Re:The Inverse Jim Cramer ETF Has Officially Arrived
by paulpauper on Thursday March 02, 2023 @05:55PM
(#35003247)
Buying inverse funds is a bad idea. They suffer from exponential decay over long time periods.
Consider that the 1x (non-inverse fund) goes up 10% in a day. At the same time the inverse fund, which tracks it, falls 10%. Now consider the following day that the 1x fund falls 9%, to its original price. Consequently, the inverse fund goes back up 9%, but it's about 2% lower than its starting position. So you still lose money even though the original 1x fund is unchanged.
The better strategy is to buy puts or short the non-inverse, 1x version.
Consider that the 1x (non-inverse fund) goes up 10% in a day. At the same time the inverse fund, which tracks it, falls 10%. Now consider the following day that the 1x fund falls 9%, to its original price. Consequently, the inverse fund goes back up 9%, but it's about 2% lower than its starting position. So you still lose money even though the original 1x fund is unchanged.
The better strategy is to buy puts or short the non-inverse, 1x version.