My Gains with QID, My Losses with QLD

by Matt Walters

Over the past month we have gone long in two stocks: QID and QLD. Both of which are ProShares Ultras on the Nasdaq. QID is an UltraShort, and QID is an UltraLong. The benefit of these is, depending on the ETF you are trading in, you get a 2x for every gain or loss of the Nasdaq (QID is the inverse). As you can imagine, we did very well in the QID and not so great in the QLD. However, our gains in QID far outmatched our losses in QLD. The difference you ask is  how we managed our position. In QLD we realized over 28% in gains, while in QID we took a -16% loss, but how did we managed to get returns of 4:1 (i.e. every $4 in QID resulted in $1 in QLD)? In the management of our position.

You see, we bought into QID originally at 68.26 with 33% of our position capital (which means 33% of what we were originally willing to commit to QID in total). When the stock rose beyone $70/share we added another 33% of our position capital, and then again at $75/share (which amounted to about 15% of our total portfolio value), in which we eventually sold out after it reached $87.

QID on the other hand we bought when we thought the market had gone down too hard, too fast, and was ready for a relief rally. We bought in at 28.22, with 33% of our position capital, but the stock never advanced, and about a week later we were stopped out at 23.62. A not-so-great 16% loss. But the key to both of these stocks was how we managed the position. You see, we don't average down, but instead, we average up. We buy more of the stocks that are the winners and less of those that are the losers. Our loss on our initial position in QLD pales in comparison to our gains in QID, and it all boils down to increasing our position as our profits mount.