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This article will define SQQQ, explain its advantages and disadvantages, and discuss why it’s the most popular way for active investors to short the Nasdaq 100 Index.
If you’re looking to short some tech stocks, you’re in the right place.
What is SQQQ?
The ProShares UltraPro Short QQQ seeks a return that is -3x the return of the Nasdaq 100 Index for a single day.
QQQ is the ticker symbol for the fund that invests in Nasdaq 100 stocks.
SQQQ, or “short QQQ,” is one of several Nasdaq ETFs that track the popular index. Here’s a snapshot of the fund’s details:
- Name: ProShares UltraPro Short QQQ
- Ticker: SQQQ
- Expense Ratio: 0.95%
- Index Tracked: Nasdaq 100 Index
- Leverage: 3x Inverse
- AUM: $4.4 billion
- 3 Month Avg. Daily Volume: 124,000,000
- Inception Date: February 9th, 2010
SQQQ is for sophisticated traders that are short-term bearish on large-cap tech stocks.
It is the exact opposite of TQQQ, which provides 3x long exposure to the Nasdaq.
How to Use SQQQ
Let’s say you think the high-flying tech stocks are running hot and due for a correction.
When the market opens, you log into your trading platform and buy some shares of SQQQ to short the Nasdaq 100 effectively.
As it turns out, you were right. The Nasdaq 100 Index goes into the red following the Federal Reserve’s comments about raising interest rates – the index falls 3% on the day.
But your position was -3x the returns of the Nasdaq, so your shares of SQQQ are up 9% on the day.
SQQQ’s leverage resets daily, so you should exit your position by the end of the day if you want to maintain the inverse -3x relationship with the index.
Holding these shares beyond a single day can result in far different returns than -3x the index due to the daily compounding and rebalancing of the fund.
For example, if the Nasdaq 100 Index is down 12% on the month, you should not expect to see SQQQ up 36% on the month.
SQQQ Top Holdings & Sectors
The top holdings in SQQQ consist of a number of financial instruments to achieve the leverage that the fund offers, but it’s important to know the stocks in the index that you’re betting against.
Effectively, here are SQQQ’s top 10 equity holdings in the index that you’re shorting:
- Apple (AAPL) 13.00%
- Microsoft (MSFT) 10.33%
- Alphabet (GOOGL, GOOG) 7.28%
- Amazon.com (AMZN) 6.40%
- Tesla (TSLA) 4.06%
- NVIDIA (NVDA) 3.21%
- Meta Platforms (FB) 3.18%
- PepsiCo (PEP) 2.08%
- Costco Wholesale (COST) 2.04%
- Broadcom (AVGO) 1.84%
These are predominantly technology stocks that trade with high-growth multiples.
The FAAMG stocks themselves account for nearly 40% of the fund.
However, there is representation from the other sectors of the economy in the ProShares UltraPro Short QQQ.
The following is the sector breakdown of the holdings:
- Information Technology (51.00%)
- Consumer Services (18.39%)
- Consumer Discretionary (16.14)
- Health Care (5.67%)
- Consumer Staples (5.14)
- Industrials (2.74%)
- Utilities (0.91%)
We share this to show that you’re not just shorting tech when buying SQQQ.
You’re shorting a handful of value stocks, such as Pepsi, Honeywell, and Costco, albeit to a much lesser degree, considering the smaller allocations these companies receive.
There’s also a fair amount of health care stocks present in the index that SQQQ tracks, specifically in the biotech domain.
When tech falls, these things really fall. Not only are their earnings far out into the future, but for many, their viable products and services are too.
Advantages
SQQQ is a highly liquid product that trades a lot of volumes. This means that your market orders will likely execute at the price you intend, i.e., there is little slippage when trading with it.
SQQQ’s 30-Day Median Bid-Ask Spread is 0.00%, which indicates the median ask price was equal to the median bid price over the last month.
Additionally, the fund is very easy to use. Its complex construction of derivative swaps and futures contracts happens in the background.
Your front-end interaction with SQQQ is just like any other stockor exchange-traded fund.
Disadvantages
You were right about Nasdaq’s intraday decline in our hypothetical example above.
But it could have gone the other way just as easily, and you’d have been not only wrong but 3x wrong and down 9% because the leverage works both ways.
Only advanced traders should use 3x leverage. Some brokerage firms, like Vanguard, have banned all leveraged and inverse ETF purchases.
Also, SQQQ is easy to use because you’re paying a 1.02% gross expense ratio. That’s about as high of an expense ratio you’ll find amongst exchange-traded funds.
Granted, this is not a normal ETF, so it’s reasonable to expect abnormal fees.
Frequently Asked Questions
What is SQQQ used for?
SQQQ is used for betting against the Nasdaq 100 Index over a single day. It returns -3x the performance of the tech-heavy Nasdaq-100 Index. If the Nasdaq falls 2%, SQQQ will be up 6%. If the Nasdaq rises 4%, it will be down 12%.
What is SQQQ and TQQQ?
SQQQ and TQQQ are leveraged ETFs that aim to deliver -3x and 3x the returns, respectively, of the Nasdaq 100 Index.
What companies are in SQQQ?
SQQQ consists mostly of technology stocks and Big Tech. These stocks tend to trade at higher valuations than your average stock, contributing to the volatility of the index that it tracks. By weight, some of the top companies are Apple, Microsoft, Alphabet, Amazon, and Tesla.
Is SQQQ the opposite of QQQ?
SQQQ is the opposite of TQQQ — but 3x the opposite. It delivers -3x the returns of QQQ. It may be more accurate to say that SQQQ is the opposite of TQQQ, where one is 3x short, and the other is 3x long QQQ.
Bottom Line: ProShares UltraPro Short QQQ Definition
Hopefully, you’re now familiar with SQQQ and how to use it, if at all.
Keep Reading:
This article is for informational purposes only, and it is not intended to be investment advice. Read our editorial guidelines and public equities research methodology to learn more about how we researched the ProShares UltraPro Short QQQ ETF.
This article was updated on July 24th, 2022 to reflect the changes in performance, holdings, and other relevant characteristics of each fund.
