long upro vs short spxs

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Topic Author
leenaerts
Posts: 28
Joined: Sun Sep 02, 2018 2:15 pm

long upro vs short spxs

Post by leenaerts »

Currently I own 100k of upro on robinhood.
What is better buying UPRO or shorting spxs? If shorting spxs, why and can I do that at robinhood or do i need to move to IB?
I assume the costs to short spxs would make it similar?
quantAndHold
Posts: 5140
Joined: Thu Sep 17, 2015 10:39 pm

Re: long upro vs short spxs

Post by quantAndHold »

There was a hedge fund guy a couple of years ago that made a tidy sum by picking a bunch of really volatile leveraged ETF’s, and shorting both sides. The way those funds are structured, shorting them is usually better, because volatility will cause them to move down (or at least up less) than the underlying investment, and the fees on the underlying investments are substantial.

That said, finding shares to short will likely be a problem.
Yes, I’m really that pedantic.
User avatar
Steve Reading
Posts: 2498
Joined: Fri Nov 16, 2018 10:20 pm

Re: long upro vs short spxs

Post by Steve Reading »

leenaerts wrote: Sat Nov 21, 2020 11:16 am Currently I own 100k of upro on robinhood.
What is better buying UPRO or shorting spxs? If shorting spxs, why and can I do that at robinhood or do i need to move to IB?
I assume the costs to short spxs would make it similar?
It's important to fundamentally understand what it means to "long upro" or "short spxs". Nowadays, I see many people claim one is superior willy-nilly. If you buy-and-hold, then:

Owning UPRO is like leveraging shares of stocks. When the price rises, you buy more shares. When the price falls, you sell shares. This isn't necessarily good or bad. It just, is.
Shorting SPXS is like leveraging shares of stocks. When the price rises, you sell shares. When the price falls, you buy shares. Again, this isn't necessarily good.
Finally, if you just used futures, it also is like leveraging stocks. But regardless of market movements, your position is still akin to having the exposure to the same number of shares you started with.

Here's some properties for each:
- If markets go down then recover, then UPRO will be behind from where you started, short SPXS will be ahead of where you started and futures would be just where you started (fully recovered, not a cent more or less).
- If markets keep going up and up, then futures will be up by a factor of the leverage, UPRO will be ahead that futures, and short SPXS will be behind both of them.
- If markets drop and keep dropping, UPRO is the only position that is sustainable. It will still be worth something even after a, say, 50% drop. A position on futures would be wiped out after a 33% drop. And shorting SPXS will be fully wiped out well before the futures would be.

It bears repeating "Neither an B&H investment in futures (and certainly not a short on SPXS) would've survived this past March. Short SPXS probably wouldn't have survived Dec 2018 either. You would've been forced to de-lever. Only UPRO actually survives these drops".

Hope that helps you make a decision.
"... so high a present discounted value of wealth, it is only prudent for him to put more into common stocks compared to his present tangible wealth, borrowing if necessary" - Paul Samuelson
Topic Author
leenaerts
Posts: 28
Joined: Sun Sep 02, 2018 2:15 pm

Re: long upro vs short spxs

Post by leenaerts »

Steve Reading wrote: Sat Nov 21, 2020 10:15 pm
leenaerts wrote: Sat Nov 21, 2020 11:16 am Currently I own 100k of upro on robinhood.
What is better buying UPRO or shorting spxs? If shorting spxs, why and can I do that at robinhood or do i need to move to IB?
I assume the costs to short spxs would make it similar?
It's important to fundamentally understand what it means to "long upro" or "short spxs". Nowadays, I see many people claim one is superior willy-nilly. If you buy-and-hold, then:

Owning UPRO is like leveraging shares of stocks. When the price rises, you buy more shares. When the price falls, you sell shares. This isn't necessarily good or bad. It just, is.
Shorting SPXS is like leveraging shares of stocks. When the price rises, you sell shares. When the price falls, you buy shares. Again, this isn't necessarily good.
Finally, if you just used futures, it also is like leveraging stocks. But regardless of market movements, your position is still akin to having the exposure to the same number of shares you started with.

Here's some properties for each:
- If markets go down then recover, then UPRO will be behind from where you started, short SPXS will be ahead of where you started and futures would be just where you started (fully recovered, not a cent more or less).
- If markets keep going up and up, then futures will be up by a factor of the leverage, UPRO will be ahead that futures, and short SPXS will be behind both of them.
- If markets drop and keep dropping, UPRO is the only position that is sustainable. It will still be worth something even after a, say, 50% drop. A position on futures would be wiped out after a 33% drop. And shorting SPXS will be fully wiped out well before the futures would be.

It bears repeating "Neither an B&H investment in futures (and certainly not a short on SPXS) would've survived this past March. Short SPXS probably wouldn't have survived Dec 2018 either. You would've been forced to de-lever. Only UPRO actually survives these drops".

Hope that helps you make a decision.
Makes complete sense now. I was reading into it and understood it like this, but this confirms it nicely again.
Post Reply