Ultrashort ETF: Good if Feeling Bearish?

[Yoshi63]

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I would stay very far away from these investments.

First, stocks have a positive expectation (derived from the risk premium). Shorting an asset with a positive expectation is -EV.

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this is very poor reasoning.



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I know his reasoning can't be correct, but I don't see why. Can you explain further?

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It's unfortunate that certain posters display their arrogance in answering a question that's been put forth honestly with the intent of gaining some knowledge.

Actually it's really not poor reasoning per se IMO. For some reason many people think they always know what the price of a stock should be. Of course they probably wouldn't be trying to impress us with their knowledge if that was actually the case. There are many reasons to short a stock and of course one reason is that you believe it's over valued for whatever reason. Doesn't have to be a short term trade either.

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Ok, I can certainly see how some instances would be +EV to go short on a stock, and even remain short for a long period of time (so long as the company remained overvalued).

What I'm trying to grasp is a more theoretical concept of what happens when you take a long position on a random stock vs taking a random short position. In the first case, you are giving up the use of funds to get a return, much like a CD or bond. But since the risk is higher, your returns are better. When you short, it's as if you're the one taking out a loan, but now you're paying the high-interest (market return) that the loaner only recieves because of the risk he takes on. And yet, you take on this same risk. To me that doesn't make sense.