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Closed the Proshares Trade

Posted By Barry Ritholtz On July 11, 2006 @ 3:30 pm In Trading | Comments Disabled

I closed yesterday’s Proshares Inverse ETFs [1] trade earlier today. Here are my impressions about them:

They are in sum better than mutual funds and their end of day closing prices; They are not nearly as useful as 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 retirement / tax deferred accounts.

First off, they are are rather illiquid; you couldn’t do a 10,000 share order easily.

Next, they trade with a fat 5 to 10 cent spread. The Qs are liquid as all hell, and if you could trade between the penny spread, I’d bet you would get executed.

3rd, there is an odd delay on the PSQs (Inverse Qs) relative to the markets. I got out within a nickel of the highs, and the market had long since reversed off the day’s lows. Thats a weirdness that will likely get corrected by some arbitrage relative to the index futures (theres some free money for someone right there). Indeed, the Nasdaq was briefly positive, and these were still up for the day.

Bottom line:  A good product for hedging in accounts that either cannot short or use options; they are also superior to mutual funds, but inferior to shorting traditional ETFs.

UPDATE 2: July 13, 2006 1:28 pm

The Ultra Short ETFs are now out:

UltraShort QQQ [2] QID $0.00 $0.00 NASDAQ-100®
SDS $0.00 $0.00 S&P 500®
UltraShort Dow30 [3] DXD $0.00 $0.00 DJIA
MZZ $0.00 $0.00 S&P MidCap 400

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URL to article: http://www.ritholtz.com/blog/2006/07/closed-the-proshares-trade/

URLs in this post:

[1] Proshares Inverse ETFs: http://bigpicture.typepad.com/comments/2006/07/proshares_short.html

[2] UltraShort QQQ: http://www.proshares.com/funds/qid/2674376.html

[3] UltraShort Dow30: http://www.proshares.com/funds/dxd/2674291.html

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