people buy a 100% position in one, and a 50% position in the other as a hedge. (SKF and UYG)