What happens if the underlying of a 3x ETF drops more than 33% in a day?

Discussion in 'ETFs' started by 1a2b3cppp, Apr 20, 2013.

  1. Obviously it's a black swan even but what happens to UGLD is GLD drops over 33% in a single day?

    UGLD is 3x GLD so a 33% drop in GLD = a 100% drop in UGLD.
     
  2. The only thing I can think of is an emergency reverse split if something like that happened.

    If the crash happened too fast for a reverse split to be done-- it would probably go to zero or 1 cent and then be split the next day.

    I dont think it could go less than zero. An ETF cant have a negative value, can it?

    In either case you would probably lose all your money. But at least its safer than futures, where in a bad enough crash you could end up owing money to your broker....
     
  3. +1. no, an etf can't have a negative price just like a stock can't although at one point i thought VG would after it kept dropping after it's IPO lol.
     
  4. read the prospectus.

    XIV will liquidate in case of 2008 crash for example. no more XIV!

    rules will differ.
     
  5. So it would go to 0 and be worthless with no chance of going back up?
     
  6. read the prospectus. every etf is different. some liquidate and some use the +33% to offset the -33%.

    just read the prospectus.
     
  7. The prospectus for UGLD is 214 pages. I couldn't find the part that talked about that.
     
  8. It has to be there!
     
  9. zdreg

    zdreg

    i know it is beneath the dignity of ET posters but call the people who created the etf.
     
  10. Search for 28.33% and also "acceleration".
     
    #10     Apr 22, 2013