shorting an inverse leverage ETF

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ragnathor
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shorting an inverse leverage ETF

Post by ragnathor »

Hello Bogleheads,

I am asking if anyone has experience or knowledge shorting leveraged inverse ETFs. I understand leveraged ETFs don't exactly replicate the underlying. Leveraged ETFs also suffer from volatility decay and fees and costs/inefficiencies of futures rollovers. Reading about them it's generally advised for short-term use only - even more so an inversed leveraged ETF. So can these inefficiencies be used to one's advantage by shorting an inversed leveraged ETF? If one expects the market to increase over long periods of time, shorting a leveraged inverse ETF should move in that direction over time with benefits of drag from fees and volatility decay.

I provide SDS as an example. This is a 2x leveraged inverse ETF for S&P 500. The idea is to short sell SDS. Certainly a massive market decline would make this is a bad investment in the short-term. SDS has data going back to 2006 and recovers from the 2009 crash relatively quickly. It has a value of $1100 in 2006 and is $9 today. Am I missing something? I have not looked into availability to short sale which may be a barrier.

Imagine you have 10k invested in a long-term strategy, and decide to short sell SDS 10% of this amount (1k) and hold over time. The upside is of course limited to the amount of the short sale (e.g. can never double your money).

I understand leverage and short selling both provide substantial risk, but I'm looking for flaws in the reasoning.
Marseille07
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Re: shorting an inverse leverage ETF

Post by Marseille07 »

ragnathor wrote: Sun May 09, 2021 4:29 pm Hello Bogleheads,

I am asking if anyone has experience or knowledge shorting leveraged inverse ETFs. I understand leveraged ETFs don't exactly replicate the underlying. Leveraged ETFs also suffer from volatility decay and fees and costs/inefficiencies of futures rollovers. Reading about them it's generally advised for short-term use only - even more so an inversed leveraged ETF. So can these inefficiencies be used to one's advantage by shorting an inversed leveraged ETF? If one expects the market to increase over long periods of time, shorting a leveraged inverse ETF should move in that direction over time with benefits of drag from fees and volatility decay.

I provide SDS as an example. This is a 2x leveraged inverse ETF for S&P 500. The idea is to short sell SDS. Certainly a massive market decline would make this is a bad investment in the short-term. SDS has data going back to 2006 and recovers from the 2009 crash relatively quickly. It has a value of $1100 in 2006 and is $9 today. Am I missing something? I have not looked into availability to short sale which may be a barrier.

Imagine you have 10k invested in a long-term strategy, and decide to short sell SDS 10% of this amount (1k) and hold over time. The upside is of course limited to the amount of the short sale (e.g. can never double your money).

I understand leverage and short selling both provide substantial risk, but I'm looking for flaws in the reasoning.
No flaws, it's just a lot more work to short than long.

a) borrowing cost
b) availability of shares
c) margin call
d) periodic rebalancing to reset exposure

I don't follow what you're trying to have us imagine with the 10K example though. You short sell 1K, you can only make 1K more unless you rebalance (point d).
Last edited by Marseille07 on Sun May 09, 2021 5:47 pm, edited 1 time in total.
Astones
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Re: shorting an inverse leverage ETF

Post by Astones »

An inverse-ETF works via short selling the holdings that the corresponding ETF is tracking.

So, what you want to do is to short the shorting ?

I don't know if it can somehow work for some inefficiencies in the system that people have yet to discover, but if I were bullish about the market, in your shoes, I'd simply buy the long ETF directly.
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Re: shorting an inverse leverage ETF

Post by kellykline »

Astones wrote: Sun May 09, 2021 4:50 pm An inverse-ETF works via short selling the holdings that the corresponding ETF is tracking.

So, what you want to do is to short the shorting ?

I don't know if it can somehow work for some inefficiencies in the system that people have yet to discover, but if I were bullish about the market, in your shoes, I'd simply buy the long ETF directly.
more than one HF i know is already doing this. secure a good margin rate deal with brokerage suits, short both long and short ETFs, monopolize free money. 8-)
suits negotiated rates w/ millions in capital guarantees no competitors (at least against what the HFs call "dumb money" retail traders)
learntoinvest123
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Re: shorting an inverse leverage ETF

Post by learntoinvest123 »

Hard to get these to short from a broker for free. You will pay a lot of interest to borrow these.

Forget leveraged, it is hard to short hot sectors (housing, Govt bond etfs) since almost everybody is trying to do the exact same thing.
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typical.investor
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Re: shorting an inverse leverage ETF

Post by typical.investor »

ragnathor wrote: Sun May 09, 2021 4:29 pm Hello Bogleheads,

I am asking if anyone has experience or knowledge shorting leveraged inverse ETFs. I understand leveraged ETFs don't exactly replicate the underlying. Leveraged ETFs also suffer from volatility decay and fees and costs/inefficiencies of futures rollovers. Reading about them it's generally advised for short-term use only - even more so an inversed leveraged ETF. So can these inefficiencies be used to one's advantage by shorting an inversed leveraged ETF?
I considered it, but was concerned about borrowing costs and availability of the inverse fund to borrow so I could short it.
ragnathor wrote: Sun May 09, 2021 4:29 pm If one expects the market to increase over long periods of time, shorting a leveraged inverse ETF should move in that direction over time with benefits of drag from fees and volatility decay.
I don't believe simply shorting the inverse is going to result in the fee drag and volatility working in your favor.

Yes, shorting the inverse would seem to have some benefits if the market moves against you compared to holding the leveraged fund. However, I think both require a prudent rebalancing strategy to be useable. (i.e. money into the strategy when is does poorly and money out when it does well in order to track 3X the index).

If the market moves against you (-30% for long ETF or +30% for short), you would actually only lose -66.7% on 3X long if volatility is 10%. That's volatility decay working in your favor. The short version would be -57.1% if the market were up 30%.

If market were flat with high volatility (at 25% ...note 2020 saw low 30%), the long fund would be at -17% and the short fund at -31.3%.

So for both long and short, the volatility decay can work for or against you depending on returns and volatility level.

Source UPRO 3X and SPXU 3X short S&P500 prospectus.
https://www.proshares.com/3xetfs/
Topic Author
ragnathor
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Re: shorting an inverse leverage ETF

Post by ragnathor »

Marseille07 wrote: Sun May 09, 2021 4:39 pm No flaws, it's just a lot more work to short than long.

a) borrowing cost
b) availability of shares
c) margin call
d) periodic rebalancing to reset exposure

I don't follow what you're trying to have us imagine with the 10K example though. You short sell 1K, you can only make 1K more unless you rebalance (point d).
Just meant if I were to use this strategy, it would be a small percentage of a portfolio balance (such as 10% rather than 50% of a taxable account).

I like how you clearly list out the potential disadvantages.
learntoinvest123 wrote: Sun May 09, 2021 5:22 pm Hard to get these to short from a broker for free. You will pay a lot of interest to borrow these.

Forget leveraged, it is hard to short hot sectors (housing, Govt bond etfs) since almost everybody is trying to do the exact same thing.
You are right. I took a look yesterday on Interactive Brokers and borrow fee for shorting SDS was 1.6%. Going to keep an eye on the borrow rate and get a sense of the range. It does seem a bit of work to have to keep an eye on.
typical.investor wrote: Sun May 09, 2021 7:40 pm
I don't believe simply shorting the inverse is going to result in the fee drag and volatility working in your favor.

Yes, shorting the inverse would seem to have some benefits if the market moves against you compared to holding the leveraged fund. However, I think both require a prudent rebalancing strategy to be useable. (i.e. money into the strategy when is does poorly and money out when it does well in order to track 3X the index).

If the market moves against you (-30% for long ETF or +30% for short), you would actually only lose -66.7% on 3X long if volatility is 10%. That's volatility decay working in your favor. The short version would be -57.1% if the market were up 30%.

If market were flat with high volatility (at 25% ...note 2020 saw low 30%), the long fund would be at -17% and the short fund at -31.3%.

So for both long and short, the volatility decay can work for or against you depending on returns and volatility level.

Source UPRO 3X and SPXU 3X short S&P500 prospectus.
https://www.proshares.com/3xetfs/
I was thinking of shorting the inverse as more a long-term supplement to a portfolio (say 10-20%) rather than picking it over a long leveraged fund for a primary strategy.

I appreciate your volatility decay example. I had to read it a few times to internalize it. One margin call during a flash crash could completely crush this idea.

Thanks all for the replies. I'm going to open a small position for a while to learn and get a better sense of the fees and effort to maintain the position.
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ragnathor
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Re: shorting an inverse leverage ETF

Post by ragnathor »

Only been a few months but I went ahead and exited my position after making a small gain.

The appeal of this was seeing SDS (2x inverse S&P 500) lost 99% over 10 years and I thought with fees and volatility decay it seemed like shorting was a sure long-term bet.

My analysis leads me to believe the overwhelming reason is the extended bull run, and volatility decay plays a rather minimal role. I ran a theoretical test of a stock that alternates +0.1% and -0.1% every other day over 15 years. A 3x leveraged fund only does about 3% worse than a non-leveraged one.

In any case an extended bear run over a year could really crush this strategy and lead to multiples in losses, much worse than a sudden crash. Inverse ETFs just haven't been around long enough to experience such a market condition.
Semantics
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Re: shorting an inverse leverage ETF

Post by Semantics »

Imagine you held SPXL (3x S&P 500) and every time it dropped you borrowed 2x the amount you lost using a margin loan, and bought more of it. So if it drops 10% in a day you would borrow 20% of the starting value and buy more, to bring your exposure to 110%. That's what shorting SPXS (3x inverse S&P 500) basically is. Works great if it goes back up again the next day. Can blow up in a hurry and get you a margin call if there are a few large drops in a row.

I hold some small short SQQQ positions, last year I kept shorting more the second half of last year to maintain a constant exposure. It's very nice when the market is doing well, but I closed out a portion of the positions in late Feb when there was market turmoil. Since then I've been letting the position dwindle in order to reduce my overall exposure.
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Re: shorting an inverse leverage ETF

Post by firebirdparts »

This came up in the hedgefundie thread. I actually tried it using options. It works okay, but it's pretty hard to pick a strike price and to decide dynamically when you'd get out of the options positions you'd need. At least I thought so. Shorting would solve those problems. It's a lot easier to hold UPRO.
This time is the same
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Re: shorting an inverse leverage ETF

Post by LEVERAGED INVESTOR »

The secret to shorting SQQQ for substantial outperformance over TQQQ is buying all shares back every month, and re-shorting them. Once monthly seems to be the sweet spot for max return. You are picking up the beta slippage difference. SOXS works even better that SOXL. At this date of 09-30-21 there is no interest to pay on SQQQ at Schwab. There is a 4.95% APR to pay for SOXS. These interest rates are minor compared to the return difference. https://www.portfoliovisualizer.com/bac ... 4_1=-33.33
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Re: shorting an inverse leverage ETF

Post by kmft »

Hypothetical, taking majority of the available shares for myself:

If the shares available are 1,000,000 for an inverse fund (I.e. SQQQ), the borrow fee rate is a low 0.5%, and I were to short/borrow 50%, 75%, or 100% of the available shares myself (500K, 750K, 1M shares respectively), would I singlehandedly raise the borrow rate for my current position above 0.5% since I’ve made the pool of available shares shrink by half or more?

I don’t fully understand how the borrow rate is calculated for HTB (hard to borrow) shares based on “scarcity” and hoping someone here could shed a little light using the example above.
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Re: shorting an inverse leverage ETF

Post by TheDoctor91 »

Sorrry, whats the advantage over just holding the equivalent long?
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typical.investor
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Re: shorting an inverse leverage ETF

Post by typical.investor »

TheDoctor91 wrote: Fri Oct 15, 2021 2:59 am Sorrry, whats the advantage over just holding the equivalent long?
Shorting the inverse vs being long will have different returns depending on the market returns and volatility.

Look at the prospectus for each. There are tables about what to expect. It appears shorting the inverse would do better in many of the cases we expect.

There is the cost to shorting the inverse though as well as the additional risk of being short.
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Re: shorting an inverse leverage ETF

Post by nisiprius »

Obviously, we need ETFs that short other inverse leveraged ETFs.
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Re: shorting an inverse leverage ETF

Post by grabiner »

typical.investor wrote: Fri Oct 15, 2021 4:19 am
TheDoctor91 wrote: Fri Oct 15, 2021 2:59 am Sorrry, whats the advantage over just holding the equivalent long?
Shorting the inverse vs being long will have different returns depending on the market returns and volatility.

Look at the prospectus for each. There are tables about what to expect. It appears shorting the inverse would do better in many of the cases we expect.

There is the cost to shorting the inverse though as well as the additional risk of being short.
The daily return should be the same (except for expenses); any difference will depend on how your net allocation changes.

For example, suppose you have $1000 in a 2x leveraged fund. If the market rises 5%, your investment gains 10%, so you now have $1100 in a 2x leveraged fund, representing $2200 in stock.

Now suppose you have $2000 in cash and are short $1000 in a 2x inverse fund. If the market rises 5%, your fund loses 10%, so you are now short $900 in a 2x inverse fund. You have a net portfolio of $1100, but you now have a stock position of $1800, so you are only 1.64x leveraged. You would have to short another $200 of the inverse fund to get back to 2x leverage.
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Re: shorting an inverse leverage ETF

Post by Northern Flicker »

nisiprius wrote: Fri Oct 15, 2021 7:10 am Obviously, we need ETFs that short other inverse leveraged ETFs.
So we can short them?
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Re: shorting an inverse leverage ETF

Post by Northern Flicker »

ragnathor wrote: Just meant if I were to use this strategy, it would be a small percentage of a portfolio balance (such as 10% rather than 50% of a taxable account).
What strategy are you referring to?
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Re: shorting an inverse leverage ETF

Post by typical.investor »

grabiner wrote: Fri Oct 15, 2021 10:43 pm
typical.investor wrote: Fri Oct 15, 2021 4:19 am
TheDoctor91 wrote: Fri Oct 15, 2021 2:59 am Sorrry, whats the advantage over just holding the equivalent long?
Shorting the inverse vs being long will have different returns depending on the market returns and volatility.

Look at the prospectus for each. There are tables about what to expect. It appears shorting the inverse would do better in many of the cases we expect.

There is the cost to shorting the inverse though as well as the additional risk of being short.
The daily return should be the same (except for expenses); any difference will depend on how your net allocation changes.
Yes, I know that. In all the posts at Bogleheads.org however, I have yet to see anyone who rebalances on a daily basis. This means that for virtually all investors, that shorting a leveraged inverse ETF will NOT have the same returns as being long the leveraged version.
grabiner wrote: Fri Oct 15, 2021 10:43 pm For example, suppose you have $1000 in a 2x leveraged fund. If the market rises 5%, your investment gains 10%, so you now have $1100 in a 2x leveraged fund, representing $2200 in stock.

Now suppose you have $2000 in cash and are short $1000 in a 2x inverse fund. If the market rises 5%, your fund loses 10%, so you are now short $900 in a 2x inverse fund. You have a net portfolio of $1100, but you now have a stock position of $1800, so you are only 1.64x leveraged. You would have to short another $200 of the inverse fund to get back to 2x leverage.
Yes, this is true, but it requires one to reset their leverage daily. If the market rises 5% over a year with 15% volatility, the 2X long fund will return 7.8%. A shorted 2X inverse fund will return 15.2%.

It's the same with 3X gearing if you don't reset daily. If the market were to lose 30% over a year with 10% volatility (so you'd expect -90% for a long 3X ETF or +90% for the inverse), you would actually only lose 66.7% on 3X long. That's volatility decay working in your favor. However, the inverse fund will be up 174.6% which means you will be down 174.6% because you were shorting it. Thus being long the 3X fund will leave you with 33% of your money, but shorting it will leave you completely crashed out.

Or look at a flat market (0% returns) which highish volatility (25%). The long 3X fund will lose 17.1%. Shorting the inverse will return a positive gain of 31.3%.

Granted, the most common rebalancing scheme in the HFEA threads is quarterly which potentially could very well change the above outcomes. Still, nobody using LETFs are rebalancing on a daily basis that I know of. So why assume returns will be the same and also need to assume that people are rebalancing on a daily basis. Sure, it's possible, but I think it's safer to say that shorting an inverse leveraged ETF will behave differently than simply being long over time (unless you take daily action to offset the effect).

Look at the SAI (Statement of Additional Information). The prospectus contains a similar graph but the SAI is a little more detail. https://www.proshares.com/3xetfs/
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Re: shorting an inverse leverage ETF

Post by DP »

Can anyone speak to the costs of a synthetic short position (buy puts and sell calls to offset the cost) or other strategy using options? While the borrow costs are low for SQQQ and low enough for SPXS, I would like to hedge with bonds and gold. Something like 50/25/25, but the costs to short bonds (TMV 24.4%!, TTT - 2x short 20yr was 7.5% the other day at IB) and gold (GLL 2x short was 5.4%) are rather high. My experience with options is that the slippage between the bid and ask price can be rather expensive and I would be looking to rebalance on a monthly basis. I'm thinking this might be more costly than even the high borrow fee's for bonds and gold.

I have no issue shorting outright if the fee's are low single digits and I can hedge the portfolio or using options if the costs are also low single digits. I wouldn't allocate so much to this that I would ever have to worry about margin calls and to me the extra gains from volatility decay are well worth the few minutes it would take to rebalance monthly.

Maybe the best solution is to short inverse leveraged equity etf(s) and hedge in another manner.
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Re: shorting an inverse leverage ETF

Post by exodusNH »

DP wrote: Wed Oct 20, 2021 6:26 pm Maybe the best solution is to short inverse leveraged equity etf(s) and hedge in another manner.
Couldn't you do this by purchasing the equivalent leveraged ETF?
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Re: shorting an inverse leverage ETF

Post by BJJ_GUY »

kmft wrote: Thu Oct 14, 2021 7:34 am Hypothetical, taking majority of the available shares for myself:

If the shares available are 1,000,000 for an inverse fund (I.e. SQQQ), the borrow fee rate is a low 0.5%, and I were to short/borrow 50%, 75%, or 100% of the available shares myself (500K, 750K, 1M shares respectively), would I singlehandedly raise the borrow rate for my current position above 0.5% since I’ve made the pool of available shares shrink by half or more?

I don’t fully understand how the borrow rate is calculated for HTB (hard to borrow) shares based on “scarcity” and hoping someone here could shed a little light using the example above.
A lot of variables, but theoretically you are correct. The harder it is for the broker to locate a borrow, the higher the cost. The less profitable you are to the firm, the higher the cost to borrow. Brokers also don't give individuals the same flexibility around collateral and margin call triggers that institutions get.

Also, just because you can identify the number of shares for a stock/ETF doesn't mean they are held in accounts that will participate in lending, so the amount available to borrow (and sell) are fewer than the quoted float
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Re: shorting an inverse leverage ETF

Post by nitpick »

Just trying to make sense of this strategy. It seems good on paper.

Let’s say you are shorting SQQQ( instead of buying TQQQ).
I am just worried about what will happen if market crashes 50% in short period time?

Hypothetically following scenarios may happen:
—with TQQQ you can possibly lose about 98-99%
—shorting SQQQ might put you in position of naked loss potential and margin calls etc.

I will really appreciate if someone can explain, how to safely implement this short strategy.
kmft
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Re: shorting an inverse leverage ETF

Post by kmft »

DP wrote: Wed Oct 20, 2021 6:26 pm Can anyone speak to the costs of a synthetic short position (buy puts and sell calls to offset the cost) or other strategy using options? While the borrow costs are low for SQQQ and low enough for SPXS, I would like to hedge with bonds and gold. Something like 50/25/25, but the costs to short bonds (TMV 24.4%!, TTT - 2x short 20yr was 7.5% the other day at IB) and gold (GLL 2x short was 5.4%) are rather high. My experience with options is that the slippage between the bid and ask price can be rather expensive and I would be looking to rebalance on a monthly basis. I'm thinking this might be more costly than even the high borrow fee's for bonds and gold.

I have no issue shorting outright if the fee's are low single digits and I can hedge the portfolio or using options if the costs are also low single digits. I wouldn't allocate so much to this that I would ever have to worry about margin calls and to me the extra gains from volatility decay are well worth the few minutes it would take to rebalance monthly.

Maybe the best solution is to short inverse leveraged equity etf(s) and hedge in another manner.
That's a good question. I've often wondered how much the spread mattered in a synthetic short position. The part that always confuses me when executing a synthetic short is after inputting the two legs into the order panel, the net for a debit or credit is determined by the difference between debit of the purchased leg and the credit of the sold leg. I just place my order near the mid-price, assume I'm getting a wash on my premium paid and premium gained, and pray it executes.
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Re: shorting an inverse leverage ETF

Post by kmft »

BJJ_GUY wrote: Wed Oct 20, 2021 6:47 pm
kmft wrote: Thu Oct 14, 2021 7:34 am Hypothetical, taking majority of the available shares for myself:

If the shares available are 1,000,000 for an inverse fund (I.e. SQQQ), the borrow fee rate is a low 0.5%, and I were to short/borrow 50%, 75%, or 100% of the available shares myself (500K, 750K, 1M shares respectively), would I singlehandedly raise the borrow rate for my current position above 0.5% since I’ve made the pool of available shares shrink by half or more?

I don’t fully understand how the borrow rate is calculated for HTB (hard to borrow) shares based on “scarcity” and hoping someone here could shed a little light using the example above.
A lot of variables, but theoretically you are correct. The harder it is for the broker to locate a borrow, the higher the cost. The less profitable you are to the firm, the higher the cost to borrow. Brokers also don't give individuals the same flexibility around collateral and margin call triggers that institutions get.

Also, just because you can identify the number of shares for a stock/ETF doesn't mean they are held in accounts that will participate in lending, so the amount available to borrow (and sell) are fewer than the quoted float
Thanks, after posting this I dove even deeper, and came to learn that the borrow fee calculations are NOT transparent. Was an impossible task for me to locate a formula. I believe the brokerages prefer to keep it that way. The more opaque, the more profit potential.
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Re: shorting an inverse leverage ETF

Post by kmft »

nitpick wrote: Wed Oct 20, 2021 7:29 pm Just trying to make sense of this strategy. It seems good on paper.

Let’s say you are shorting SQQQ( instead of buying TQQQ).
I am just worried about what will happen if market crashes 50% in short period time?

Hypothetically following scenarios may happen:
—with TQQQ you can possibly lose about 98-99%
—shorting SQQQ might put you in position of naked loss potential and margin calls etc.

I will really appreciate if someone can explain, how to safely implement this short strategy.
I can't imagine a brokerage/scenario where the market crashes 50% and your SQQQ doesn't get liquidated by your broker. This is of course assuming it's a fresh SQQQ position that's rebalanced regularly (i.e. monthly). If it's been sitting idle for over a year+, it's basically a cash position at that point most likely and a 50% crash will do very little to it.
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Re: shorting an inverse leverage ETF

Post by kmft »

exodusNH wrote: Wed Oct 20, 2021 6:32 pm
DP wrote: Wed Oct 20, 2021 6:26 pm Maybe the best solution is to short inverse leveraged equity etf(s) and hedge in another manner.
Couldn't you do this by purchasing the equivalent leveraged ETF?
Not really, there is a lot of drift between the long leveraged ETFs and short ETFs.
Look how poorly at 50/50 TQQQ/SQQQ does rebalanced monthly. https://www.portfoliovisualizer.com/bac ... tion2_1=50
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Re: shorting an inverse leverage ETF

Post by BJJ_GUY »

kmft wrote: Wed Oct 20, 2021 9:05 pm Thanks, after posting this I dove even deeper, and came to learn that the borrow fee calculations are NOT transparent. Was an impossible task for me to locate a formula. I believe the brokerages prefer to keep it that way. The more opaque, the more profit potential.
Yes, the borrowing cost can be unique to each client, so no standard rate is really available to display. So the client's status with the broker, and the availability of shares to borrow, are two big inputs in the equation, but not the only two. Additionally, this is dynamic, so the borrow can change at any time, so there really is a lot of variability here.
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Re: shorting an inverse leverage ETF

Post by Thereum »

DP wrote: Wed Oct 20, 2021 6:26 pm Can anyone speak to the costs of a synthetic short position (buy puts and sell calls to offset the cost) or other strategy using options? While the borrow costs are low for SQQQ and low enough for SPXS, I would like to hedge with bonds and gold. Something like 50/25/25, but the costs to short bonds (TMV 24.4%!, TTT - 2x short 20yr was 7.5% the other day at IB) and gold (GLL 2x short was 5.4%) are rather high. My experience with options is that the slippage between the bid and ask price can be rather expensive and I would be looking to rebalance on a monthly basis. I'm thinking this might be more costly than even the high borrow fee's for bonds and gold.

I have no issue shorting outright if the fee's are low single digits and I can hedge the portfolio or using options if the costs are also low single digits. I wouldn't allocate so much to this that I would ever have to worry about margin calls and to me the extra gains from volatility decay are well worth the few minutes it would take to rebalance monthly.

Maybe the best solution is to short inverse leveraged equity etf(s) and hedge in another manner.
When I short SQQQ, I often sell call spreads and buy a put, using options expiring at least a year out. The trade is entered for a net credit. Usually, I'll sell two or three spreads per put. The trade starts with negative theta, positive gamma, and positive vega. It doesn't suffer too much if the market crashes in the near future*, due to favorable greeks. The losses are also limited due to the call spreads.

You can also do this trade with a synthetic put (long call + short stock).
TheDoctor91
Posts: 158
Joined: Thu Feb 25, 2021 11:43 am

Re: shorting an inverse leverage ETF

Post by TheDoctor91 »

I was looking at the borrow rates for shorting SPXU or TMV and they were showing around 7-13% on IBKR. Do you guys have lower rates?
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