cma

Understanding Levered ETFs and Geometric Returns

Interesting theory but it has worked out much worse for the negative levered ETFs:
I wonder if the theory doesn't work out in reality because of the phenemonally high costs of long option and swap erosion in the negative levered ETFs.

2008 August through December 19th, the S&P 500 has fallen 30.8%. Many traders would blindly assume that SDS should have returned 61.6% because that is double the inverse of the index, right? Oddly enough, SDS only gained 37.3%, nearly 25% below what many would have thought in less than four months. The ProShares Short S&P 500 ETF (SH) during the same timeframe gained 25.9%; according to the company SH should give investors the inverse performance on a 1-to-1 daily basis.