Nope the 3x ETFs do not perform like every other ETF. Their value decays much more rapidly if the underlying index is very volatile. For example, if the underlying index goes down 5% one day, then increases 5% the next, $100 in the 1x ETF would be worth $100 x 0.95 x 1.05 = $99.75; the 3x ETF would be worth $100 x 0.85 x 1.15 = $97.75; i.e. much more than triple the loss.
How long can you safely hold 3x leveraged etf?
- Thread starter easymon1
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Nope the 3x ETFs do not perform like every other ETF. Their value decays much more rapidly if the underlying index is very volatile. For example, if the underlying index goes down 5% one day, then increases 5% the next, $100 in the 1x ETF would be worth $100 x 0.95 x 1.05 = $99.75; the 3x ETF would be worth $100 x 0.85 x 1.15 = $97.75; i.e. much more than triple the loss.
Hello good day, wmwmw can we talk?
But if the index is even more volatile and goes down 10% for 10 subsequent days the 3x ETF performs better than trice the underlier. So not necessarily true...
But that's the idea of the EFT, to be more volatile than the underlying that it replicates no? I mean for every unit of increase in the underlying, the 3X ETF will increase by 3X and of course drops 3X when the underlying drops just by 1 unit so if you are short, you triple the gain? The idea of that ETF is not that it's always 3 times the value of the underlying, i.e. if the underlying goes up, it will go up 3X and if the underlying goes down, it will go down by less. No the idea is that whatever is happening with the underlying, up or down, your will always earn 3X of that, 3X the up or 3X the down. It's stated very clearly in the introduction of the fund right on its website:
SPXL SPXS
The Direxion Daily S&P 500® Bull (SPXL) and Bear (SPXS) 3X Shares seeks daily investment results, before fees and expenses, of 300%, or 300% of the inverse (or opposite), of the performance of the S&P 500® Index. There is no guarantee the funds will meet their stated investment objectives.
https://www.direxion.com/product/daily-sp-500-bull-bear-3x-etfs
Because it's a leveraged ETF. Just like anything that's leveraged, the winnings and losses are always magnified.
I understand what you are saying, but go back to my example where the underlying goes down 5% one day, then up 5% the next. At then end, $100 in the underlying is down 0.25% to $99.75; but the 3x is down 2.25% to $97.75; That's not 3x, that's a 9x decrease. If you vary the daily percentage drops/subsequent increases, you will always get similar results. My point is that naive traders would have expected approximately a 3x decrease, not orders of magnitude worse.
What's the worst ream gouge anyone has experienced via levered ETF's or just as good would
be charts that show comparison between the hosing a trader can take compared to the standard
hose job available via a non-levered etf.
e.g. something like NG etf falls 5% but a levered 3XLong ng ETF falls 24% or
something like that. Pictures of prior performance can be very convincing.
Something worse than the opposite of this would be instructive...
be charts that show comparison between the hosing a trader can take compared to the standard
hose job available via a non-levered etf.
e.g. something like NG etf falls 5% but a levered 3XLong ng ETF falls 24% or
something like that. Pictures of prior performance can be very convincing.
Something worse than the opposite of this would be instructive...
%%
TRUE+ large +small losses are notable + worse than cash ETFs, long term.
Strangely, the 2X will frequently do better than 3X.
LONG term the 3x bear[spxs+ spxu] will do Very much worse than SPY/ SPXL or UPRO...........................................................................................
Even worse with leveraged when dividends are factored in in
But like IBD founding father notes/ never buy for a dividend.
No the fund is not about the values but how the actual returns track that of the underlying. If you want to compare literal values, when the underlying is $100, the ETF wouldn't be at $100, it would either be higher or lower than $100 depending on how the underlying moved due to it being a leveraged ETF.