An Inside Look at Trading ProShare ETFs

Yesterday I had the opportunity to spend ½ hour on the phone with the Michael Sapir, the CEO of ProShares.

First, I’ll tell you that you would like him. Professional, intelligent, underspoken and customer-centric. Their products are developed not from what they think the market will want, but from the input they receive from investors and traders throughout the world.

There were a few key points he made that apply to us which I’ll share with you today. The entire conversation is being transcribed and will be published when its completed.

Michael made three key points for us to know for our trading:

He made it perfectly clear that the Ultra (2x) funds, are 2x for 1 day only. They are potentially less than that for longer periods of time. Based upon our own analysis, the 3-5 day differences (our usual time frame for a trade) creates returns very close to the 2x returns. But go further, meaning weeks and months and they get further away. They have a White Paper being written on this and he told me they’ll share it with us on the TradingMarkets website

They feel (and they will be publishing a report on this in the near future) that they are having minimal impact on the last half hour off trading when they rebalance. They feel this has been overblown by a few people “on cable TV with mics.” I do know that there have been desks that have attempted to trade during the rebalancing period and some figured out how to do it, but supposdly its become more efficient and the edges have almost disappeared, especially as of late. You would expect this to happen, as something like this becomes well known, every desk starts trading it and eventually it evens itself out. It appears the same has happened here. These are normal market dynamics at play.

Even though he could not comment on future products in the pipeline (partly because its an SEC regulation), he was able to say that they are looking at a number of new Ultra and Ultra Short funds based upon the demand from traders and investors. That was good to hear.

All in all, he confirmed for us that 2x funds trade 2x just for the day, they feel (and will have a report supporting) that on a net basis, there is now little market impact on the daily rebalancing, and he stated that the demand for more Ultra, and Ultra Short funds is strong and they are looking to meet this demand in the near future.

I was an early fan of the ProShares and I expect us to continue to focus our trading and our trading research on their funds. Thank you to everyone for sending me questions to ask Michael. They were excellent and all were profesionally answered by him.

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