johngalt

Are ProShares Ultra ETFs Used As Hedging Devices By Money Managers?

I wholeheartedly agree with the above supposition, as I used them extensively in managing a long/short portfolio. Were I to still be running one now, they would be used even more heavily, as the ban on short-selling would preclude me from borrowing the necessary individual stocks. They are simply a very useful tool to hedge exposure.

We had established ourselves as transparent and vanilla, and so had always refrained from using futures and options for hedging. The ETFs, and in particular the inverse ultra ETFs were a fine tool for mitigating against long exposure. They don't actally go '2-for-1' at all times (they are stand-alone instruments and trade on their own supply and demand), but clearly they very closely correlate, or else there would be extensive arbitrage taking place to bring them into line (maybe there is?)

What they are effective for is in tying up less capital in a short offset than using single-stock borrowing, i.e. to offset a $100m long exposure in large-cap tech, one may borrow $100m in stock for short exposure to a host of large-cap tech names not owned on the long side, or else $50m invested in QIDs.