It has been one month since I posted the Ultra-Leveraged, Speculative ETF Strategy on the site. I have actively been testing this strategy since I posted the idea. In the example, I had mentioned how we looked to take a bear market approach to the S&P 500 since it was approaching the 1999-2000 peak and the market has not corrected more than 4% in over three years. Here is the update as of March 7, 2007:
On February 8, 2007 the following purchases were made in the $145,000 portfolio:
Long SDS - Proshares Ultrashort S&P 500 ETF - Trading at $56.20
We take a $145,000 position in that ETF by purchasing 2,580 shares for a total cost of $144,996
Short SSO - Proshares Ultralong S&P 500 ETF - Trading at $89.47
We take a $145,000 short position in this ETF by purchasing 1,620 shares for a total cost of $144,941.40
Let us fast forward to the present day of March 7, 2007 and take a look at the portfolio’s performance.
Long 2,580 shares of SDS - Proshares Ultrashort S&P 500 ETF currently trading at $61.04
This position is now worth $157,483.20, for a profit of $12,487.20, which represents a 8.61% gain
Short 1,620 shares of SSO - Proshares Ultralong S&P 500 ETF currently trading at $82.29
Our short position is now worth $133,309.80 (Since this was a short sale this is what we will buy back the position for, so our profit is ~$144,941.40 - $133,309.80), for a profit of $11,631.60, which represents a 8.03% gain
Our entire portfolio is now worth $169,118.80 representing a total profit of $24,118.80 or 16.63% in just one month (+199.56% Annualized Return). These results may overstate the expected return from this strategy due to this past month being a bit abnormal due to the huge drop towards the end of February and into the beginning of March (see February 27: A Much Needed Breather).
This past month has shown the real potential for using this Ultra-Leveraged, Speculative ETF Strategy, but it also demonstrates the real risk in this strategy because if your prediction was wrong, you could easily be in the hole 16.63% instead of up that amount. For a more conservative approach to utilizing the leveraged ETFs please view Utilizing Leveraged ETFs to Simulate the Performance of the S&P with Less Risk.
This strategy does not take into account taxes or commissions. If you have any questions, please feel free to leave a comment below and I will be sure to address it.
