I was wondering what the ETF is holding to create a 1x or 2x inverse effect? Also, I read in a thread below that they have time decay - that suggests to me they're holding options. Would it make sense to buy puts on an ETF that I think is going down - would the inherent ETF time decay help the value of my put? Or is that baked in, like most things are?
They are holding futures swaps. They are customized contracts that allow perfect daily 1x, 2x, 3x, and any multiple of leverage. They also hold some of the underlying short, but just enough to cover the portion that is not hedged through the swaps. The answer is stock, swaps, and futures, but mostly the returns are created by the swaps.