Swing Trade Leveraged ETFs

E

EliteTraderNYC

Hey guys just wondering if any of you trade leveraged ETFs? like 2, 3X Bulls/Bears. Do the leveraged ETFs behave as if you would expect them to?

Thanks,
EliteTraderNYC
 
I can really only speak about the Russell related ones (TWM, TZA) and this is over the last 9 months or so.

On a daily basis, it's pretty much spot on (as designed).
I don't even look beyond 3 months as it really loses track (take a look at a 2 year chart and note the difference).
It's highly dependent on market conditions...trends can actually be beneficial to your position and ranging markets will really goof them up.

Also, I don't typically hold them on their own without having a corresponding short term short position (option premiums tend to be pretty good).
 
Quote from EliteTraderNYC:

Hey guys just wondering if any of you trade leveraged ETFs? like 2, 3X Bulls/Bears. Do the leveraged ETFs behave as if you would expect them to?

Thanks,
EliteTraderNYC
More...

According to the written prospecuts of several 2x/3x ETFs, they are best suited for daytrading, however you can certainly swing trade them.

From what I've observed they do not "behave the way you would expect them to" given the time decay and swap strategies used within some of the ETFs.

Several of them have decent call premiums which can offset the downside if you are going to swing trade.

There are several threads that discuss such ETFs, check it out:

http://www.elitetrader.com/vb/showthread.php?threadid=227781&perpage=6&pagenumber=1

http://www.elitetrader.com/vb/showthread.php?threadid=226038&perpage=6&pagenumber=4
 
Swing trading 3x ETF is my bread 'n' butter. Decay in leverages ETFs is not an issue as a round trip take max 5-6 days to complete.
 
Quote from bln:

Swing trading 3x ETF is my bread 'n' butter. Decay in leverages ETFs is not an issue as a round trip take max 5-6 days to complete.
More...

I would agree with this. However, I usually trade 2x ETFs as they seem to follow the index more in step than the 3x (as expected). When catching a swing up or down these can really amplify your outcome. As long as you manage risk correctly they are valuable instruments for leveraging your acct.

I will also mention that often times these 2X ETFs allow you to free up more capital for use on other trades. For example I may risk 1% on XLF or UYG but the stop is farther away on UYG (because its more volatile) and so I naturally buy fewer shares to keep my risk the same. This allows you to use around 1/2 to 2/3 the capital on UYG that you would on XLF yet your profit will be the same or slightly higher. That way I use my capital more efficiently...freeing it up for use on other trades...and maximizing my leverage in my acct.

Hope that Helps

N54_Fan
 
I don't think there is much tracking error inside of a week or two, but when you get out on longer time frames they don't perform well relative to their indexes.
 
leverage funds do exactly what they are meant to do

I find Double funds work best as longer term plays.

2x& 3x are momentum plays .
3x funds not only do you need to be right about direction it won't tolerate anything but the mildest volatility against you while holding it.
Otherwise the 2x fund will probably outperform over the time period.
 
Don't forget that these 2x and 3x ETF's are held at higher margin requirements than if you were to buy just the QQQ or SPY.
 
ETFs are an incredibly valuable spread trading instrument. ETFs versus ETFs, ETFs versus single stock components, ETFs versus baskets of stocks - the flexibility for spread position swing trading and intraday arbitrage are a very powerful feature. Use the leverage to your advantage in terms of spread leg composition.

Just a thought about strategy.
 
You must log in or register to reply here.
Back
Top