If I'm short an inverse equity ETF...

... like say SH or something. If I short that, and the SP500 goes to zero, what does the share price of my shorted ETF go to?

Thanks.

 

Why short an inverse ETF rather than just going long the correlated ETF?

 

Well, its more of a theoretical question. I agree going long would make more sense. But theoretically?

 

Pretty sure it would work out the same way as if you shorted any stock

A lot of the leveraged ETF’s are decaying and both the correlated one and the inverse one lose value over time and do reverse splits every so often to keep price up. DGAZ and UGAZ are two I know of, but they’re no longer around

 

I follow you AR15, let's just say the ETF does not have a decay factor. It is perfect 100% reverse of the equity/index it is supposed to be the reverse of. And that equity/index goes to zero. What does the price of that reverse ETF go to? It would seem to be... INFINITY? But that can't be. While infinity is nice as a theoretical concept, as a practical matter it never makes any sense.

 

This is really weird

SH now is 16 and SPY is 415

I pulled up charts next to each other and they’re not exact inverses. Very close but not exact in their price action

If for example SH was 100 and SPY was 500 then SPY went to 1000 SH should go to 0

But it doesn’t actually work like that because it can never go to 0 if SPY went to 0 SH would go to infinity. When SPY is at $0.06 SH would be 819,200. When SPY gets to $0.0018 SH would be 26,214,400.

If we used SPY going to $4 instead it could actually work out. At SPY $3.90 SH would be $12,800 then SPY gets delisted. As NYSE listing requirements are stock has to be at least $4/share

Basically you would be fucked

 

When spy really goes to zero you will have more pressing issues to worry about and your investment will be the last thing in your mind.
Technically if spy mgmt starts to do Bernie ebbers (worldcomm fame) kinda acctg and nobody catches the fraud, then it will. But before zero it likely will be delisted and so will inverses derived from it.

 

If you are long a stock and it goes to zero you lose 100% of your capital, end of story.

Same thing here, unless you are using leverage..

 

Except it’s an inverse ETF. So it can’t go to 0. What number does it stop at?

 

He is short an inverse etf, so he is basically long, no?