Someone asked me about TZA, the Russell 2k inverse bear fund etf. These inverse bear ETFs DO NOT CONTAIN STOCK. They hold only futures contracts, which continually EXPIRE, like options. These funds are effectively like put option substitutes, they suffer severe, continuous time decay.
Please observe price since inception. That is not a typo. Adjusted for reverse splits over the years, price has declined from 1.5m to $36 per share last week.
People ask me, "How high can it go? If Russell sells off 10% more, will they go up 30%?" Well, maybe IF it it sells off 10% NEXT WEEK. IF NOT, then it might not increase at all, time decay is considerable and if market takes three months to sell off again, these shares will be more likely to trade in the $12-20 area, even if the market moves in their favor. Time decay is real, you cannot hold these more than a few days or at most weeks, even during the most bearish of markets.
A strong bear market rally like we had last week melts inverse ETFs and the price NEVER COMES BACK, they get to lower highs with each successive bear move. Pull the chart out to right to see recent etf price moves during covid and in corrections since. It never gets back to the previous highs.
Guaranteed to wipe out your Roth IRA and Education Trust funds, please don't bet the farm on these! Instruments of financial suicide IMO. I have successfully traded them but rarely hold more than a week.
Bull 2x, 3x ETFs work the same way, in the other direction, they are long on futures contracts, and in a bull market like 2021, they just go up all year with a few minor setbacks, doubling and doubling. But when the Bear comes, the Bull funds crack in half or worse. TQQQ, the bull 3x shares, traded at $25 last week, down from $125 in January, gosh, -80%!!
This past few months has been most bearish since 2008 and the inverse funds did quite well, other than the March rally which cut them in half... If you buy them here you're probably buying at a near-term market bottom, paying high premium price for these funds, and getting set up to hold the bag. Even if price does not change much over the summer, these ETFs will time decay and can easily go in half over three months!
I personally know of one contributor who invested a large sum in SQQQ during the bear move in September 2021, buying at or near the market bottom, he paid $45 for it in September 21. Asked me what to do? 'I lost so much, will it come back?!' Sadly, NO. Last week the price was $50 bucks again, yay, got his money back, right?! WRONG. Stock REVERSE split 1:5 last year when it traded under six bucks. So you got 1 share for every five you had, an 80% loss (AGAIN THAT 80% LOSS FIGURE). Hold it for a few more months to lose another 50%, be out 90%, etc etc. If you hold these long enough, you WILL lose 99% of your investment, guaranteed.
Attached link on UVXY Kudos to Hungry_Hippo, same most excellent advice!
Leveraged funds are tricky as Hell and will cut your account in half again and again if you do not time the market exactly! Good luck with that!
Comment
⋅
Just checking in on this miserable POS, look at it today; adverse price movement coupled with time decay kills these. If market creeps higher all summer (possible if unlikely) this woiuld crush down to around 12 bucks by August.
Comment
⋅
SEE COMMENT BELOW ON WHY YOU NEVER, EVER SHORT A LEVERAGED ETF!!!
Comment
⋅
Stonks tend to drift higher in summer on low volume. These etfs will most likely just decay for months. Time to load up is for seasonal mark-down, late summer into autumn imo. You can likely scalp a few pips off it if you time zackly right and get lucky, else it will just cause you pain.
Comment
⋅
Well well starting to look like a market-timer's dream
Comment
⋅
Revisiting this idea to remind folks these are NOT BUY AND HOLD INVESTMENTS! Someone asking me about UVXY, the SINGLE WORST ETF YOU COULD EVER BUY. IF you paid 17 bucks and notice that today at 8.80 your investment is nearly in half, do not expect to get your money back from these! These inverse ETFs suffer severe time decay and DWINDLES. DO NOT HOLD THESE FGS!!! You can day trade them or hold for a few days at most, do not keep these longer than Friday if you buy on Monday!
Comment
⋅
Always amusing to revisit this post after a bullrun. Can you say DECAY?! lol don't waste ur money on this garbage.
It does improve when stonks tank but evry rally melts it and time is always running out.
Comment
⋅
Just revisiting this idea; when I posted in Jan it was $36. Now that RUT, RTY gone down 800 pips, this etf is still... $36. Great trade!
yeah... i dislike these almost as much as options..
day0
⋅
So how would you compare the TZA to this chart below for the APPL & AAPD... TSLA & TSLS... NVDA & NVDS?
day0
⋅
@day0, It looks like it depends on the bear type and the entry point. It seems like SPY & SPXS have a harder time reflecting a mirror (inverse) pattern except for this entry:
DaddySawbucks
⋅
Kudos to hungry_hippo for the uvxy chart:
hungry_hippo
⋅
Fact of the matter is, TQQ is still a bad bet. I'd rather double+ my money on puts than play with TQQQ
CapeAfrican
⋅
My question would be ---I shorted TQQQ for a couple of months earlier and it dropped in value -- Would that time decay not help the value drop ....and be a little less risky than a 1 or 2-month put??? Asking for a Friend??
DaddySawbucks
⋅
@CapeAfrican, Shorting 3X ETF is NOT less risky, in fact you could lose more than you invested! It's a crazy idea, I would never short any of these leveraged ETFs. You can buy puts and calls on them and limit your risk to the cost of the contract.
look, say you short 100 shares of TQQQ for $30, you pony up 3k because the margin requirement on these in most houses is 100%. That's because the brokers understand the risk, even if you do not, lol. Wait a few weeks and suddenly we're back in a bull market, NQ shoots up 3k and the TQQQ is trading for $80 bucks (this happened in March!). You are now short 8k and have lost 5k in addition to the 3k you deposited on margin, thats a -268% ROE. Had you spent 3k on puts they would be worthless but that was all you could lose.
hungry_hippo
⋅
I was gonna say this looks familiar. Thanks for the credit.
DaddySawbucks
⋅
@hungry_hippo, yw. had someone ask about 'how high can it go?' lol these vicious traps...
hungry_hippo
⋅
@DaddySawbucks, yeah. I think the market rallies tomorrow anyways.
Glad I was able to help out. If you want to get fancy, you can do the math on a 10% decrease and then a 10% increase the next day. The decay on leveraged ETFs is horrible. (In case you're wondering, SKF did 10% moves in 2008, that is how I know.)