I recall a member posted that ETF’s can behave in strange ways, and do not always track as they are supposed to. Maybe it was powayseller who made that good point.
I have to acknowledge that I learned that lesson this week to that point. Go and chart “SDS” which is the ProShares ETF that is double-short the S&P500.
I bought that “SDS” on Dec 17th just when the S&P500 was at 910.
Now the S&P500 sits at 863.
That should be an appreciation for my “SDS” of 10% in one week. It would have been, had I sold Monday close-of-day when “SDS” was up to $90.
At the start of trading this morning “SDS” instantly dropped from $87.5 down to $75 due to pent up sell orders. Yet there was no associated discontinuity in the S&P500.
That put me down 7% on an ETF “SDS” that should have been up a good 10%.
That is quite a lesson on the deviations that certain “index-tracking” ETF’s can have compared to the indexes they are supposed to have a fixed relationship with. There were some news reports on “SDS” today that it was hit with tremendous selling volume in otherwise thin holiday trading as traders went to take profits in “SDS” before end-of-year.
Clearly one lesson is: in particularly be careful of entering sell orders after close-of-market, because difficult to predict how pent-up-orders can dramatically affect pricing at market open the next day. ETF’s are now immune from this. Thank God I didn’t enter a sell order before the markets opened today.
