Short selling ban should not affect short ETFs
Posted By Mike On Sep 19, 2008 @ 7:51 am In Shorts, TEOTWAWKI, crash, depression, short selling | No Comments
My understanding is that these ETFs do not actually engage in plain-vanilla short selling, but use options, futures, forward contracts and swap agreements in order to perfectly track their respective indexes. The ProShares ETFs that I have been watching lately have been doing a good job of operating exactly as advertised, providing twice the inverse of the indexes on a daily basis. I expect them to continue to do so, and believe that their vital risks are still [1] counterparty defaults and government meddling in the derivatives markets.
Page 7 of the ProShares prospectus ([2] PDF) has a rundown of strategies employed by its short funds.
[3] MarketWatch reports that ProShares ETFs have seen massive volume this week, especially SKF, the double short financial ETF, which benefited from earlier naked shorting restrictions.
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This is one heck of a rally. Dow futures are up 347 points on top of a 600 point rise from the intraday low yesterday afternoon. This is a gift for shorts using means other than plain short sales, since it sets us up for a spectacular failure, financials included.
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Article printed from The Sovereign Speculator: http://sovereignspeculator.com
URL to article: http://sovereignspeculator.com/2008/09/19/short-selling-ban-should-not-affect-short-etfs/
URLs in this post:
[1] counterparty defaults: http://sovereignspeculator.com/2008/09/17/counterparty-risk-too-acute-in-short-and-levered-etfs/
[2] PDF: http://media.proshares.biz/documents/ProSharesProspectus.pdf
[3] MarketWatch: http://www.marketwatch.com/news/story/new-sec-rules-could-boost/story.aspx?guid={37459898-E37E-42C3-
A199-4D47EBA02684}
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