Leveraged ETF Pair Shorting Strategies

“Shorting Leveraged ETF Pairs” looks at shorting leveraged long/short pairs of exchange-traded funds (ETF) and letting the short positions “melt away” over long holding periods. Findings suggest that the approach may be profitable, with most of the gain coming when market volatility is high. What about more active strategies of continually renewed short positions? To investigate, we consider monthly renewal of short positions in the ProShares Ultra S&P500 (SSO) / ProShares UltraShort S&P500 (SDS) 2X/-2X pair and the ProShares UltraPro S&P500 (UPRO) / ProShares UltraPro Short S&P500 (SPXU) 3X/-3X pair. Using monthly adjusted closes for these ETFs and for the S&P 500 Volatility Index (VIX) from respective inceptions through November 2012, we find that: (more…)