There is an amazing amount of misleading or just plain incorrect information on this thread. Leveraged ETFs return 2 or 3X the daily return of the underlying. All of them do this almost exactly with little to no tracking error and no "decay" beyond the clearly stated fund fees in the prospectus. This means that the ETF is highly path dependent, and it's very possible that the underlying index could go up 10% and your 3X leveraged ETF could go down by 5% over the course of a month. The only thing you're guaranteed is that if the underlying goes up 2% in a single day, your 3X ETF will go up 6%. Over anything but a day, the fact that it's only tracking daily return means that your ultimate return is completely dependent on the path the underlying takes from point A to point B. It has absolutely nothing to do with "decay" or reverse splits, or any other factor than the simple fact that these funds track daily return.
So for the OP, unless you rebalance your position daily or you want essentially random results, no, a leveraged ETF is not a good long-term option. Futures would get you what you want with similar leverage.
Another application for the 3x ETF's is in an account where you are looking for leverage but can't use margin,options, or futures. Ie: certain IRA's. If you catch the directional trend they'll work but volitility is not their friend, as Sig stated, very path dependant.I get this and I think many people do. The fact that it is tracking on a daily basis doesn't mean you're going to have no returns or decay to 0, it just means you probably won't get the 3x returns. You might get a 2.5x the return with 3.5x the volatility. Even considering that the 3x ETF is seemingly the easiest way to get it, and has no further risk beyond what I put in..
I don't understand futures enough (yet) to assess getting 3x.
Interactive brokers ended their lending program where you got most of the borrow fee and now the only option is a 50/50 split with no guarantee that your stock gets loaned. Do you know of any brokers who actually do share a majority of the borrow fee they get for loaning your stocks, would love to get their names?A lot of time the stock borrow fees on levered ETFs are so high that they will compensate you for the variance decay (it is pretty easy to calculate the underlying variance implied in the borrow). If the borrow looks rich, you are bullish on the underlying and you have an account with a proper broker that kicks back the stock borrow fees, it totally makes sense to hold it for a while (well, as long as the borrow holds).
Most large PBs would kick back the borrow fee. If I was in the retail world, I'd be more inclined to trade option combos to lock the borrow in.Interactive brokers ended their lending program where you got most of the borrow fee and now the only option is a 50/50 split with no guarantee that your stock gets loaned. Do you know of any brokers who actually do share a majority of the borrow fee they get for loaning your stocks, would love to get their names?
There is an amazing amount of misleading or just plain incorrect information on this thread. Leveraged ETFs return 2 or 3X the daily return of the underlying. All of them do this almost exactly with little to no tracking error and no "decay" beyond the clearly stated fund fees in the prospectus. This means that the ETF is highly path dependent, and it's very possible that the underlying index could go up 10% and your 3X leveraged ETF could go down by 5% over the course of a month. The only thing you're guaranteed is that if the underlying goes up 2% in a single day, your 3X ETF will go up 6%. Over anything but a day, the fact that it's only tracking daily return means that your ultimate return is completely dependent on the path the underlying takes from point A to point B. It has absolutely nothing to do with "decay" or reverse splits, or any other factor than the simple fact that these funds track daily return.
So for the OP, unless you rebalance your position daily or you want essentially random results, no, a leveraged ETF is not a good long-term option. Futures would get you what you want with similar leverage.
}There is an amazing amount of misleading or just plain incorrect information on this thread. Leveraged ETFs return 2 or 3X the daily return of the underlying. All of them do this almost exactly with little to no tracking error and no "decay" beyond the clearly stated fund fees in the prospectus. This means that the ETF is highly path dependent, and it's very possible that the underlying index could go up 10% and your 3X leveraged ETF could go down by 5% over the course of a month. The only thing you're guaranteed is that if the underlying goes up 2% in a single day, your 3X ETF will go up 6%. Over anything but a day, the fact that it's only tracking daily return means that your ultimate return is completely dependent on the path the underlying takes from point A to point B. It has absolutely nothing to do with "decay" or reverse splits, or any other factor than the simple fact that these funds track daily return.
So for the OP, unless you rebalance your position daily or you want essentially random results, no, a leveraged ETF is not a good long-term option.{ Partial