Proshares Ultra Inverse ETFs

Thursday, July 13, 2006 | 01:43 PM

The double inverse shares are now trading (albeit barely).

UltraShort QQQ QID NASDAQ-100
UltraShort S&P500 SDS S&P 500
UltraShort Dow30 DXD DJIA
UltraShort MidCap400 MZZ S&P MidCap 400

>

To reiterate my views on the single inverse shares (which also apply here):

• They trade intra-day; you are not limited to end of day pricing; This makes them superior to the Rydex Ursa mutual funds;

•  They are are rather illiquid; even less liquid than the plain inverse funds; (this may change over time);

• They are allowed in retirement/tax deferred accounts; Not only can you now short in these accounts, you can now do so with leverage; (This could be a major negative for overly aggressive or undisciplined investors);

• They are inferior to the Qs, Diamonds or Spyders. With the uptick rule exmption for ETFs, I am hard pressed to see why you would want to use these outside of the tax deferred accounts;

• They trade with an even fatter 7 to 15 cent spread. As noted before, the Qs are liquid as all hell;

• Again, there's that odd pricing delay. As I type this, with the Nasdaq down 20 and the Qs off by 35 cents, the PSQs (Inverse Qs) are down more than QIDs (Ultra short).
Hopefully, that weirdness won't persist as they begin to trade more.

The Bottom line remains: These are good product for hedging in accounts that either cannot short or use options; And while they are also superior to mutual funds, they remain are inferior to traditional ETFs. Hopefully, as they become more popular and liquid, these pricing / spread / delay issues will work themselves out.

I consider these a work in progress...

Thursday, July 13, 2006 | 01:43 PM | Permalink | Comments (10) | TrackBack (0)
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Comments

I think that I see the fat lady on stage. I can't tell if she has started singing yet, but the audience is apparently getting nervous.

Posted by: Brandon | Jul 13, 2006 2:06:00 PM

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