Saturday, February 10, 2007

Something's Askew

I was fooling around with the Proshares ETFs QID and QLD which readers of this BLOG know are the double inverse Q fund and the double long Q fund and I noticed something strange.

Let me begin at the beginning. I've long been a fan and a subscriber to the Rydex family of dynamic and inverse funds and in fact it was those funds that drove me to create Marlyn's Curve. That's a picture of the 6 Rydex funds over there in the corner of the BLOG rendered in the amazing curve. Now here are the dynamic and the inverse OTC funds offset to about 60 days ago.


You can see the absolute perfect symetry. Here are the same two for the last 60 days.


You can see that they are no longer symetrical but are at odds with one another. Here are the Rydex funds in their normalized non-averaged view.



In this view you can see the discrepancies as one of the fund's returns become longer than the other's. I've circled a few of them but there are quite a few.

I got the same effect when I did the comparison of QLD and QID except a whole lot worse due to the doubling nature of the products.



I don't know where these variances come from but they seem to be too severe for my money. It wouldn't bother me if they were both going up at the same time but it sure would bother me if they were both going down at the same time. And it looks like they can.

Of course the whole thing could just be a reflection of the lack of volatility in the market as a whole. And that's what's hurting everyone these days.

5 comments:

Red Hue said...

I think I see two ugly fish kissing?

Marlyn Trades said...

Rydex not Rorschach.

hjl@mindspring.com said...

The QID appears to be gaining a liquidity advantage over the QLD. The volumes are higher and the spreads are tighter, so to go 2x long, it's often more effective to short the QIDs. I think QLD is implemented separately from QID, so the thinner volume will make it less efficient to operate. If the trend continues, maybe ProShares should figure out a way to build each Ultra/Ultrashort pair of funds on the same underlying asset base to improve the tracking performance and liquidity. At the moment they'd be better off implementing QLD as short obligations on QID themselves.

Marlyn Trades said...

That's a great idea - hope you have suggested it to them. Of course you'd probably get a "not invented here" response but it's still a great idea.

QUALITY STOCKS UNDER 5 DOLLARS said...

Theirs always a problem.