Newbie needs advice on EFT UCO

Discussion in 'ETFs' started by Mr Pain, Mar 17, 2010.

  1. Mr Pain

    Mr Pain

    I am afraid I am missing something. Is there something bad about buying a 2x ETFs and holding? If I expect the price of oil to double in the next 5 years say, why wouldn’t I buy and hold this for 5 years? Wouldn’t a double price in 5 years mean a ~4x return in this? If the price stays the same, wouldn’t the value stay approximately the same? I understand that with a 2x losses would be double.

    The reason I ask is I have read some wording that you must monitor these dialing and I even read somewhere that these are only good to hold for a day or two.

    Thank you in advance
  2. yeah the two time leverage is only for the daily performance, you don't get double the performance of the underlying over long periods of time. These ETf'S are crap for long term hold.
  3. Mr Pain

    Mr Pain

    Thank you so much. It seemed too simple to be good :)
  4. Two things to research if you are planning to buy and hold UCO:

    1) Contango
    2) Leveraged Decay

    Both factors eat the value of your investment if you don't understand them. I am not expert enough to give you an in depth explanation, but a little internet research will open your eyes to how important these things are for Oil specifically (contango) and leveraged ETFs (decay). Understand both before you embark on a buy-and-hold of UCO.