I get this and I think many people do. The fact that it is tracking on a daily basis doesn't mean you're going to have no returns or decay to 0, it just means you probably won't get the 3x returns. You might get a 2.5x the return with 3.5x the volatility. Even considering that the 3x ETF is seemingly the easiest way to get it, and has no further risk beyond what I put in.. I don't understand futures enough (yet) to assess getting 3x.
Another application for the 3x ETF's is in an account where you are looking for leverage but can't use margin,options, or futures. Ie: certain IRA's. If you catch the directional trend they'll work but volitility is not their friend, as Sig stated, very path dependant.
A lot of time the stock borrow fees on levered ETFs are so high that they will compensate you for the variance decay (it is pretty easy to calculate the underlying variance implied in the borrow). If the borrow looks rich, you are bullish on the underlying and you have an account with a proper broker that kicks back the stock borrow fees, it totally makes sense to hold it for a while (well, as long as the borrow holds).
Interactive brokers ended their lending program where you got most of the borrow fee and now the only option is a 50/50 split with no guarantee that your stock gets loaned. Do you know of any brokers who actually do share a majority of the borrow fee they get for loaning your stocks, would love to get their names?
Most large PBs would kick back the borrow fee. If I was in the retail world, I'd be more inclined to trade option combos to lock the borrow in.
These instruments are meant for intraday trades. Their leverage multipliers can be thought of as being "reset" every trading day. In a choppy market, this generally causes the value over time of them to decay, and potentially even under-perform the index on which they are based. The only time I think it makes sense to hold these overnight is if you have directional bias on something for a number of consecutive days (which is almost never the case for me.)
More splits and reverse splits today. Direxion comes through, again, lol! http://www.prnewswire.com/news-rele...-splits-of-nine-leveraged-etfs-300304402.html
Really enjoyed this discussion! I like that you can take on leverage in a levered ETF and and have that amount be your max loss. Where as you can technically loose the entire notional value of a futures contract. Do levered ETFs have validity in this case or are options a better solution? Thank you
} %% Good points,Sig some use decay, in an approximate sense.....And its a good thing , if underlying goes up 2%, good thing, in some cases it will not return exactly 6%, because of slippage,commission + many of the manager$ will not be 100% invested--long story short = so as not to have a ever 100% loss.[Source=714 Page Paper Prospectus]