I guess what I’m ultimately wondering is that I’ve seen calls for QID @ 120 from both SB and BR now and I’m wondering how you can go about setting price targets on the ETF’s.

if SPX goes up 10%, then SSO goes up 20%. if SPX goes down 9.1%, then SSO goes down 18.2%.

in spreadsheet example, there’s no decay in the principal.

it’s not the math that creates the problem, it’s imperfect structure of the security.

I will not get within 10 feet of an open-end mutual fund as long as I live.

“I opened some put positions in SSO, DDM, and QLD myself today. My hope is that the volatility decay of the 2X ETFs should help offset the time decay of the options”

I don’t understand why anyone would want to buy a call option or put option on QLD (or SSO). You can get all the leverage you want by buying options on QQQQ… and those options are more liquid than those on QLD. I don’t think you’ll get that much volatility decay in QLD over the time (1 month) that you’ll be owning options on it.

(I shorted some QLD today).

Throw a couple of columns into a spreadsheet and have both start at $100. Have one column go up 10% the first day (multiply by 1.1) then down by 9.1% (divide by 1.1) and keep doing that for several rows (days). Have the $100 in the second column track what the double (or double inverse) fund would do for each day. You’ll notice that the although after an even amount of trading days, your underlying index (first column) ends back at 100, the double (or double inverse) ends up having lost some of its value. I played around with different numbers and here are some general trends I noticed:

1. For a sideways trend, the longer the time frame, the more value decay in the leveraged ETFs.
2. Double inverse ETFs experienced more value decay for the same underlying index movement than the double ETFs.
3. The higher the average daily movement, the higher the value decay.
4. The higher the variation in the daily movements, the higher the decay.

This is just what happens when the market churns in place. Obviously if you get the index moving in the direction you want for several days in a row, the leveraged ETF will far outperform it.

So in other words… what DL said (11:43).

I opened some put positions in SSO, DDM, and QLD myself today. My hope is that the volatility decay of the 2X ETFs should help offset the time decay of the options.

If you started listening to Schilling in the middle of 2007, you’d have made a lot of money (or at least avoided losing any).

I don’t know how long he’s been bearish, but I do think it’s likely that he’ll remain bearish long after the ultimate bottom in the market finally comes.

Nevertheless, much of what he predicted back in ‘06 and ’07 did come to pass.

Short QLD if you’re bearish; short QID if you’re bullish.