Considering most of these are at an all time low and could be poised for a nice uptick in the medium term what are your thoughts on the following: Most of these are ultra-longs (some tracking error, but they look good for the most part) that should be at or about their bottoms. While I think we will see prices drop through Xmas it might not be a bad idea to start building positions in these now. My horizon for these would be 3-5 years. 1. Buy DXO (ProShares 200% long Crude Oil) - My favorite. I think oil prices will be the first thing to rise again. With the way OPEC can control supply and the relatively small amount of substitutes this could be a good bet. 2. Buy UCC (200% long Consumer Services) - Also very low. Would expect to see this sector come back strongly in that time frame. 3. Buy USD (200% long Semiconductors) - Sort of a leading sector here, once consumer demand is back I would expect to see semis leading the charge followed closely by consumer services.
My friend thought the same way and is down big They are 2x on upside but more like 2.5 or 3x on downside… If u did it friday to mon u hit the jackpot. If you did it tues to wed… Welll you lost 25 percent prob
Yea I checked the tracking on bloomberg and it does look like you get screwed on the upside vs. the downside, but this would be longer term that just a trading position…
I’ve sworn off ultralongs and ultrashorts (though I haven’t closed an ultrashort position b/c of transaction costs). Just take 2x as many of a regular long or short fund. As for timing, it’s a tricky game. Maybe going long leading sectors and short trailing sectors would work, but that assumes that we’re close to or at the bottom.
bchad - why did you swear them off?
I wouldn’t do this. We may be about out of catalysts.
The secret to the ultra ETF’s is that they don’t track the underlying index long term, just day to day. It takes quite a bit more to earn to the upside vs losing to the downside. For example, if you purchased before today and the S&P 500 is down 9%, then the ultra S&P 500 ETF would be down 18%. In order to just get back to even you would need to have the S&P 500 gain 22%. The other key thing to remember is the compounding. If there are more down days to come in a row, each day compounds from the previous day. Now this does work to the upside as well, but as mentioned above the negative bais really makes it hard in markets like this. Me and a friend did an analysis on these funds and determined that unless you want to speculate that they will hurt more than help. Instead we decided to add small positions of the ultrashort ETF’s in the portfolio. That way we can captualize on the volitility by rebalancing on a regular basis. Just my $0.02…
Ultra shorts then? Im just thinking that my diversification right now is a bunch of crap. EAFE, MSCI Emerging Markets, and the DOW have all basically moved in tandem. It doesn’t matter what region I’m invested in US, foreign, etc… Im young so I don’t really want to own fixed income, but I think the only way to truly diversify and reduce some volatility is to maybe buy some small positions of ultra shorts (20%) that would show a nice return when the rest of my portfolio is in the dumps… A way to hedge my risk of being long equities basically.
These are great for hedging but can be very dangerous if you suck at trading.
looks like we were thinking the same… I just posted that and then read your thoughts rlange… which funds did you buy?
fxguy1234 Wrote: ------------------------------------------------------- > Ultra shorts then? > > Im just thinking that my diversification right now > is a bunch of crap. EAFE, MSCI Emerging Markets, > and the DOW have all basically moved in tandem. It > doesn’t matter what region I’m invested in US, > foreign, etc… > > Im young so I don’t really want to own fixed > income, but I think the only way to truly > diversify and reduce some volatility is to maybe > buy some small positions of ultra shorts (20%) > that would show a nice return when the rest of my > portfolio is in the dumps… A way to hedge my > risk of being long equities basically. I think that this “I am young so I want to own equities” combined with anything about owning ultra-short funds doesn’t make sense. You are young so you can make a plan about how the world is going to grow and how you are going to grow. One way to think about the fixed income thing is that while you are young you buy up the means of production so that when you are old they can sustain you. Equities are residual claims. Fixed income are direct claims. It makes some sense no matter what your age to have some direct claims.
Swearing off ultralongs and ultrashorts is because the volatility drag just doesn’t make sense. If you are up 20% one day and down 20% the next, your position is 1*(1.2)*(0.8) = 0.96 at the end of day two. You’ve lost 4%. If you are up 10% one day and down 10% the next, your position is 1*(1.1)*(0.9) = 0.99 at the end of day two. You’ve lost 1%. So you get 2x the volatility, but you don’t get 2x the return with an ultra fund.
good point
The only one that I use is the ultrashort S&P 500 ETF (SDS). I only have 5% in my portfolio to smooth out the large swings. Over the past week I have been taking out gains on days the market is down and adding in a little more when the market is up to try and keep close to the 5% level. With these large up and down days it makes a noticable difference on the volatility (not huge but anything helps).
yea that’s kinda what I was thinking… thanks for the input
bchadwick Wrote: ------------------------------------------------------- > Swearing off ultralongs and ultrashorts is because > the volatility drag just doesn’t make sense. > > If you are up 20% one day and down 20% the next, > your position is 1*(1.2)*(0.8) = 0.96 at the end > of day two. You’ve lost 4%. > > If you are up 10% one day and down 10% the next, > your position is 1*(1.1)*(0.9) = 0.99 at the end > of day two. You’ve lost 1%. > > > So you get 2x the volatility, but you don’t get 2x > the return with an ultra fund. not quite 2X the vol b/c S.D. is not additive but i still agree.