MultiBaggers
2022-09-05

👍

@soo hoo：Summary SQQQ provides 3x inverse 1-day returns of the Nasdaq 100 Index. Levered ETFs provide positive convexity in the direction of the bet. Daily rebalancing of exposure causes value decay, especially in volatile markets. Investors who are afraid of market volatility often turn to inverse exchange-traded funds ("ETFs") such as the Proshares UltraPro Short QQQ ETF (NASDAQ:SQQQ) to protect their portfolios. In my opinion, investors should consider reducing their long exposures instead of seeking inverse ETFs as a hedge, especially for holding periods of longer than a few days due to the volatility "decay" from daily rebalancings. Fund Overview As the name suggests, the Proshares UltraPro Short QQQ ETF seeks daily returns that is -3x the return of the Nasdaq-100 Index. The fund achieves the -3x daily return target by entering into total return swaps with large banks that are reset nightly. Figure 1 - SQQQ holdings (proshares.com) Levered ETFs Only Work On Short Time Horizons Investors who are interested in the SQQQ are highly encouraged to read this disclaimer from the Proshares website: Due to thecompoundingof daily returns, holding periods of greater than one day can result in returns that are significantly different than the target return, and ProShares' returns over periods other than one day will likely differ in amount and possibly direction from the target return for the same period. These effects may be more pronounced in funds with larger or inverse multiples and in funds with volatile benchmarks. What this means in layman terms is that the SQQQ is only designed to provide 3x inverse returns for one day. For any holding period longer than 1 day, the returns expectations will differ.
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

We need your insight to fill this gap
Leave a comment