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TWM: An ETF Arbitrage Opportunity

The difference has to do with the chaining of individual days. During each individual day, the double short is set up to track the inverse of a single day’s move in the index times two. However, chaining out the moves of the ultra short over several days does not equal the chained performance of the underlying index over several days (times two). See their web site for a complete explanation.


1 " 1
0.9 down 10 " 1.2 up 20
1.1 up 10 " 0.8 down 20
0.9 down 10 " 1.2 up 20
1.1 up 10 " 0.8 down 20
0.9 down 10 " 1.2 up 20
1.1 up 10 " 0.8 down 20
"
0.970 " 0.885
-3.0% " -11.5%


0.970 chained 0.885 chained
-3.0% -11.5%

Arb that.?