Direxion Daily Semiconductor Bear 3x Shares (NYSEARCA: SOXS) needs a little bit of unpacking before it’s possible to really understand what’s going on here. Direxion is just the company that offers this ETF. Daily refers to the fact that it resets each day - something that will be important later on in our explanation. Semiconductor, well, that’s saying that it’s trying to track the performance of the major semiconductor company stocks - it’s actually based upon the PHLX Semiconductor Index. For that, well, sort of and not exactly, like the S&P 500 or NASDAQ 100 but semiconductor firms only. Bear means that this ETF stock price goes up when the stocks go down - it’s an inverse ETF - and 3x means that it’s leveraged. So, the movement - either way - in the ETF price is three times that in the underlying index.
So, if we want to bet that semiconductor manufacturers’ stock prices are going to go down and we want leverage with that bet then this is a great ETF for us. There’s also a bull version of the same thing so we can bet either way - people don’t tend to go short of bear ETFs in order to gain access to rising prices. But the thing to grasp here is that this is an instrument meant to facilitate betting.
Direxion Daily Semiconductor Bear 3x Shares stock price from Google Finance
Well, OK, the people who set it up would insist that it’s about allowing people to hedge. They’re making a speculation somewhere else in the semiconductor market and use a play here to backstop what they’re doing. OK. But as ever allowing people to hedge does require a large group of speculators to provide the liquidity. So there’s a definite desire to have both groups.
However, here’s the important point about the instrument construction. In order to gain the short exposure, and also to gain the liquidity, it’s necessary for the ETF to use options and futures. Also, the position is reset each night, to match the index at the open. The expense ratio is 1,02%, but more than that there’s the reset. Which means that any long term holding will lose money. OK, maybe still make money but lose as against other ways of gaining exposure to the same position, being short semiconductor manufacturers.
The entire construction of the SOXS instrument is therefore for those looking to make very short term positions. Whether hedges or speculations. Even overnight here is seen as too long - this is for intraday positions.
There’s nothing wrong with being short semiconductor manufacturers long term. But SOXS isn’t the instrument to do it in - this is for short term positions only. Note the difference there between short and short term….