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#1
11-20-2007, 04:31 AM
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Re: Ultrashort ETF: Good if Feeling Bearish?
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. Second, these leveraged ETFs are only trading instruments. Do not hold them for long periods of time. They only capture twice the daily returns, but capture much less over the long run. 
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#2
11-20-2007, 04:41 AM
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Re: Ultrashort ETF: Good if Feeling Bearish?
[ QUOTE ]
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. [/ QUOTE ] this is very poor reasoning. [ QUOTE ] Second, these leveraged ETFs are only trading instruments. Do not hold them for long periods of time. They only capture twice the daily returns, but capture much less over the long run. [/ QUOTE ] yup. i failed to capture that in my rudimentary simulation but that is definitely the case. Barron
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#3
11-20-2007, 10:34 AM
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Re: Ultrashort ETF: Good if Feeling Bearish?
[ QUOTE ]
[ QUOTE ] 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. [/ QUOTE ] this is very poor reasoning. [/ QUOTE ] I know his reasoning can't be correct, but I don't see why. Can you explain further?
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#4
11-20-2007, 10:39 AM
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Re: Ultrashort ETF: Good if Feeling Bearish?
[ QUOTE ]
[ QUOTE ] [ QUOTE ] 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. [/ QUOTE ] this is very poor reasoning. [/ QUOTE ] I know his reasoning can't be correct, but I don't see why. Can you explain further? [/ QUOTE ] I feel dirty. Like a poker player just threw up on my wall street journal.
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#5
11-20-2007, 10:45 AM
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Re: Ultrashort ETF: Good if Feeling Bearish?
[ QUOTE ]
[ QUOTE ] [ QUOTE ] 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. [/ QUOTE ] this is very poor reasoning. [/ QUOTE ] I know his reasoning can't be correct, but I don't see why. Can you explain further? [/ QUOTE ] it is very simple. shorting an asset with a positive risk premium can be + EV. if you expect the price to move down to a certain degree within a certain timeframe, why would you not short it? look at it in the converse. since ALL assets have some risk premium built into them (except developed world currencies), gull is saying that it is -EV to be short anything. that is clearly not the case since there are many a time when ex ante being short is correct and + EV. even breaking apart the term "risk premium" we see that you are being compensated for taking risk. risk implies volatility and volatility implies up and down moves. if you can forsee a downmove (not easy but certainly doable) and you have the ability to take a short position in it, clearly you can profit in expectation. Barron
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#6
11-20-2007, 11:06 AM
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Re: Ultrashort ETF: Good if Feeling Bearish?
[ QUOTE ]
[ QUOTE ] [ QUOTE ] [ QUOTE ] 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. [/ QUOTE ] this is very poor reasoning. [/ QUOTE ] I know his reasoning can't be correct, but I don't see why. Can you explain further? [/ QUOTE ] it is very simple. shorting an asset with a positive risk premium can be + EV. if you expect the price to move down to a certain degree within a certain timeframe, why would you not short it? look at it in the converse. since ALL assets have some risk premium built into them (except developed world currencies), gull is saying that it is -EV to be short anything. that is clearly not the case since there are many a time when ex ante being short is correct and + EV. even breaking apart the term "risk premium" we see that you are being compensated for taking risk. risk implies volatility and volatility implies up and down moves. if you can forsee a downmove (not easy but certainly doable) and you have the ability to take a short position in it, clearly you can profit in expectation. Barron [/ QUOTE ] Ohhhhh Barron, you and your silly multi-paragraph answers. Next time just say "short-run vs long-run"
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#7
11-20-2007, 01:30 PM
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Re: Ultrashort ETF: Good if Feeling Bearish?
[ QUOTE ]
[ QUOTE ] [ QUOTE ] [ QUOTE ] [ QUOTE ] 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. [/ QUOTE ] this is very poor reasoning. [/ QUOTE ] I know his reasoning can't be correct, but I don't see why. Can you explain further? [/ QUOTE ] it is very simple. shorting an asset with a positive risk premium can be + EV. if you expect the price to move down to a certain degree within a certain timeframe, why would you not short it? look at it in the converse. since ALL assets have some risk premium built into them (except developed world currencies), gull is saying that it is -EV to be short anything. that is clearly not the case since there are many a time when ex ante being short is correct and + EV. even breaking apart the term "risk premium" we see that you are being compensated for taking risk. risk implies volatility and volatility implies up and down moves. if you can forsee a downmove (not easy but certainly doable) and you have the ability to take a short position in it, clearly you can profit in expectation. Barron [/ QUOTE ] Ohhhhh Barron, you and your silly multi-paragraph answers. Next time just say "short-run vs long-run" [/ QUOTE ] QFT
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#8
11-20-2007, 11:34 AM
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Re: Ultrashort ETF: Good if Feeling Bearish?
[ QUOTE ]
[ QUOTE ] [ QUOTE ] [ QUOTE ] 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. [/ QUOTE ] this is very poor reasoning. [/ QUOTE ] I know his reasoning can't be correct, but I don't see why. Can you explain further? [/ QUOTE ] it is very simple. shorting an asset with a positive risk premium can be + EV. if you expect the price to move down to a certain degree within a certain timeframe, why would you not short it? look at it in the converse. since ALL assets have some risk premium built into them (except developed world currencies), gull is saying that it is -EV to be short anything. that is clearly not the case since there are many a time when ex ante being short is correct and + EV. even breaking apart the term "risk premium" we see that you are being compensated for taking risk. risk implies volatility and volatility implies up and down moves. if you can forsee a downmove (not easy but certainly doable) and you have the ability to take a short position in it, clearly you can profit in expectation. Barron [/ QUOTE ] ok, but would you agree that since stocks as a whole have a positive expectation that it should theoretically be more difficult to find a good short than a good long?
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#9
11-20-2007, 11:39 AM
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Re: Ultrashort ETF: Good if Feeling Bearish?
[ QUOTE ]
[ QUOTE ] [ QUOTE ] [ QUOTE ] [ QUOTE ] 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. [/ QUOTE ] this is very poor reasoning. [/ QUOTE ] I know his reasoning can't be correct, but I don't see why. Can you explain further? [/ QUOTE ] it is very simple. shorting an asset with a positive risk premium can be + EV. if you expect the price to move down to a certain degree within a certain timeframe, why would you not short it? look at it in the converse. since ALL assets have some risk premium built into them (except developed world currencies), gull is saying that it is -EV to be short anything. that is clearly not the case since there are many a time when ex ante being short is correct and + EV. even breaking apart the term "risk premium" we see that you are being compensated for taking risk. risk implies volatility and volatility implies up and down moves. if you can forsee a downmove (not easy but certainly doable) and you have the ability to take a short position in it, clearly you can profit in expectation. Barron [/ QUOTE ] ok, but would you agree that since stocks as a whole have a positive expectation that it should theoretically be more difficult to find a good short than a good long? [/ QUOTE ] no because if you are investing from a tactical standpoint, you want your signal to be equally likely to generate a positive vs. a negative. risk premiums take a long time to acheive vs. tactical positions which reach fruition over much shorter time spans. so basically, you want a uniformally distributed signal which is equally likely to go short as long. i think i'm rambling again and CF covered it anyways. short term vs. long term. Barron
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#10
11-20-2007, 02:06 PM
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Re: Ultrashort ETF: Good if Feeling Bearish?
[ QUOTE ]
[ QUOTE ] [ QUOTE ] 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. [/ QUOTE ] this is very poor reasoning. [/ QUOTE ] I know his reasoning can't be correct, but I don't see why. Can you explain further? [/ QUOTE ] 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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