GUSH & ERX Energy ETF Prices

R

RedSun

When I look at the 2x energy stock ETFs like GUSH and ERX, they have lost a huge amount of value from beginning of the year. When I looked at the underlying stock prices like Exxon and Hess etc, their stock prices have not dropped that much. So I just wonder what happened. I've only started to trade them recently.

It appears there were some structural changes at the fund management. Maybe they changed from 3x to 2x sometime this year? Or both of them failed to track the indices and got busted? I know some leveraged ETFs had to close doors due to extreme market volatilities.

I just do not want to lose 98% of the value while the underlying stocks only cut by half or 50% price drop....
 
Well, I think I've somehow found my own answer. It is the asymmetrical effect of leverage. For a 20% index decline, the ETF would suffer 60% price drop. The index only needs 25% increase to return to previous 100% level, but 3x ETF only goes back to 70% level. The more frequent and larger index movement will only exaggerate such mis-match. Also a 30%+ drop is almost fatal for those 3x ETFs.

But those ETFs will work really well in a trending world and you are in the right direction.
 
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