Oh... tut, tut... you are giving us your eyeball and charts secrets for free! You really should hold a seminar and charge money. ____ It is clear you do not understand how leveraged ETF's are structured or what they are good for. I suggest you Google: Leveraged ETF's Good or Bad Trying to learn from smart people who have worthwhile knowledge may be a new and fun activity for you.
In the real world, "how they're structured" only matters for day-to-day volatility. You're "fishin' in a dry hole" if you think otherwise. Why don't you run up a comparative charts of non-leveraged ETFs vs leveraged... since 2009. You tell us all "how may times would it have been harmful to own the leveraged vs the non-leveraged". (The results will make you look like an IDIOT for arguing against the leveraged version!)
Ooooh.... we were talking about when using them as a long term instrument and you say: How they are structured only matters for day-to-day volatility. And You speak of how the market has done over the extremely long time period starting at 2009. _____ Are you trying to look like an idiot? Serriously... you can learn good things from smart people if you learn how to Google.
OK, I was overly dramatic. If any of you have any question about this, just run up the charts and see what I mean. It's as obvious as the nose on your face. But lemme add... if you can't think through the issue of "always wrong to play a leveraged EFT" (just because "somebody said so") vs "sometimes it's right", then you don't have to brain power to trade successfully. "Trading for a living" is an interesting endeavor. (1) It's easy to try... anyone can do it, there is no barrier to entry. (2) But only a small percentage succeed. Why is that? Get a handle on this question and you're one leg up on the others.
I have significant positions in TQQQ and UPRO held for the long term. {They are three times leveraged etfs for the NASDAQ and the S&P respectively.} CAVEATS: They are a portion of my investments. No single trade or investment ever exceeds 10% of my total net worth (usually far far less than that, that figure does not include commercial real estate). I watch them very carefully on a daily basis. I do not buy them and walk away without looking. I have the psychological ability to close those positions without mercy should any sign of a reversal materialize. Many retail clients who throw money into the stock market cannot do this (they are neither traders nor investors). I will never have any position on the basis of “hold and hope”. An article referenced in a previous post uses the example of SSO (a 2x leveraged S&P index etf) bought in 2006 and held through the market crash of 2008. When the article was written the etf was still below the underlying S&P. This has been taken for the proposition that leveraged etfs are dangerous without a review of the maths. Leveraged fund takes significantly longer to return to break even. This is due to the leveraging effect on the way down (which are typically faster and stronger on a daily basis), compared to the recovery phase where the daily increases are much smaller and slower. In other words; 1] the value of a leveraged index ETF is based on and calculated on daily time frame; 2] during a market crash the daily downward moves are significant (hence the word “crash”); so these downward effects are magnified compared to the recovery phase 3] the magnification of the downward effect results in a significantly longer time to return to break even than the underlying instrument. 4] GET OUT on a reversal, do not ride it to the bottom. It is also worth noting that those people who held SSO all through the downturn, and continued to hold to the present have done significantly better than just holding S&P. This fact defeats the argument put forth using carefully selected dates. But there was a lot of agony in the interim that was not necessary. There are inverse leveraged ETF’s to capture profits on the downside, but they have different risk parameters and should be avoided unless you are extremely good at active trading. I am not concerned about decay. I believe that the underlying options and derivatives used by the company creating the leveraged ETF are adjusted in their portfolio regularly to account for this. I believe that the analysts at ProShares ($28 billion aum) and Blackrock ($5.7 TRILLION aum) have sufficiently dealt with this risk. Another author in Forbes proposed that there is a risk of derivative counter-parties being concentrated to a few major players such as Goldman Sachs. They wrote that a failure of GS would be adverse to the ETFs. If the risk of a Goldman Sachs collapse is viewed as a critical factor against leveraged ETFs then it might be better to consider other vehicles for the preservation of wealth. Such as the purchase of a shotgun and canned goods. Leveraged sector ETFs are another story, the risk in a specific sector needs to be closely monitored and this requires daily ongoing work at greater detail. At that level of granularity I prefer to own the three best performing stocks in that sector without leverage. Across the board leveraged ETFs are not set it and forget it investments; but if they are managed (buy on the pullbacks and then exit that tranche on recovery) I have found them to be very lucrative over many years. Knowing the difference between a pullback and a reversal, and to not hesitate in closing the position, is fundamental to trading them. There is much discussion in financial papers about not holding them for the long term, the conventional wisdom. I disagree, and have yet to locate a rationally proposed argument based on data and maths, to support the conventional wisdom, when viewed with my initial caveats. = = = DISCLAIMER This post only relates to the following instruments: LEVERAGED ETFS ON MAJOR EQUITY INDICES I apologize in advance if this post has hurt your feelings. It is simply a brief review of my thoughts on the topic; based on what I actually do, not discuss in the abstract on the interwebs. I do not advocate it for anyone else, it is simply presented as an alternative view to having some jack-off stealing your money. You should in all probability do something else and completely ignore everything I have said. All other views are considered superior and no doubt the possessors of those alternate views have larger genitalia and should be proud of their natural endowments. For those with an absolutely fixed mindset that I am wrong. Congratulations, well done, you win. I try to keep a flexible thought process and if you have data and references to support your position I will look them over at some point. Please provide an exact reference rather telling me to do a search. Do not expect a reply or a rebuttal, since you are so clearly correct, you have no need to hear from me further. But just in case I will utter those words rarely seen on the internet,”Yes, you are right, your brilliant comment has caused me to change my mind.” After all, that is what you are really seeking, so there it is, I truly hope it has brought you joy and contentment. In case there are concerns that I am in a conflict of interest; I do not mentor, I do not want to mentor, I am not remotely qualified to mentor, I sell nothing regarding trading, I do not recommend any specific trade. In real life I am far too abrasive and short tempered to be a mentor. I have PTSD and there is a significant chance I would harm you. = = =
If you want to see if it's possible to profitably hold leveraged ETFs long term, just load up an ETF screener like etfdb.com and see which ETFs currently have the highest 5y returns. Spoiler:
Overnight risk comes from sizing to large, going against the prevailing trend, not having a stop or exit, etc. The more liquid ETF's are far less expensive than options and much more liquid. Futures are a great product if you can hold them long enough to make some real gains. If every minor overnight counter move shakes you out of a position you will miss a lot of meat on the bone. What about the risk of missing all the gains tacked on in the overnight market? Retail is jumping on options after being clobbered in stocks, futures, and forex - let's see how well they are doing? http://sjoptions.com/portfolios/option-traders-lose-money/