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ProShares Ultra S&P500 Message Board

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  • MINCE38 MINCE38 May 12, 2009 2:01 AM Flag

    Truth about leveraged ETF's!!

    what if you buy equal dollar amounts of both SSO and short the SPY. wILL YOU THEN BE GUARANTEED A PROFIT? I really am getting a bit confused with the math. Can someone clarify,please?

    M

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    • I assume you mean the dbl short, or SDS and the SSO.
      You'd make a profit if the market moved in the same direction consistently and strongly enough to offset the effect of volatility, i.e. the market going up/down/up/down...

      Take example fives days, market up 5%.. SSO up 10% 5 days straight... = 1.1 ^ 5 or 1.610521 = 61% Gain. Your SDS would have lost 10% per day, or 0.9 ^ 5 = 0.59049, or a loss of 41%. So if you started with $1000 in each, you'd have $1,611 in SSO and $590 in SDS, for a total of $2,201.

      But if the market is up 5%, down 5%, up 5% down 5%, up 5%.
      SSO = 1.1 * 0.9 * 1.1 * 0.9 * 1.1 = 1.07811, or gain of 7.8%
      SDS = 0.9 * 1.1 * 0.9 * 1.1 * 0.9 = 0.88209, or loss of 11.8%

      You'd have $1,078 in SSO and $882 in SDS, total of $1,960, you lose $40.

      Hope this helps.

 
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