does it EVER make sense to buy and hold a 3X bull ETF ?

[trc4949]

I am thinking of a long term strategy of taking advantage of the new silver bull market that just started a few months ago.

I project this next leg of silver bull market should last 7 to 10 years. The bulk of the returns should be during the final 10% of the time. However I would like to take advantage of the first 90% of the move as well. The breakout to life time highs should occur near 2023.

So the question is, on the assumption that a new bull market trend has started, is it wise to repeatedly buy (dollar cost average) a 3X leveraged bull ETF (such as the USLV) on any significant price declines and then just keep holding it until the bull market peaks ?

The TNA ETF from 2009 low to high last year returned 1927% or about 19 times your money in a time frame of about 6 years. That is about 63% annualized gain ! That is not bad at all if you ask me given how tough it is to get consistent returns year in and year out. Now granted there were a few phases of that run that were highly volatile and scary. But those who stayed the course made out like bandits 6 years later.

Anyway, I will go ahead and answer the question myself. It makes sense to buy and hold and dollar cost average a 3x leveraged ETF only if you are 100% sure that a new bull market has started and that you are at ground zero.

Comments?

 

[ShadowEEngineer]

I think you treat it as "set and forget" for long term, meaning similar to investment.

But, while the above returns could be correct (I didn't check), is it optimized?

ETF isn't designed for long term (NUGT, DUST, etc), so I wonder if one can get better returns timing the buy/sell. Obviously there were down days in that period.

Both approaches are valid, just depends on investor's preference.

 

[ScalperJoe]

What I've found is that unless you are in the sweet spot of a triple leveraged ETFs run (usually just after a reverse split), it's really not worth holding beyond a day, or perhaps a few days/weeks for a swing trade. These are DAY TRADING vehicles.

Where do you get those return metrics for TNA? The fund has 11.67% annualized returns since inception (2008).

https://www.direxioninvestments.com/wp-content/uploads/2014/02/TNATZA-Fact-Sheet.pdf

The disclosure specifically states the following:

"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."

 

[ScalperJoe]

USLV is an ETN (exchange traded note) and states the following in the prospectus:

"The ETNs are intended to be daily trading tools for sophisticated investors to manage daily trading risks. They are designed to achieve their stated investment objectives on a daily basis, but their performance over different periods of time can differ significantly from their stated daily objectives. The ETNs are riskier than securities that have intermediate or long-term investment objectives, and may not be suitable for investors who plan to hold them for a period other than one day."

I think if you're willing to AGGRESSIVELY trade it as an active trader, then it's definitely a way to capture volatility. However, for longer term moves, these are absolute turds in my opinion.

 

[trc4949]

Where do you get those return metrics for TNA? The fund has 11.67% annualized returns since inception (2008).

Well to calculate the returns of TNA since 2009 price low I simply looked at the long term monthly price chart.

The 2009 low was 5.11

The 2015 June high was 99.


So just do a percent return calculation of those two numbers and then annualized them over 6 years.


I guess the problem is, in 2008 silver etf did a 56% 8 month correction. On a leveraged basis that probably would have returned the 3x USLV ETF way back to ground zero and that would be a lost opportunity had you not captured gains before the correction.


IWM did a 31% correction in 2011 so the TNA got hit with a 72% drop.

 

[eganon69]

I am a swing trader and frequently use 2x and 3x ETF in trading my 401K account because we cannot use margin in those accounts at broker. So I use them to catch a wave and swing trade. Usually no longer than a few weeks for the 3x ones but as much as a several months for the 2x ones. It has allowed me to juice my returns. However, as quickly as they go up they can go down. So if I want to risk the same amount as I would on a typical 1x ETF you need to account for the volatility. So usually your size of the trade is about 1/2 (2X) to 1/3 ( for a 3X) the amount you might trade in a 1x ETF. This helps when you catch the wave but to keep losses to a max of whatever you think is reasonable. It's just that the swings are more volatile so you have to watch them carefully. I generally prefer the 2X ETFs because I just follow the 1X ETF for my sell signal and get out when that one says sell. There are WAAY to many fluctuations and drops to be able to stomach the violent bull ride as your account goes up and down violently. You need to determine how much you can stomach but setting and forgetting for years at a time because you KNOW the long term trend is still in place is a recipe for disaster. One day you will realize you were wrong and be down 40% because you are so leveraged.

 

[ScalperJoe]

Well to calculate the returns of TNA since 2009 price low I simply looked at the long term monthly price chart.

The 2009 low was 5.11

The 2015 June high was 99.


So just do a percent return calculation of those two numbers and then annualized them over 6 years.

These leveraged ETFs have tremendous decay, so they routinely do a REVERSE SPLIT. This means if it's trading at say 5 bucks and they do a "1 for 10" reverse split, the price jumps to 50, BUT the float gets reduced by 90%. So if you had 100 shares at $5, you would then have TEN shares at $50, but the net value of the position is the SAME.

You cannot go by the price, you have to see the annualized returns on a split adjusted basis, that's why I posted the link to the actual prospectus which clearly shows the returns.

 

[ScalperJoe]

In fact, USLV has already done a reverse split, "1 for 10" as described below:


"NEW YORK, Aug. 22, 2013 /PRNewswire/ -- Credit Suisse AG announced today that effective August 30, 2013, it will implement 1-for-10 reverse splits of its VelocityShares™ Daily 2x VIX Short Term ETN ("TVIX"), Daily 2x VIX Medium Term ETN ("TVIZ") and VIX Short Term ETN ("VIIX") and its VelocityShares™ 3x Long Silver ETN ("USLV").

The reverse splits will affect the trading denominations of these ETNs but it will not have any effect on the principal amount of the underlying notes, except in the cases of "partial ETNs."

The closing indicative value of each series of these ETNs on August 29, 2013 will be multiplied by ten to determine their respective reverse split-adjusted closing indicative values. The reverse splits will be effective at the open of trading on August 30, 2013 and these ETNs will begin trading on the NYSE Arca on a reverse split-adjusted basis on such date. Following the reverse splits, each series of these ETNs will have a new CUSIP but will retain the same ticker symbol."

 

[trc4949]

so you are saying if someone bought 100 shares at the 2009 low and sold at the 2015 high they would not have realized a 1769% return as seen on the price chart ?

there was one 2 for 1 split in 2013

 

[eganon69]

so you are saying if someone bought 100 shares at the 2009 low and sold at the 2015 high they would not have realized a 1769% return as seen on the price chart ?

there was one 2 for 1 split in 2013

YES they would. This chart is of TNA. If you look at TNA at the historical values $5.11 is adjusted closing numbers. The problem is the $5.11 may have been the absolute low for the month and may have only occurred for less than 5 sec. The problem is that that SAME candle has a high of about 10.11. That is nearly 100% swing in 1 month. Great when it's a green candle but look at the series of months in 2014 from Jan to Sept ( 9 candles) where there are HUGE price swings but the overall market is flat during that time. Can you stomach price swings from $80 to ~$63 to ~$84 to ~$60 to $84 again to $54 then to $75. You would see swings in your account of ~+30% to ~-24% to ~+35% to ~-40% then to ~+40% only to end up mostly flat. This is the level of conviction you need to have to hold on for years. I would personally sell and buy much more frequently. Volatile instruments are not meant for years of buy and hold. Make it a smaller position to juice your returns but elect to get in and out in days to weeks AT MOST on a 3x and maybe a few months on 2x.