Dear fellow traders, I'd like to hear your opinion on a question that came up. What if I shorted two ETFs of the same underlying, for example: - XIV and VXX (Volatility) - USO and DNO (Oil) - FAZ and FAS (Shares) All charts look very beautiful - no matter what the market does, it only goes up - for years Interest and cost of borrowing is not cheap, but it is still about 1/3 of the profit I make in one year. Still that all sounds too good to be true. Can you tell me where I'm wrong? Or is it really that easy? Thank you!
I think you would have to adjust the position almost everyday to keep the exposure equal, so that might be a lot in transaction costs.
I had one clients who tried this with the underlying first then the doing it with options. His P/L had big swings and it was difficult to keep $ neutral. Also the cost of carrying the shorts was very high.
Thanks for all your input, I appreciate it very much You were right about rebalancing, that would eat up my profit completely. I've backtested the strategy with a fixed size now and it is pretty bad. So yes, it was too good to be true. Thanks for all the input
I just noticed there has been a similar discussion some time before, if anybody is interested in the backgrounds: http://www.elitetrader.com/et/index.php?threads/is-it-easy-to-short-leveraged-etfs.235730/ sorry, i did try the search before