Short-Structured ETFs Under SEC Threat – Quick Review Of Market-Maker Risk~Reward Forecasts

By | December 23, 2015

Scalper1 News

Summary Recent SEC ruling threatens continued existence of these ETFs, particularly the 2x and 3x leveraged ones. Seeking Alpha Readers want perspective, not necessarily forecasts. Data presented here without buy-sell-hold comment. General note Short-structured ETFs generally have a persistent price erosion over time due to the rebalancing of their holdings needed to maintain price change parity with the index being tracked. As a result they are not suitable for most investors, and should not be held for multiple days. Under present circumstances of SEC actions holders of any of these securities may want to seek legal advice as to future actions during a three-month comment period. Figure 1 provides perspective as to market activity and capital involvement of several short-structured or Inverse-functioning ETFs. Figure 1 (click to enlarge) Where hedging information has been available to derive implied price range expectations, they are reflected in Figure 2. The Downside component in the Figure 2 co-ordinates is a product of past experiences following prior expectations balances between upside and downside segments like those of today’s implied outlook. Figure 2 (click to enlarge) (used with permission) The Market-tracking ETF with conventional long holdings of the SPDR S&P 500 Trust ETF (NYSEARCA: SPY ) is at position [30] for comparative purposes. Conclusion There is now a three-month period underway to receive commentaries by interested parties, before any further actions are implemented. Investors involved should seek appropriate professional guidance during this period. Interested observers will undoubtedly hear continuing conjecture as to what the outcome may turn out to be. Some $12 billion is currently committed to these ETFs, and substantially more to long-leverage counterparts. Scalper1 News

Scalper1 News