SDS
2x Short
ProShares UltraShort S&P500
Shorts: S&P 500 (SPY)
Expense Ratio
0.89%
Leverage
2x Inverse
Issuer
ProShares
Inception
Jul 2006
High Risk Leveraged Product
SDS is a 2x leveraged inverse ETF designed for short-term trading only. Daily rebalancing causes significant decay over time. NOT suitable for buy-and-hold investors.
What SDS Shorts
The ProShares UltraShort S&P500 (SDS) is designed to deliver -2x the daily return of the S&P 500 Index. It provides a leveraged inverse exposure to the broad U.S. large-cap stock market.
It achieves this objective through the use of financial derivatives like futures, swaps, and options. It is rebalanced daily to maintain its -2x leverage factor relative to its underlying benchmark.
Key Risks
- Compounding Risk: Daily reset of leverage causes returns to diverge from 2x the inverse of the S&P 500's return over periods longer than one day.
- High Expense Ratio: The 0.89% fee is high for an index fund and erodes returns over time.
- Leverage Risk: Amplifies losses if the market moves against the position; potential for significant losses.
- Short-Term Holding: Designed for daily trading, not as a long-term buy-and-hold investment.
- Counter-Trend Risk: Betting against the long-term upward trend of the equity market is historically risky.
Best Use Cases
- Sophisticated short-term hedging for a portfolio heavily exposed to U.S. large-cap stocks.
- Active traders seeking to profit from an anticipated short-term decline in the S&P 500.
- Implementing a tactical, bearish market view for a single day or a few days.
- Potentially pairing with long positions to create a market-neutral strategy for a brief period.
Similar Instruments
Frequently Asked Questions
Is SDS a good long-term investment?
No. SDS is designed for daily returns. Due to compounding effects, its performance over weeks, months, or years will significantly deviate from -2x the S&P 500's return over that same period, often to the detriment of the investor.
What is the difference between SDS and SH?
Both are inverse S&P 500 ETFs from ProShares. SH provides -1x daily exposure, while SDS provides -2x daily leveraged exposure, amplifying both potential gains and losses.
How can I use SDS to hedge my portfolio?
It can be used as a short-term hedge. For example, an investor worried about a near-term market drop could allocate a small portion of their portfolio to SDS to offset potential losses in their long holdings. The size of the position must account for the 2x leverage.