LogFAQs > #955107103

red sox 777 posted...

Shorts tend to lose money on average, but the thing about levered ETFs like SQQQ is that there's an additional problem generated by the goal of matching daily percentage returns and the mathematics of multiplying percentages. Like, if QQQ drops 10% today and rises 10% tomorrow, it doesn't get back to even - it'll still be down 1%. But, SQQQ would have fallen 30% the first day and risen 30% the second day - and it's still down 9%. Much worse than the 3% you'd expect! Over time, these losses are brutal.

How hedge funds use shorts is typically to increase their leverage. Like, if they have $100, they'll invest $300 long and $200 short. This is 5x leverage, but they'll argue that there are only really exposed 100% on the long side because the shorts act to hedge the longs. Of course the hedges don't always work because they aren't in the actual same stocks - they might, say, buy Ford and short GM. In January this strategy blew up on a lot of funds when their short stocks mostly soared and their long stocks fell.

Makes sense. But again for SQQQ specifically, isn't the best strategy for using it, if you're really confident that QQQ will fall, is to buy it early (in the premarket, let's say) and then sell it a few hours later? At least, I wouldn't hold SQQQ past a market close, personally.

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