How-to · ETFs

ProShares UltraShort S&P500 Through a Choppy Month

ProShares UltraShort S&P500 aims for -2x the S&P 500's move each day, and a month of up-and-down sessions that ends flat still leaves it lower. Track the gap at every close and set an exit rule before it grows.

AI-assisted, reviewed by the TrueMoneyTrading human editor: John James → 5 min read Published

Short answer

In a choppy month SDS ends lower even when the S&P 500 finishes flat, because each day's -2x move compounds from a new base. Track it by comparing your stake with the simple -2x of the index's move since entry, and close or rebalance when the gap passes a limit you set in advance.

Five sessions in, the index closes at 999.35. That is a hair below its 1,000.00 start. A fund built to profit from a fall should be ahead. The $10,000 stake in SDS is worth $9,974.25.

Nothing failed. ProShares UltraShort S&P500 states its objective as -2x the S&P 500’s performance for a single day, before fees and expenses, and it hit that target every session. What it never promised was -2x of the move from your entry, and over a month of chop those two numbers can end up a long way apart, as the sessions below show one close at a time.

The month, session by session

The index is rebased to 1,000.00 so the arithmetic stays readable, the stake starts at $10,000, each close is rounded to the cent before the next session multiplies it, and fees, the fund’s expense ratio and any gap between its market price and its net asset value are left out.

Up sessions and down sessions came in roughly equal numbers. The index never strayed more than about 2% from its start. Still the fund finished $118.87 short of where it began, and $119.27 short of the $10,000.40 a reader multiplying the month’s move by -2 would expect.

Why does the fund end lower?

Look at sessions 4 and 5. The index rose 1.6%, so the stake fell 3.2% to $9,572.22. The index then fell 2.1%, a bigger move, and the stake gained 4.2%, yet it closed at $9,974.25, still under $10,000, because that 4.2% was earned on a smaller base than the one the 3.2% loss was taken from.

Every reversal works this way. A loss shrinks the base, the next gain lands on less money, and the reset makes sure the fund never carries yesterday’s result into today’s exposure. Over a month the leaks add up.

The size of the daily swings sets the size of the leak. A month whose daily ranges run wide against its net change is what average true range picks up on an index chart: a high ATR next to a flat 20-session trend is a warning for anyone holding a -2x fund.

How to track drift on your own position

Do this at each close, or at least once a week. It takes a minute.

  1. Write down two numbers at entry: that day’s index close and your stake in dollars.
  2. Divide today’s index close by the entry close and subtract 1.
  3. Multiply that return by -2 and apply it to your starting stake. This is the simple expectation.
  4. Subtract the simple expectation from your actual stake. A negative result is drift working against you.
  5. Log the drift with the date, so you can see whether it is growing.

You can run the same comparison before you buy, by typing a path of daily moves, choppy or trending, into the leveraged ETF decay calculator and reading where a -2x fund lands against the index once the last session is in.

A rule for when to close or rebalance

Set the rule at entry. Write it in the trade log.

  1. Choose a drift limit as a share of the starting stake. For a hedge held a few weeks, 1% works: $100 on $10,000.
  2. When drift passes the limit at a close, sell the position. Re-enter only if the bearish view still holds. Then reset both entry numbers.
  3. Set a rebalance band too, say 4% either side of the target stake. Breach it, and add or trim to bring the stake back to target.
  4. Keep a plain dollar stop for losses. Drift measures the cost of chop. It says nothing about being wrong on direction.

Run the month through it. Drift first passes $100 at the session 16 close, when it reaches -$103.31, so the rule closes the stake at $10,170.69, a gain of $170.69 on an index that is down 1.37%. Hold to session 20 and the same stake shows a loss of $118.87.

In the table, the rebalance band is first breached at session 4. The stake sat at $9,572.22 there, 4.28% below target, and topping it up meant adding $10,000 - $9,572.22 = $427.78, which puts the hedge back at the size you meant while leaving the daily compounding just as it was. The table assumes no top-up.

Drift flips sign. In a steady move the compounding works for the holder or cushions the loss, so the drift limit in the rule stays silent and the dollar stop does the work.

A smooth fall pays more than twice the index’s drop. In a month that trends against you, the stake shrinks every session while the drift line flatters it, so the dollar stop is the only part of the rule that gets you out before the loss grows. A smooth rally costs less than twice the index’s gain. That helps little with the stake down $1,820.93. Real months mix both shapes. The order of the sessions decides which one wins.

If the choppy month looks too expensive, compare it with a put on an S&P 500 ETF, whose cost is fixed at entry; SDS or S&P 500 puts works the same chop through both. The inverse ETF list shows SDS beside SH at -1x and SPXU at -3x.

Questions traders ask next

How often should I rebalance an SDS hedge?

Pick an interval before you buy and keep to it. Weekly suits most hedges held for a few weeks: compare the stake with the dollar amount you meant to hold and add or trim the difference. Rebalancing keeps the hedge the size you intended. It leaves the daily compounding in place, so the drift check still applies.

Does SDS lose value when the S&P 500 goes sideways?

Usually, yes. A sideways market is a string of up and down sessions, and each reset compounds the next day's move from a new base. In a hypothetical month that leaves the index 0.002% lower, a -2x fund can finish down about 1.2%. Bigger daily swings or a longer hold widen that gap.

Is the drift smaller on SH, the -1x S&P 500 fund?

Yes, for the same path. ProShares Short S&P500 targets -1x the daily move, so each day's percentage is half as large, and the compounding gap shrinks faster than by half. It still exists. A -1x fund held through a long choppy stretch also ends below the simple inverse of the index's move.