Friday, March 23, 2007

Long QLD or Short QID

This remains the question - Steven asked again and I will do my best to answer -
if in a long situation which would be better - short the QID or go long the QLD?

They are supposed to be mirror images but they are not -

They are close but the problem right now is that there just isn't enough data or experience with these two funds but right now the fact is the QLD has "longer legs" than the QID.

That would suggest that anytime you have an opportunity to buy QLD vs short QID you probably should and vice versa - I.E. if the occasion suggests being long QID you probably should short QLD. As an interesting aside - the actual short interest on QID is nearly 3 times that of QLD - so we need to go to the raw figures to work it out.

Putting aside expenses and fees associated with ETFs and shorting which will change the results a bit this is what I found using 5 different "long market" periods in the past 150 days -
QLD per share total returned 13.50 and short QID per share total returned 10.03.
This bears out the visual above (QLD having "longer legs") and suggests that people who short these two stocks really don't know what they are doing because they are shorting the wrong one.

Again - the sample size is too small to say with any conviction do this or do that. All I can say is that up till now it appears a long purchase of QLD when the market goes up and a short sale of QLD when the market goes down might be the appropriate way to go. A year from now the story may change significantly.

I hope that answers the question and I'm always glad to help out.


Ho John Lee said...

QID has grown to far larger volume now than QLD, so the spreads have tightened - usually .01 or so. QLD is more thinly traded, so it's typically .05-.08 spread.

QID shares are relatively available for shorting, while QLD is by request only. So for short time frames, QID is probably a better vehicle, long or short. For end-of-day trading it probably doesn't make much difference.

Marlyn Trades said...

Thank you for that information - by short time frame I think you mean a couple of minutes to hours - correct?


Shorting is hgh risk.