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Exchange traded funds like TZA and RWM attempt to get results that are the "inverse" of certain stock indexes. I understand they do this by shorting stocks. When do they cover their shorts? -before the end of each trading day?
At the end of the day, and they actually do not sell anything short. They utilize futures or swap contracts and settle at the end of the day (which is a primary reason why they are such crappy investments)Stephen Tashi said:Exchange traded funds like TZA and RWM attempt to get results that are the "inverse" of certain stock indexes. I understand they do this by shorting stocks. When do they cover their shorts? -before the end of each trading day?
Inverse ETFs cover their shorts when the underlying index or asset that they are shorting decreases in value. This allows the ETF to profit from the decline in value and cover their short position.
The covering of shorts for inverse ETFs is triggered by a decrease in the value of the underlying index or asset. This can be caused by market downturns, negative news, or other factors that cause the value to decline.
Inverse ETFs typically cover their shorts by buying back the shares they borrowed and sold in order to create the short position. This is known as "closing out" the short position.
No, inverse ETFs do not always cover their shorts. If the underlying index or asset increases in value, the ETF may continue to hold the short position in the hopes of profiting from a future decline in value.
The main risk of holding an inverse ETF with a short position is that if the underlying index or asset increases in value, the ETF will experience losses instead of gains. Additionally, inverse ETFs may have higher fees and expenses compared to traditional ETFs, which can eat into potential profits.