What happens if the underlying of a 3x ETF drops more than 33% in a day?

[m22au]

http://www.direxioninvestments.com/etf-faq#5

Q. What happens if the value of the index that a Direxion ETF is tracking moves more than 33% in one day?

"Direxion Shares reserves the right to be responsive to index movements up to, but not beyond, a certain point. For example, if a Bull Fund’s target index gained 25%, the Fund would be expected to gain 75%. However, if the target index gained 30%, the Fund’s portfolio might not respond to the index gains which result in the difference between the 25% daily movement from 25% to 30%—meaning the Fund’s return would be capped for the day at 75%"

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[comagnum]

BRZU (Brazil 3X Bull) is down over 46% on the day.

 

[murray t turtle]

http://www.direxioninvestments.com/etf-faq#5

Q. What happens if the value of the index that a Direxion ETF is tracking moves more than 33% in one day?

"Direxion Shares reserves the right to be responsive to index movements up to, but not beyond, a certain point. For example, if a Bull Fund’s target index gained 25%, the Fund would be expected to gain 75%. However, if the target index gained 30%, the Fund’s portfolio might not respond to the index gains which result in the difference between the 25% daily movement from 25% to 30%—meaning the Fund’s return would be capped for the day at 75%"

.

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Good points m22; + if memory serve me right + usually does, they[Direxion] has >>777+ pages prospectus/ annual report covering plenty of risk. Including but not limited to ,op question; lot of cool charts in there also................................................................

 

[johnbennett103]

Thats why you should trade with stops.

 

[murray t turtle]

Obviously it's a black swan even but what happens to UGLD is GLD drops over 33% in a single day?

UGLD is 3x GLD so a 33% drop in GLD = a 100% drop in UGLD.

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Also some have it in the prospectus..... You may think the closing price is 3:00 CST or something like that.Actually I'm thinking on one ETF that gives the manager [ in writing ]more discretion on his closing price than you or me ever thought.

 

[DeltaRisk]

Obviously it's a black swan even but what happens to UGLD is GLD drops over 33% in a single day?

UGLD is 3x GLD so a 33% drop in GLD = a 100% drop in UGLD.

The actual instrument they use is a swap to get those gains/losses tracked.

Most of them have daily collateral calls so my question is what happens to you when you've got a margin call and not enough funds? That's your answer.

 

[murray t turtle]

That sounds right

http://www.direxioninvestments.com/etf-faq#5

Q. What happens if the value of the index that a Direxion ETF is tracking moves more than 33% in one day?

"Direxion Shares reserves the right to be responsive to index movements up to, but not beyond, a certain point. For example, if a Bull Fund’s target index gained 25%, the Fund would be expected to gain 75%. However, if the target index gained 30%, the Fund’s portfolio might not respond to the index gains which result in the difference between the 25% daily movement from 25% to 30%—meaning the Fund’s return would be capped for the day at 75%"

.

Good points. And since the Direxion line after that, mentions the'' protection of the share holders'' Its not going to zero....... since the profit ''would be capped @75%.''

 

[GloriaBrown]

read the prospectus.

XIV will liquidate in case of 2008 crash for example. no more XIV!

rules will differ.

I dont think there was a day with vix future raise over 80% in a day yet, so 2008 or 1987 crash is not enough.