I was wondering about these leveraged ETFs. Can the long ones of these go to Zero? I don't really understand how they work, I just trade them. UYG is way down at about $1, if the leveraged holdings got to net zero, does UYG just disappear from listing? Or does the company that puts it out go bankrupt? How does it work? Is this something to buy a few hundred dollars worth in an IRA account at $.50 and just hold it til they go back up to $60 or where ever they were a year ago?
If you can find some broad-based leveraged short ETFs, short em and hold. Worse case scenario is you will outperform the underlying short because of the occassional negative daily compounding, which will have a greater impact than daily positive compounding. (Do the math: You have 10K; it goes up 50 percent one day and down 50 percent the next. See if you are even.) A market can only go so low, too, so the upside on the ETF -- your risk -- is capped, realistically (but not theoretically), on these short ETFs. Best case, market eventually recovers, the inverse ETF goes down, even more so because of the daily negative compouding. (And your short increases in value.) It's a math edge, as they say. Not perfect (a market shooting straight down will still cause you pain), and it's variable in size and use. But an edge. Getting hold of the shorts is the biggest problem. I also have been warned you can get your short called back in, although that has never happened to me, yet.