So I was looking at two 3x etf's and I was wondering if someone could answer a question for me about them. I was looking at (SPXL) Direxion S&P 500 Bull 3x ETF and (SPXS) Direxion S&P 500 Bear 3x ETF. From what I understand whenever SPXL goes up, SPXS is supposed to go down and vice versa. But I was looking at their daily percentage change and I found a few days when this didn't occur. For example, on 7/11/2013 SPXL closed at $47.23 and on 7/12/2013 SPXL closed at $47.21 resulting in a net daily decrease of 100*(47.21-47.23)/47.23=-0.042%. And for SPXS on 7/11/2013 it closed at $9.53 and it closed at $9.52 on 7/12/2013 resulting in a net daily decrease of 100*(9.52-9.53)/9.53=-0.10%. My question is simply how can in be that both SPXL and SPXS went down this day? Looking through the prices of these two ETFs it appears like this occurrence is really rare and that SPXS always behaves opposite to SPXL, but there are a few rare occasions when this doesn't happen. I was wondering if anyone could explain to me why this happens and also if they know of any 3x ETFs in which this sort of thing doesn't occur?
3x etf question
- Thread starter ksda
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In theory they should provide the exact opposite returns for a single day, however they can vary due to the difference between the market price and NAV.
Also, the gross expense ratio is slightly different for each. Check out the prospectus and fact sheet for more info on these ETFs.
http://www.direxioninvestments.com/products/direxion-daily-sp-500-bull-3x-etf
Also, the gross expense ratio is slightly different for each. Check out the prospectus and fact sheet for more info on these ETFs.
http://www.direxioninvestments.com/products/direxion-daily-sp-500-bull-3x-etf
My understanding is : Leveraged ETF's also rebalance daily - some will not match the underlying over even a relatively short period of time- This degradation vs the underlying likely varies between the leveraged ETF's you use- some are worse than others- The trade is ended Daily in the 3x and reentered at the next day- Perhaps compare both the closing values as well as the opening values. They are often described as best for shorter term periods- Tracked UVXY for a short time- and minor up moves in the VIX showed down moves in UVXY - due to the rebalancing I assume and daily reentry at a different value than the prior closing values holding an open position overnight. I have read that in some cases- over time- the underlying can be profitable while the 3x loses- so choose carefully and look back and compare over time -in both up and down periods- to understand what you may be selecting. I think there were several threads here that explained the process in greater detail- just not sure where they can be found - Good luck-
Holding one now and have held several before. Looking into the prospectus, these instruments don't hold the underlying stocks of its purported benchmark, but hold synthetic positions. In essence, you're holding on to a managed future portfolio that performs like a future contract that never expires.
So my educated guess is that when the trading day closes with these return discrepancies, something is going on in derivatives land and that it has to do with how futures are priced during that day. If so, it raises the question of model/synthetic risks and liquidity risks on top of market risks associated with ETF instruments. It's something that's been on my mind if anyone here wants to add on to this comment as well...
So my educated guess is that when the trading day closes with these return discrepancies, something is going on in derivatives land and that it has to do with how futures are priced during that day. If so, it raises the question of model/synthetic risks and liquidity risks on top of market risks associated with ETF instruments. It's something that's been on my mind if anyone here wants to add on to this comment as well...
The common theme in the 2x and 3x prospectus is that the levered ETF's return is supposed to represent the change in underlying value for a single day, and that's it. Once it's held beyond a single day, then the risks of liquidity, market and other risks associated with a leveraged instrument weigh down on the value for a holding period longer than one day.
Yes, they are great short-term instruments. (I love TNA). But not for holding with any expectation that they will perfectly track 3X an index.
Also to add on...whether it tracks the index perfectly is less of a concern for me...if the investment thesis holds, adding leverage is always a great idea. The downside you want to watch for, and I speak from experience her: volatility is your worst enemy in securities with concave payouts (such as the case of 3x index). 3x index are only good in payout diagrams from the first column.
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KSD; i like all the answers as of now;
except i track trends as [1] Uptrend /200 dma [2] downtrend/200dma[3] Somewhat stable; i call sideways slop/chop.Sideways slopchop can lose money in a cash market,MORE so in3 leveraged.LOL
Prospectus also says something like[not exactly] if the manager goes to sleep + bear goes Up 33%; bull goes down 33% with manager asleep you may lose all your money,LOL, NOT likely
Wisdom is profitable to direct
The most important thing to remember with 3X leveraged ETFs is that they can experience massive decay. Both the bear and bull version have a future of reaching zero. This is because of the futures and options used to achieve the 3X price for the day. And that is for the day only. You never, ever want to double down on an instrument like this. If you could short both and be assured of holding on to them to the finish, then you would have a sure bet.
Yes, however, they will never truly approach zero in price, as the issuer will simply do a reverse split, to ensure that Wall Street can continue generating commissions.
Some examples: JNUG, RUSL reverse splitting soon, whereas NUGT and SDS have already done a reverse split, etc.