Let's say someone in their mutual fund holds only the SPY's so they track the market, why would they not just buy the SSO? Assuming the market always EVENTUALLY makes new high's, it seems to me that you're getting great leverage on your money and while the swings will be more volatile, the end result will be double the eventual gain that the market incurs. It's not like you're leveraged up to one stock.. it's the whole market.. I must be missing something because it makes no sense to me to hold the SPY's over the SSO assuming you are a long term, buy and hold IRA investor type.
Good point but by that logic, why not have a ETF thats 3x spy? 4x? 8x? BearStearnsx? What if SPY goes down close to 50% or more? Then you are screwed. Also, SSO dividend / expense ratio = 1.60, 0.95% SPY = 2.03, 0.08% So you don't get exactly 2x leverage. So your downside swings are much more heavier and your upsides are lighter.
Am I screwed if the SPY's go down 50%? I've never understood the SSO.. if the SPY's go down 50%, the SSO would not go to 0
SSO is not going to give you double the money in the long run. It is "double" the volatility, but in the long run, the returns will probably be close to the SPY.
Because a good portion of the ETF is derivative based, the farther the "swing" past normal volatility, the less volatile SSO will probably become. It's probably the most "sensitive" right around the normal double volatility of SPY. As it moves violently past the "threshold", the volatility would most likely dry up until SPY reverses, at which SSO would regain its volatility.