Luck o the Irish

Ultra ETF Promises Fall Short

tuna - yes and no. You would have to have the capabilities (capital) to withstand a major move in one direction, either over time or in the short run. Imagine if you have done that with UYG and SKF on Nov 4 last year. You would net 110.73 (SKF) + 10.89 (UYG) = 121.62 but then on Nov 20 you are now looking at 262.45 (SKF) + 3.72 (UYG) = 266.17 Now, your loss is rather large I'd say. For most, this would wipe out your entire account or certainly produce margin calls. You might argue, well I could just rebalance. If you do, you are now buying high and selling low. For those that qualify, we've got the answer.
claruspartners.com

Beware Short and Ultrashort ETFs

These leveraged ETFs have a value divergence inherent in the way they are designed. It is NOT a flaw, it is NOT an inefficiency. This is basic math. There are opportunities with these. Daytrading is one, but not everyone has the emotional balance, discipline, or time for this. It is not to say it is a bad strategy, but the implementation is all based on the manager or investor; therefore, only a small select group can do it, and even over time, risk management will be paramount, and unless you can withstand a large drawdown, you may fail miserable. Instead, if one focuses on the terminal value of these ETFs, you could create well managed (from a risk and capital standpoint) calendar spreads, or create InterETF spreads (crossing different leveraged ETFs with their counterparts or underlying) since over the short term, movement can still be somewhat predicted. Lastly, properly arbitraged pair trading from a very risk controlled standpoint can be implemented and profit from on a slow moving basis over time. However, I've not seen it properly implemented from a risk standpoint yet. These are all things I do, and our firm does. It is time to get over the complaint of "these don't work." They do PRECISELY what they were designed to do. People are not adjusting to the securities/product, they are simply expecting the product to adjust to their expectations.

Ultra ETF Promises Fall Short

These leveraged ETFs have a value divergence inherent in the way they are designed. It is NOT a flaw, it is NOT an inefficiency. This is basic math. There are opportunities with these. Daytrading is one, but not everyone has the emotional balance, discipline, or time for this. It is not to say it is a bad strategy, but the implementation is all based on the manager or investor; therefore, only a small select group can do it, and even over time, risk management will be paramount, and unless you can withstand a large drawdown, you may fail miserable. Instead, if one focuses on the terminal value of these ETFs, you could create well managed (from a risk and capital standpoint) calendar spreads, or create InterETF spreads (crossing different leveraged ETFs with their counterparts or underlying) since over the short term, movement can still be somewhat predicted. Lastly, properly arbitraged pair trading from a very risk controlled standpoint can be implemented and profit from on a slow moving basis over time. However, I've not seen it properly implemented from a risk standpoint yet. These are all things I do, and our firm does. It is time to get over the complaint of "these don't work." They do PRECISELY what they were designed to do. People are not adjusting to the securities/product, they are simply expecting the product to adjust to their expectations.

Ultra ETF Promises Fall Short

Really? Another article on this? There was just the same thing yesterday, and last week, and two the week before? Does anyone have anything new to say on this? I feel like an idiot because it seems like we are the only ones that have figured out how to use these things short term and long term.

Beware Short and Ultrashort ETFs

Secondly,
DIG and DUG are not directly correlated to oil (try UCO and SCO for that!). DUG is the inverse of IYE, and last I checked, the top 10 holdings were not USO, they were more like:
TOP 10 HOLDINGS ( 67.96% OF TOTAL ASSETS)

Company Symbol % Assets
APACHE CP APA 2.99
CHEVRON CORP CVX 13.85
CONOCOPHILLIPS COP 6.65
DEVON ENERGY CP (OK) DVN 3.19
EOG RESOURCES INC EOG 2
EXXON MOBIL CP XOM 24.57
MARATHON OIL CORP MRO 2.53
OCCIDENTAL PET OXY 5.49
SCHLUMBERGER LTD SLB 4.61
XTO ENERGY INC XTO 2.08

It seems to me that DUG would more likely be closely linked to the inverse performance of XOM. If I recall correctly, there was extreme volatility in Oct and Nov, and anyone who has even a basic understanding of leveraged ETFs KNOWS that they will get crushed being long during extended periods of volatility and sideways movement. The value divergence of these leveraged ETFs because most apparent during those times, and those that are long suffer from the terminal value in addition to the value divergence. If you want to play the drop in oil, then buy puts on the USO, but why are earth would you add in exposure to the volatilities of the equity markets (since DUG is the leveraged inverse of the IYE and the equities it holds). You could be right on oil, but if the market rallies hard and/or is volatile, then you could risk major loss of principle. It frightens me that professionals, neery just the individuals, one that are managing money for others and giving advice are just discovering this now!!!

Beware Short and Ultrashort ETFs

ok...now seriously. How many more times are we going to write about the leveraged ETFs and what they do over the long. Instead of just writing about them, how about we profit from them?
claruspartners.com

Distressing Details of the UltraShorts

Nothing fishy there at all. Know the products. DUG is -2x of the oil & gas EQUITIES. USO is based on the price of a barrell of oil. It is common that oil can be up, but oil & gas stocks down on any given day. It would be fishy is IYE was up and DUG was up. Learn the products.

This article sheds ABSOLUTELY NOTHING new on a topic that has been beaten to death. Most people don't understand these products. I've seen 2 or 3 really SOLID ideas laid out here, but no one wants to think beyond the obvious.


On Jan 25 10:54 AM wadaman7 wrote:

> There's something fishy here. I recently saw both USO and DUG rise
> simultaneously!

More Fun with Levered ETFs

This is a very valid point. The question is: How do you use these or benefit from these. There is a way, but managing/limiting risk is the key. We spent two years studying and trading these vehicles feel like we've found one the solutions on monetizing the long term inefficiencies of these vehicles while maintaining a low relative risk level. Email [e-mail] or luck_o_theirish@hotmai... if you'd like more information.