Double Short ProShares ETFs

Throughout the current bear market, many of the ProShares' Double Short ETFs have been big winners, and the increase in their trading volumes is evidence that traders love them for their volatility and how easy it is to effectively go short while staying long.  Since the July lows, however, many of these ETFs are down big, highlighting that volatility can go both ways. 

As shown below, the Ultrashort Financials ETF (SKF) is down 35% since July 15th, but it is still up 32.6% year to date.  The Ultrashort Russell 2,000 Value ETF (SJH) is down the second most at -23.6%, followed by Ultrashort Real Estate (SRS) and Ultrashort Consumer Services (SCC).  Some of the Ultrashorts are up since mid-July, however, including Utilities (SDP), Materials (SMN), Japan (EWV), China (FXP), and Emerging Markets (EEV). 

There's no doubt that Ultrashorts are great for investors with a strong negative opinion on an asset class, but it sure makes being wrong hurt ultra bad.

click to enlarge

Comments

[beabaggage:]

SDP has been great for me, closed out at 62.50 for 20% gain. Wall Street was just too optimistic on ultilites for so long, with labor/commodities hitting costs, interest rate uncertainty etc. seemed like a good bet. Use tight limit stops based on chart and fundamental analysis to trade these in my brokerage account. They also surprise you with a dividend now and then too which offsets trading costs.
You are right, be cautious, but money to be made for sure!
Currently long a lot of QID, some MZZ and small SDS position. Once market turns looking to sell these into an SSO long position.
Until the worst is over, NASD 100 QQQQ and Midcap 400's are just too optimistic for my tastes with U/E rising, gas still at $3.71/gal and home values declining.

2008 Aug 24 12:56 PM

[Indexor:]

Interesting that ProShares has so many "Ultra" short ETFs for "Double Short" exposure, yet so few "conventional short" or one-to-one inverse ETFs.

2008 Aug 24 01:31 PM

[richrdinbel...:]

When reading the report, I ask "do EEV and FXP have more to run?

EEV is up 7.6% and FXP is up 2.1% from 7/15/2008 (but from the charts, it sure looks like a lot more); and SKF is down 35.0% from the beginning of the US Dollar, $USD, Rally when those invested via the yen carry trade sold oil and commodities and went long the financial sector and US based consumer and housing stocks.

The well springs of liquidity have been turned off for traditional investing long the markets as Peak Currencies turned the EUR/JPY down on July 25, 2008 and Peak Dollar turned the USD/JPY down on August 15, 2008.

The chart of EEV shows that disinvestment began to come out the emerging markets on May 19, 2008, when the TAF, TSLF and PDCF rally ended, and then again on June 23, 2008 as those with access to the 0.5% Bank of Japan loans sold out of the BRICS, EEB, to take profits and repay their loans.

Then on July 25, 2008, an Elliott Wave 3 Down commenced in the EUR/JPY, this blasted EEV much higher.

Note that 80 was the middle of an Elliot Wave 3 mid point rest for EEV; and now we had Elliott Wave 5 completion with the abandoned baby candlestick.

The weekly chart of EEV shows a gravestone doji on falling volume; with 50% gain from May 19, 2008.

The weekly chart of EEM shows a fall to suppor at the edge of a head and shoulders pattern.

The weekly chart of FXP shows a gravestone doji as well; with 50% gain from May 19, 2008.

It was lack of liquidity coming from failed TAF, TSLF, and PDCF that started both 50% higher.

So we have completion of current activity for EEV; the question is what is next?

Part of the answer comes from knowing what the Euro, FXE, will be doing; the weekly chart of the Euro, FXE, shows it has fallen to support at 148.

Eventually there is more disinvestment coming out of the emerging markets, EEM, and China, FXI as the yen carry trade EUR/JPY, FXE:FXY, continues to unwind on risk aversion to inflation, lack of growth, and debt at banks.

The weekly chart of EUR/JPY, FXE:FXY, shows that the yen carry trade invigorate investment in the BRICS, EEB, and the emerging markets EEM, up until May 19th.

And there is still plent of stored up yen carry trades left in EEB, that is for sure; it's just a matter of "when is it coming out?"

The fall in the weekly chart of EUR/JPY, FXE:FXY, explains the tremendous disinvestment that has come out of the commodity stocks such as the metal and manufacturing stocks, XME, and the gold mining stocks, that is the HUI Indexed precious metal mining stocks, GDX.

Since July 15, 2008, the US has been the destination of interest rate differential investing as those with access to Bank of Japan funds went long went long the financial sector, IYF, Russell 2000 value, IWN, Housing, XHB, Nasdaq, QQQQ, and Consumer, IYC, stocks.

I fully expect the USD/JPY to fall this next week and the destruction of the US Dollar, $USD, to commence as well as a run on the US Treasury Bonds, TLT, to recommence: the Dollar Rally stocks will fall greatly rewarding those who are short the financial sector via SKF and short the Dollar by investing in gold, $GOLD.

I recommend that one be invested 2/3 in gold at BullionVault and GoldMoney; and 1/3 in SKF in a trust account and not a brokerage account.

2008 Aug 24 04:04 PM

[omooc:]

What is the critical volume level to produce an acceptable bid/ask differential in double short? Also, does anyone know what vehicle is used to mimick SKF action?

2008 Aug 24 09:35 PM

[johnthebear:]

CAN ANYONE EXPLAIN HOW THE DOUBLE SHORT ETF BY PROSHARES WORKS? IS IT SAFE? I OWN FXP AND SRS, BUT IT KIND OF SCARES ME.

PLEASE HELP ME OUT HERE.

2008 Aug 24 10:14 PM

[gon4beer:]

johnthebear-go to etfconnect.com, type in the symbol of the double short ETF that you'd like to know about, and you'll get an analysis of ETF as well as links to the ETF website which will in turn lead you to the annual report which will explain the mechanics. good luck

2008 Aug 25 07:41 AM

[Erick Tippett:]

Bespoke

On august 24th you said you expected the Dollar to fall. Well, today
is 9/4/08 on week later to be exact. Had you noticed where the dollar
is? Have you noticed where the Euro is? Want to change your forecast?

EDT
Chicag

2008 Sep 04 05:12 PM

[mamie:]

if you find out anything please let mo no


On Aug 24 10:14 PM johnthebear wrote:

> CAN ANYONE EXPLAIN HOW THE DOUBLE SHORT ETF BY PROSHARES WORKS? IS
> IT SAFE? I OWN FXP AND SRS, BUT IT KIND OF SCARES ME.
>
> PLEASE HELP ME OUT HERE.

2008 Sep 19 02:38 PM

[FreeMktAdvo...:]

The double inverse track the double inverse of the DAILY price movements of the inverse. In the case of SRS it tracks the double inverse movement of IYR (The Dow Jones US Real Estate Index). The important thing to remember is that the fund is born and dies every day and does not correspond to price points with IYR. I.e. if one day IYR was at 100 and SRS at 200 then another day when IYR approaches 100 SRS could be at $150. The fact that a % down has more of a negative effect than a % up, SRS will tend to trade downward over time. Accepting this fact then you find that the leverage on this ETF actually works AGAINST you over time and should therefore be avoided unless you think there will be a sustained downward trend in IYR.


On Sep 19 02:38 PM mamie wrote:

> if you find out anything please let mo no
>
>
> On Aug 24 10:14 PM johnthebear wrote:
>
> > CAN ANYONE EXPLAIN HOW THE DOUBLE SHORT ETF BY PROSHARES WORKS?
> IS
> > IT SAFE? I OWN FXP AND SRS, BUT IT KIND OF SCARES ME.
> >

2008 Sep 24 02:08 AM

[RainyDay:]

Does anyone know why the ProShares DXD UltraShort ETF dropped 6.14% overnight from Sep 23rd to Sep 24th? The Dow Jones Industrial Average only moved up 0.20%, so the the DXD should have only dropped about 0.40% (twice the inverse). I could understand if the DXD occasionally lost a half of a percent with respect to its base index, but 6% in one night ????? Did ProShares take 6 years worth of fees that night? It certainly reduces the feasibility of achieving any gains from this ETF.

2008 Sep 29 05:45 PM

[RainyDay:]

I figured it out myself. DXD issued a 6% dividend. I take back my insinuations that the DXD ETF is less than credible.

2008 Oct 01 03:19 PM