Post: #1

I was reading Investopedia and came upon a nifty financial tool called inverse and short etfs. Basically they work like a normal ETF but track the opposite progress of sector. So if the DJIA goes down, the value of a short DJIA etf goes up and vice versa.

Strangely enough, all of these appeared back in 2007-2008. I was checking the price per shares and strangely enough a lot of them would go from being 20-30$ a pop to right when Lehman collapsed the prices became 120/130$ a share. Then they dropped back down.

Considering all of the money printing and geopolitical chaos ensuing I figured these would be a good way to catch the money leaving the market when the shit hits the fan.

Here's a list of them
http://www.tradermike.net/inverse-short-...etf-funds/

The one that is the most interesting is SRS or the DJIA real estate short etf. The numbers back in 08 are crazy.

Post: #2

(05-06-2014 10:26 PM)frenchie Wrote:  I was reading Investopedia and came upon a nifty financial tool called inverse and short etfs. Basically they work like a normal ETF but track the opposite progress of sector. So if the DJIA goes down, the value of a short DJIA etf goes up and vice versa.

Strangely enough, all of these appeared back in 2007-2008. I was checking the price per shares and strangely enough a lot of them would go from being 20-30$ a pop to right when Lehman collapsed the prices became 120/130$ a share. Then they dropped back down.

Considering all of the money printing and geopolitical chaos ensuing I figured these would be a good way to catch the money leaving the market when the shit hits the fan.

Here's a list of them
http://www.tradermike.net/inverse-short-...etf-funds/

The one that is the most interesting is SRS or the DJIA real estate short etf. The numbers back in 08 are crazy.

I'm not genius when it comes to investing but I don't think thy are meant to be held long term. More of a trading vehicle. I believe they lose value badly over time.

You might be better off just buying some puts.

Post: #3

You generally don't want to hold those kinds of tricky ETFs for very long. A short/inverse ETF is great for betting that the market is going to go down tomorrow, not so great to bet if the market is going down in three months. If you really think the market is going down in three months, buy some out-of-the-money puts and see what happens. Also, if you're worried about the market imploding, some volatility options might be for you, but be careful with what you're doing, I'd generally stay long-only until you figure yourself out. Going short or fucking around with options is a great way to lose your shirt if you have no idea what you're doing/new to investing.

Post: #4

I'm far from expert, but there are significant fees associated with these, especially the leveraged ones (2x-3x). Those are implemented by intensive complex option trading by the ETF company.

Probably better done with bear option spreads for similar effect.

Post: #5

(05-06-2014 10:39 PM)classicjimmy Wrote:  You generally don't want to hold those kinds of tricky ETFs for very long. A short/inverse ETF is great for betting that the market is going to go down tomorrow, not so great to bet if the market is going down in three months. If you really think the market is going down in three months, buy some out-of-the-money puts and see what happens. Also, if you're worried about the market imploding, some volatility options might be for you, but be careful with what you're doing, I'd generally stay long-only until you figure yourself out. Going short or fucking around with options is a great way to lose your shirt if you have no idea what you're doing/new to investing.

That's an excellent advice for any newbies.

Post: #6

(05-06-2014 10:39 PM)classicjimmy Wrote:  You generally don't want to hold those kinds of tricky ETFs for very long. A short/inverse ETF is great for betting that the market is going to go down tomorrow, not so great to bet if the market is going down in three months. If you really think the market is going down in three months, buy some out-of-the-money puts and see what happens. Also, if you're worried about the market imploding, some volatility options might be for you, but be careful with what you're doing, I'd generally stay long-only until you figure yourself out. Going short or fucking around with options is a great way to lose your shirt if you have no idea what you're doing/new to investing.

Partly the reason I chose the etfs were to avoid losing my shirt. With these there aren't any short calls and the like. Just sell at a loss.

Being young, i enjoy high risk investments But definitely, these aren't for the faint at heart. I took a small position on a few of these because with QE ending by the end of the year, I'm guessing there will be some sort of event to topple this massively over priced market within a year or two. Gotta hedge some bets.

Post: #7

(05-06-2014 10:26 PM)frenchie Wrote:  Strangely enough, all of these appeared back in 2007-2008.

The reason is that short-selling rules were implemented at that time, and the only way around them was for the underlying ETF to be geared for it.

Post: #8

(05-07-2014 06:26 AM)frenchie Wrote:  Being young, i enjoy high risk investments But definitely, these aren't for the faint at heart. I took a small position on a few of these because with QE ending by the end of the year, I'm guessing there will be some sort of event to topple this massively over priced market within a year or two. Gotta hedge some bets.

frenchie, I don't think you should focus too much on hedging, especially since you are young.

Being afraid of a market all time high is natural, but these highs happens all the time - look at this chart of the S&P 500 : http://finance.yahoo.com/q/bc?s=%5EGSPC&...z=l&q=l&c=
If you hold on to your stocks, the market always climbs higher when you have time on your side.

My advice would be to save as much cash as possible, that you can deploy into stocks when the market next has a pullback/correction.

The QE ending has been talked about endlessly so that will have already be priced into the market.

Post: #9

Great with previous posters. Inverse ETFs are used by professional traders, and typically for very short periods (talking hours and days, not months and years). There are many ways to short the market if you think the "shit hits the fan" soon. You can just short the market or buy put options. If you are not a professional trader and believe the market will soon dive just stay in cash. And if you're right, then use that money to buy stocks when they fall 10%, 20% or 30%.

Post: #10

One thing I'll add to the conversation is that these etf's don't short the market but rather they buy the proper mix of put options to be the inverse of one days returns. This results in worse performance compared to shorting stocks the proper way over the long run.

So this results in the fact that, even though the S&P is only up 20% since its 2007 high, buying the SH (S&P Short etf) at the 2007 high (Of the S&P not of SH) would result in a loss of 65% (from $54 to $24) so $100 invested would be worth about $35 today.

The scary thing though is this: you just lost 65% of your money even though you perfectly timed the 5 year market high and the Lehman's crash.

You were 100% right. The shit hit the fan in the worst way in 80+ years. No matter. You still lose most your cash if you held on to it all this time and again, the S&P 500 isn't even up very much compared to 2007.

Summary: Holding it for a year or two is incredibly stupid.