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Reverse ETFs, what's the deal?

Discussion in 'Beginner's Lounge' started by Rsthree, Mar 23, 2020.

  1. Rsthree

    Rsthree

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    Probably a little late to have this discussion. :)

    Never thought about going short but with the current environment it's certainly food for thought.

    Reverse ETFs seem to be an easier and less risky way to go short on the index.

    Anyone using these ETFs, what are the pitfalls.
     
    frugal.rock likes this.
  2. Smurf1976

    Smurf1976

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    No major pitfalls that I'm aware of so long as you understand the details of it.

    Eg some of these are internally leveraged and thus far more volatile than the underlying market. A 10% move in the market in either direction results in a far greater % move in the ETF.

    So far as I'm aware that's the main thing to be aware of.
     
  3. qldfrog

    qldfrog

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    yes, and they can sometimes change the rules if it suits them.
    In term of reverse ETF, I have used Bear, BBOZ and a US Russel indexed one.
    So far behaved like expected.I just noticed the closing value sometimes differs from the referenced index it should follow, probably hard to capture the final index price to reinject it into the ETF close price when market closes at EOD
     
    Rsthree and Dona Ferentes like this.
  4. Zaxon

    Zaxon The voice of reason

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    I'm not sure what a "Reverse ETF" is. Perhaps one that has reversing lights and makes a "beep, beep" sound?

    Inverse ETFs make a lot of sense in the current market. The trap is in holding them too long, since their price decays because they perform accurately on the scale of 1 day and lose their accuracy over time.
     
    qldfrog likes this.
  5. mcgrath111

    mcgrath111

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    Yeah I've used BBUS,BBOZ and BEAR.
    If you want a hedge, BEAR is the way to go.

    BBUS and BBOZ are fun, balls to the wall...I should remember that my sportsbet and comsec accounts are two different things!
     
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  6. Rsthree

    Rsthree

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    Predictive text is a bitch at times ;)

    Lose their accuracy! Can you please explain, I put this in the beginners thread for good reason.
     
  7. Zaxon

    Zaxon The voice of reason

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    A regular ETF, such as VAS, has a Market Maker whose role is to ensure the price of the ETF stays within range of the true value (NAV) over time. So a tracking error today will be corrected at some point in the future.

    Inverse ETFs have the requirement only to keep the price within range today. Each day wipes the slate clean and resets the tracking. This results in "beta slippage" or "volatility decay". There isn't a long term corrective mechanism. Hence, my advice to only hold them for short periods.

    From there it gets more technical, but that should be enough to get you started or for you to do further research yourself.
     
    mcgrath111, qldfrog and Rsthree like this.
  8. qldfrog

    qldfrog

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    A
    A good point i understand
    but never factored in
    Thanks for that
     
    Zaxon likes this.
  9. fiftyeight

    fiftyeight

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    Rather large move Friday. People getting set for a big move on Monday?

    upload_2020-3-29_9-51-35.png
     
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