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I'm curious specifically about the pricing mechanism of leveraged ETFs, and specifically 3x - let's take SPXL as an example (3x S&P500 bull etf). I know that this fund is designed to track the S&P, and as all leveraged ETFs must do, it re-balances at the end of each trading day to maintain it's 3x leverage relative to the daily move of the S&P index. You often see massive end-of-day block trades which represent this action.

But I'm wondering what governs the price movements intraday on such an ETF?

Does the price only start the day based on the previous day's rebalancing, while the intraday price is governed solely by the buy/sell/spread of the shares of the ETF itself (meaning that it could diverge from accurately tracking the underlying index during the day)?

Or, does the fund management itself actively intervene at some intervals within the day to maintain a more accurate or strict 3x tracking of the intraday moves/patterns of the underlying index as well?

When I look at a chart of the 3x funds, they seem to follow the daily pattern of the underlying index pretty darn well, only amplified, as expected. But how does this happen exactly? I would think that speculators buying/selling the 3x fund would end up pushing the price around in different directions or in relative percentages in excess of (or short of) each little move in the underlying index. But then, I also hadn't heard anything of intraday intervention by the fund management itself.

As a secondary issue to this question, it makes me wonder where the source of intraday liquidity comes from on such an ETF. Is it entirely from speculators buying/selling, or does some liquidity come from intraday fund re-balancing? Like, if I see the ETF diverging from the underlying index on some particular move, could I expect an intervention by the ETF to correct this? (And is there an arbitrage play here? Well, not for a small-timer like me, but for the big boys with fast algorithm trading that is.) Or would any intraday re-balancing be performed "off the market", that is, through the ETF's internal options positions, and not through share price?

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Does the price only start the day based on the previous day's rebalancing?

No, the tracker will open at the price according to the stock it is tracking. So for example, if the ETF closed at $10 but the tracked stock continued trading and was priced $15 when the ETF reopened the ETF will open at $15.

(Example is for a non-leveraged ETF.)

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    This answer explicitly fails to answer the question. The question is about leveraged ETFs and the answer only works for non-leveraged ETFs - as is stated in the answer.
    – user32479
    Jan 4, 2016 at 23:59
  • The same applies for a leveraged ETF. The ETF doesn't start on the previous day's price. If the underlying stock changed while the ETF's market is closed the ETF will open according to the stocks current price plus leverage of course. So the ETF could jump or drop significantly upon market opening to catch up to the leveraged price of the underlying stock.
    – Chris Degnen
    Jan 5, 2016 at 9:25

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