20

Keep in mind, if the S&P were up 10% one day and down 10% next day, I am down 1%. But triple this, and 1.3 x .7 is .91, down 9%. This phenomenon is enough to make these 3x type ETFs not recommended for the long term. Since you are considering this strategy with your hard-earned money, I respectfully suggest this exercise. Take an X day period, 10 days, ...


8

Index funds typically pass the dividends on to the investor. Each quarter (usually) you'll get the dividends paid by the components of the index the fund holds. That may not exactly match what you'd get if you held all the components of the index individually, because index funds sometimes don't hold exactly every component in the exact right proportions, to ...


7

Theoretically, yes, if the S&P 500 dropped 33% in a single day, a 3x S&P 500 leveraged ETF would be worthless. To understand leveraged ETFs, think of them as a margin buy. This isn't exactly how they are structured, but it is similar. When you invest $1000 into a 3x ETF, an additional $2000 is essentially borrowed on your behalf and invested as ...


7

Leveraged ETF's don't work that way. They only provide the expected leverage over the short term - maybe a few days or weeks. On time frames longer than that, they go down and do not track the index. You can see for yourself by comparing UPRO and S&P 500 on the same chart. The longer the time frame, the greater the difference. By the way, one solution ...


7

If the index goes up every single day during your investment, you would indeed be better off with 2x ETFs, assuming no tracking errors. However, this is basically never the case. Indexes fluctuate up and down. And the problem is, with these sorts of ETFs, you double your win on the upside but your downside is more than double. If an index goes up 10% one ...


5

For the sake of readers not familiar with these instruments, let's first consider some elementary background information. The CBOE VIX index is a spot index which is not tradeable. Gaining exposure to the spot VIX is only achievable by trading the CBOE VIX futures contracts (or products based on these futures such as the XIV). The XIV ETN is an exchange ...


4

Fund rebalancing typically refers to changing the investment mix to stay within the guidelines of the mutual fund objective. For example, lets say a fund is supposed to have at least 20% in bonds. Because of a dramatic increase in stock price and decrease in bond values it finds itself with only 19.9% in bonds at the end of the trading day. The fund ...


4

The issuer (not the holders) bears the risk of losses greater than the value of the fund. It is very rare that a stock index (even a narrow one) would rise more than 33% in a day (the rebalancing period) and thus wipe out a 3x inverse ETF. It is important to note that very large stock gains occurring more gradually will not bankrupt an inverse fund, as its ...


4

You miss the step where the return being doubled is daily. Consider you invested $100 today, went up 10%, and tomorrow you went down 10%. Third day market went up 1.01% and without leverage - got even. Here's the calculation for you: day - start - end 1 $100 $120 - +10% doubled 2 $120 $96 - -10% doubled 3 $96 $97.94 - +1....


3

It would depend on daily holdings of the ETF/ETN. While ETF such as SPXL aims to replicate 3X intraday returns, they use futures, swaps, and options. They are not required to guarantee exactly 3X returns. Currently, SPXL uses Swaps and SPY. So it would depend on the margin call policy, and the details of the swap agreements. One possible outcome is that the ...


3

From the link in the question: These leveraged ETFs seek a return that is +300% or -300% of the return of their benchmark index for a single day. The funds should not be expected to provide three times or negative three times the return of the benchmark’s cumulative return for periods greater than a day. (Emphasis added be me) A leverage ETF will ...


3

As you guessed, the returns of the currency etf are supposed to closely match the returns of the currency the price level is mostly irrelevant. The 3x leveraged etf is supposed to closely match three times the returns in the currency. So for example if the return of the spot was 2% the first ETF should return about 2% and the second about 3 times 2% = 6%. ...


3

There is no fundamental reason that you don't find ETF's that proclaim to offer more than 3x leverage in the US capital markets. Given that it is quite simple to get A LOT more leverage, or for any trader create more than 3x leverage synthetically, there is surely market demand for greater leveraged products. Mathematically, a 3x leveraged ETF structure ...


3

I just compared UPRO and SPY from the time this question was originally posted on October 19th, 2011 through today (September 7th, 2016). See the chart here. The return for SPY was 78.7% and the return for UPRO was 427.57%. I looked at nearly every 12 month segment over those 5-ish years and about 25% of the time SPY outperformed UPRO, and the other 75% of ...


3

Let's suppose that you used a 3x during the 1980s with the Nikkei. How would you be looking right now? Now, a few voters here may be angered that I don't write out a long answer, but the image I show is exactly what's wrong with these leveraged funds. They aren't too bad if you're timing is perfect, but if our timing was perfect, we wouldn't be using ...


2

NO. All the leveraged ETFs are designed to multiply the performance of the underlying asset FOR THAT DAY, read the prospectus. Their price is adjusted at the end of the day to reflect what is called a NAV unit. Basically, they know that their price is subject to fluctuations due to supply and demand throughout the day - simply because they trade in a quote ...


2

It is actually a good idea, if you plan on investing for 25+ years. If you look at (hypothetical, zero-error tracking) historical data, you will see that you almost always do MUCH better investing in UPRO than SPY if you have a long time horizon. Since 1950, the annualized growth rate is just over 16%. Most people who say it is a bad idea haven't actually ...


2

I made an investing mistake many (eight?) years ago. Specifically, I invested a very large sum of money in a certain triple leveraged ETF (the asset has not yet been sold, but the value has decreased to maybe one 8th or 5th of the original amount). I thought the risk involved was the volatility--I didn't realize that due to the nature of the asset the value ...


2

It's a very interesting strategy, and the author has done a great job of detailing how it works. There is one potential dilemma that I can think of that I don't think the author has addressed. The key to this strategy is rebalancing between the leveraged ETF and the cash to ensure that the 1:2 ratio is maintained. When the ETF goes down, the investment ...


2

If you want to make a profit from long term trading (whatever "long term" means for you), the best strategy is to let the good performers in your portfolio run, and cull the bad ones. Of course that strategy is hard to follow, unless you have the perfect foresight to know exactly how long your best performing investments will continue to outperform the ...


2

I've read many of these articles such as the ones in your links and they are right to a point. But as you noted, many leveraged ETFs have indeed provided the leverage that they advertised and then some. So who's wrong? A small factor in this is the higher Expense Ratio of leveraged funds. They have to rebalance daily. That takes its toll under all ...


1

SPXS is not a particularly liquid or highly traded ETF. Trading 25% of ADV (~700,000 shares or ~17 million dollars) will likely be very expensive unless done carefully. It depends a lot on how you trade, but without trading skillfully you could lose 1/2-2% on the buy and 1/2-2% on the sell pretty easily. This could cut the 9.85% gain nearly in half.


1

ETFs are different from mutual funds in that their price is not determined simply by calculating the NAV at the end of the day. Instead, they are bought and sold at whatever price the market is willing to buy and sell them at, with the exception that they usually have a mechanism to convert ETF shares back to a basket of stocks or assets that they represent....


1

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.)


1

It appears that ticker GBP pays dividends twice a year and "seeks to provide long term capital growth by matching the return of the FTSE 100 Index". It has a historic yield of 3.78%. (source 1 source 2). Regarding how you receive the dividends, I am not familiar with how it works in England. In my American Scottrade Account I get dividends every month ...


1

Leverage ETF are build using derivative portfolios (with options or swaps). Because of this they suffer Theta decay and lose value over time. You can easily see this by looking at a yearly chart and finding 2 times separated by a few months where the price on the spot was the same. On the leveraged ETF you will see that the price on the later day is ...


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