I just spent literally 2 hours figuring out how the TQQQ works (Mechanically) and then I stumbled onto this video and your video made it crystal clear and easy to understand! Great 👍🏻 video, Thank you 🙏
Buy and Hold on leveraged ETFs works *if* the ETF tracks an index that has a daily probability above 0.5 to go up, decay or not. Only a few do. Oil, gold, etc. do not (basically, the nature of leverage is to spread out and change the shape of the return distribution...where the majority of that probability mass lies is essential for success). The other costs associated with this besides that of leverage are the higher fees and the lower liquidity of the etfs (TMF vs TLT comes to mind).
Great video. But I beg to differ when it comes to holding leverage etf long term. Just pick the more stable ones and you we’ll see some good growth. For the past 14 years QLD average annual return is 24% and TQQQ 36% for the past 10 years. QQQ has beaten SPY 86% of each quarter since its inception. We live in the 21st century and technology is becoming more prevalent and important day after day in our daily lives, at home, school, work, business and entertainment. I don’t see NASDAQ crashing in the long term. So leverage etf following QQQ should not crash and most likely gain value in the long term. Great video for trading. Thanks.
Brilliant video. There is a lot of rubbish out there but you know when the Trade Risk decides to do a video it is going to be unbiased and informative. Thanks Evan.
So many people use percentages and flawed maths as examples for how leveraged ETFs decay. TY for explaining that it decays due to the complexity of the instruments and index. Instead of the bullshit advice other RUclipsrs gives like "IF IT FALLS 10%, AND IT RISES UP 10% THE NEXT DAY AGAIN, THERES A DECREASE IN UR STOCK VALUE" LOL. When in actuality, when the stocks falls 10%, it'll require a 11.1% price increase of the compounded stocks for it to increase
Thanks for the video. I'm still not convinced that they are not good for long term. If you keep a good risk management and avoid big drops, leveraged ETFs have much higher returns. For examples, I compared SPXL with SPX and the return is about 5x on all major trends (duration about 1 year). TQQQ is even more compared with QQQ. Of course, if you use them during high volatile market, the decay effect becomes significant.
It is April 2020. The Coronavirus has caused the SPX to drop 30%. Good time to use leverage to buy more while they are cheap. My country doesn’t allow borrowing for share investments, so leveraged ETF look attractive. Instead of explaining that medium and long-term investing in 3X companies it is better to look at their 3- and 5-year returns. 15% without leverage and 25% in a 3x leveraged ETF. It’s not triple the gain but is still good.
Thanks for this. Excellent video. Nailed the topic in a very concise fashion. BTW, NUGT/DUST are excellent day trading vehicles. Huge volume, nice moves and tight spreads. I'm sure the same is true for other leveraged ETFs, but I haven't traded them much.
Right on, thanks Dori! I completely agree on the NUGT/DUST, they're fast movers, and they trade a ton of volume. Perfect vehicles when the setup presents itself.
Glad you enjoyed! I only hold leveraged ETFs when I have trade signals for them. Right now, for instance, one of my systems has about 15% allocated to leveraged ETFs, but it can be less or more depending on the environment.
The decay is priced in to the share. Buy at 70 / Sell at 100 six months later is $30 per share either way you look at it. Without decay that $100 sell price could have been $120 six months later. *note* I pulled that $120 number out of thin air as I don't know what the exact price would actually be without six months of decay. Thanks for the informative video.
@@Financial180-13 all the examples I see of decay are using non-realistic examples (examples we have never historically seen) or the "decayed" leveraged return is still greater than the non-leveraged return.
The Professionals will find a way to play the opposite way. They think the market is going to rise, they will short the Bear fund. Because selling a bear fund short is betting it will decrease in value. Plus there is the bonus of the choppy time decay over long time periods. Now if things trend for many days, it can compound too!
Great work! Thanks for this! I never thought about considering liquidity. I'll place some trades on my paper trading account to understand how it all works but I'm not sure how well it'll simulate liquidity. 🤔
Liquidity is a bit tricky to simulate and it depends how large your order is relative to the average dollar volume traded. When I'm concerned about low liquidity trades I'll typically increase my slippage when backtesting.
I have always heard about this decay on the leveraged ETFs but I don't see it. If I pull the chart on QQQ , QLD and TQQQ for 1 year. I see no decay. The returns are 1x, 2x and 3x. What am I missing?
long term, SP500 is always up but if you look at a leveraged short term, for example imagine a 3x starts at $100, increases by 30% ($130) and then decreases by 30% ($91). That's a 10% decrease. If you just did SPY, it would've gone from $100, increase by 10% to $110, and then decrease by 10% to $99. Only a 1% decrease. Basically you lose exponentially more than you'd gain exponentially. You just have to go longer term and don't mind the crazy dips.
Do you not think that buying during a bear market like now (06/16/2022) and holding long term assures greater gains eventually? All the losses have already been felt by the investors holding. Even though I expect the immediate future to keep crashing, the huge percentages effectively take out smaller amounts of capital as we head towards single digits potentially. Averaging down and waiting for the next bear market seems unbeatable to me, I’m going big into TQQQ soon
You left out a very important word. At 2:09 you say the funds seek to double or triple the returns ... The word you left out is "DAILY". They seek double or triple the DAILY returns. That's an important distinction.
A trailing stop would not help in that situation since markets would be closed overnight and you'd be stuck a stock position. Fortunately, there are two ways you could mitigate overnight risk: 1. The first and most practical would simply be position sizing. Only allocate what you could afford to lose, aka whatever you foresee the worst case scenario being, and with leveraged ETFs, the worst case might be a termination event. 2. Maintain a hedge using options, maybe a far out of the money put that acts as disaster insurance that you continue to roll month after month so long as you hold the core leveraged position. Alternatively you could also attempt to hedge with futures if you're confident with your ability to react during a risk event. Maybe someone else reading has another solution but I think those would be your two paths. Hope that helps!
What do you think about the brzu 2x etf? It was at 1400 before the pandemic and dropped all the way down to below 50, now it’s going back up at 118. Do you think this is a good time to buy?
Hi. Great video. I was thinking of selling short put on $GUSH and $DRIP (sometimes). By selling puts instead of buying the ETF, I can collect a nice weekly profit without the Contango. Any suggestions? Thanks.
Glad you enjoyed the video. Sure I think it can work, but It's not clear to me that leveraged ETFs would offer any structural benefit with regards to premium selling over individual stocks or their underlying ETFs. The premium will be larger but it's in line with the increased volatility of the instrument. Like all premium selling strategies, your success will largely be dictated by your ability to time your option sales. Good luck!
thx bud would buy shares or buy call option for example SPXS should i buy 100 shares or 1 call option if i am thinkig stock is going to go down in next 15 days ?
Sorry I can't offer up anything helpful here, it's too specific of a question that depends on lots of trading strategy questions. The one comment I'll add is that options on leveraged ETFs now introduces you to derivatives of derivatives of derivatives which basically equates to lots of potential slippage and sometimes unintended consequences. If I'm going to trade options which are inherently a leveraged bet I prefer to just trade them on the underlying stock or ETF.
for UCO do you need to enter and sell a new poistion each day? lets say you buy the Aug 2016 dip right at bottom can you hold that trade on that same contract say 2 weeks (given you beiieve that was the temp low based on TA and news) or will decay effect you over just 2 weeks and need to close out positions each day?
You'll be fine with short-term swings. What to do is compare UCO entry and exit prices over a two week span to the underlying ETF and compare the percentage differences as a test.
Great question! They would probably be trading at 0.01 by now if it wasn't for the reverse stock splits they do every 1 to 2 years. That helps keep the price from going to zero.
Long term, as in over 5 years, on leveraged is ok with dow or s&p index fund imo . Upro spxl. I wouldn’t do a nasdaq leveraged etf due to much higher volatility
I like TQQQ long term. I don’t use a trade strategy, I use investment strategy. I buy what I believe in. The NASDAQ 100 represents the crime of tech and growth. With AI, EVs, CRISPR, Solar, Biotech in the long term future, this is a good play. So when TQQQ dips, I buy more. I’ve always owned at least 300 shares, up to 3,000 shares. Right now I own 1,200 shares. When I analyze my performance of past trading vs. if I would have just bought and held at $30/share, I would have never sold, even during extreme pullbacks. My biggest position is TSLA at $80/share average cost. Investing has beat trading for me, all the way around.
FNGU has been my buy and hold for the last year. I regret diversifying some of the profit. Fortunately I moved some of it into crypto last August. Setting a trailing stop makes "risky" positions very safe. I used 10% on FNGU and usually got back in at a better price.
@@tombarr949 FNGU looks interesting, I’m not excited about Facebook holding. There is some added risk to leveraging only 10 stocks, especially if you don’t like one or two of the names. It looks to me like the holding has done very well over a couple of years.
@@wademt I am with you wade. I prefer a more diversified position in tech. TSLA MSFT GOOG AMZN APPL is the top holding of QQQ. and QQQ ha about 103 stock holdings in total and TQQQ follow QQQ at 3x and the expense ratio is moderate at .95% and it has pretty significant trade volume which gives it some strength and liquidity. I saw the spread on bid-ask price on TQQQ which is usually at a penny apart. That is as good as SPY.s spread. Have you been buying any leveraged ETFs? which ones have you bought? What has your experience been like?
Just started day trading inverse ETFS - and holding for 24-48 hrs. So far so good have made up to 8 % on the capital i have allocated just for this - playing SQQQ & TQQQ! This is an awesome video and clarified and confirmed a lot of things i was guessing at!! 5 yr old video - but it lives on!! Thank you!
Do you mean buy at the open and sell at the close every day? You can, but you also won't be participating in any overnight movement doing that, so you should expect very different results than buy and hold.
Absolutely. Google "XIV blow up" or "XIV termination event" and you can read about a leveraged volatility product that blew up. I don't think we've ever seen a traditional stock market ETF go to zero, but it is possible.
Nice video..but i observed that most of these leveraged etf have a high expense ratio. My question to you would be for a given trade how much real returns would you obtain when you subtract expense ratio, commissions/fees and taxes when you trade them frequently? And whether they are worth the risk? Could you provide an insight on this since you trade them frequently? Would much appreciate your response. Thank you.
Hi Amrut, you're exactly right on the expense ratios they are high, the average probably falling somewhere between 1 and 1.5% per year. But for short-term trading (1 week or so hold time) the expense ratio as a cost is fairly negligible (maybe a basis point or two, again depending on hold time). The good thing about all of these costs is that they are known upfront. You can calculate the approximate expense ratio costs if you know your hold time upfront. You can then add in commission costs, slippage, etc. at which point you have all of the information necessary to determine if the expected payout of the trade is worth the risks and costs associated. Hope that helps!
The Trade Risk thank you for your prompt response. Appreciate it :) I must say i was only aware of the leveraged etfs for the S&P, DOW and NASDAQ, however, the table you mentioned at the end the video really gave me a wide variety of options to play with. Thanks a lot.
I feel like I'm missing something. I had UCO for just over a year until it recently dropped $40 per share, and then I sold. Are there fees and charges that I can expect at the end of the year for holding so long or is all that included in the price? Also, I have been looking at inverse ETFs and most things I've read say not to hold them for more than a day? Can I hold an inverse ETF until the next market crash and then bank on the equity? I guess its just all really confusing at this point. Thanks.
Waw!! This video are perfect!!! thanks for sharing all these informations! I have a little question by the way... I don't really understand the difference between a 3XBull and a 3XBear They don't react the same?! Thanks again!
Thanks Jean! I am glad the video was helpful. So for many of the leveraged ETF products they offer a bullish and bearish version. The 3XBull ETF rises as the underlying commodity/ETF rises. The 3XBear ETF does the exact opposite. As the underlying commodity/ETF falls lower, the Bear ETF rises. Does that make sense? They move in opposite directions. You could also think of the Bear ETFs as effectively "short" the underlying.
Exactly right, yes it will. Finding shares to borrow might be hard, and expensive, but yes provided you can get shares short of a Bear ETF, it would be identical to Bull equivalent.
They hold up much better primarily because they don't suffer from such extreme forces of contango like commodities do. We discuss it a bit more in article format: www.thetraderisk.com/trading-leveraged-etfs-for-max-profits/
@@TradeRisk OK, I read the article and you clearly point out "Do not hold [primarily commodity AND INVERSE] leveraged ETFs as investments or long-term trades!". My confusion is long holding ETFs like TQQQ and FNGU seem like a no brainer. Seems to be more nuance than your explaining so it would be helpful to understand that nuance. Unless the nuance is simply, don't long hold commodity ETF in which I think it would be helpful to make more clear in the video. Otherwise people watching the video are lead in the wrong direction.
@@_0O0O0O0_ This is exactly why I want to be very careful here, and to be clear I don't agree at all that holding TQQQ or FNGU as a long-term allocation is a no brainer, there are still high risks associated with them. Two brief reasons why: 1) Look at TQQQ, SPXL, TNA, right now (as of 7/13/20) and compare their year to date performance with the performance of the underlying indices. None of them are tracking where they should be and SPXL and TNA are way off and skewed negative. You got all the downside volatility in those ETFs without all of the recovery reward. 2) What happens if there is a flash crash of -33% in the broad indices in a single day? It sounds crazy, and the odds are obviously low, but a flash crash or some mechanical meltdown is possible, in which case, those leveraged funds have very high odds of triggering their termination events, and blowing up. Ultimately, holding these ETFs for trades with proper position size, and an underlying strategy can make sense (I do that myself) but they are not without risks. Hope that helps, good luck!
@@TradeRisk Please comment. I have heard stories about the ETF TQQQ risk of becoming insolvent if the price of QQQ falls 33 percent. But I have been wondering if that could be possible in today's markets which have market halts if the market price drops suddenly even just 15 percent. and a breaker switch is executed at the exchanges. And if it drops I believe 20 or 25 percent in the day. they shut down trading for the day. I am wondering if this mechanism protects TQQQ from a flash crash. I am still learning.
Hi, what is the mostly traded 3x leveraged etf for bull & bear for day trader? Is the bear 3x gives 3x the movement of SPY? How does it compare to TVIX?
All of the major indices bull and bear 3X ETFs trade a lot of volume and are used by day traders. Those are the ETFs like UPRO SPXS TQQQ SQQQ TNA TZA etc. TVIX is an aggressive ETF that moves based on volatility. Trading TVIX will be similar to SPXS.
Yes, they hold up much better primarily because they don't suffer from such extreme forces of contango like commodities do. We discuss this more in article format: www.thetraderisk.com/trading-leveraged-etfs-for-max-profits/
Can you please explain a concept. Say you did leap calls on sqqq for 1-2 yrs out, with the Greeks and decay, couldn't one capitalize on a severe collapse if it happened? I understand the option is black or white, meaning 100% expected loss vs a potentially galactic gain if the apocalypse happened, but wouldn't this work in theory if market dropped 50-80% sometime before expiration? And, of course, if the thesis didn't happen it would be worthless and even in the short-term would be worthless or is there something I'm missing? Many thanks
The answer is mostly no, but it largely depends on the timing of the apocalyptic event you're playing for. For instance, if your time horizon for leaps is 2 years out, if we look at the SQQQ right now compared to where it was 2 years ago, SQQQ has lost approximately 95% of its value over that time span. Even during the height of the coronavirus meltdown last February, the SQQQ was still 60% down from its value 2 years prior in 2018. It's really hard if you're trying to play that far out in advance. Where the trade works, is if you buy 2 year out leaps and the apocalyptic event happens in weeks or even a couple months after your purchase, then yes you for sure would cash in, but timing is the factor.
Yes absolutely. They are called termination or liquidation events and if you google the funds prospectus you can usually find some details on what can trigger that from happening.
If you keep the etfs long term will you have to file taxes on them?? I heard of something about taxes with etfs is that true?? Im thinking about keeping a leveraged etf for at least 6m-1yr to see how it does. So far i have 7 shares in etfs for less than a month. I watch them daily because i know they can go down quickly. Just not sure about the taxes/fees.
Quick disclaimer, you'll want to consult a CPA to discuss your situation, I am no tax professional and cannot give specific advice. With that out of the way - every time you sell a stock or ETF it is a taxable event. If you buy a security, hold onto it, and don't sell, you won't owe taxes until you actually sell some shares. Other taxable events include dividends, if a stock or ETF you are holding makes distributions, you'll owe taxes on those pay outs. Hope that helps.
The actual dollar price of those ETFs is an entirely different topic that goes down the rabbit hole of fund structures, but frankly it's largely irrelevant and meaningless. TNA could be $10 and TZA could be $5000 a share and everything would still be just fine, the key distinction is that each of those ETFs move approximately inverse to one another on any given day and that's what you want to see.
Quick question, why would you not want to hold long during a bull market? If you held tqqq from 2010 until now, you would have returned over 10x gains.
Hi Michael, Yea absolutely, looking back over the past 8 years it seems like a no-brainer since we haven't had any deep corrections, but even so, you would have still had to have held on and not lost faith during many 60%+ drawdowns and long periods of sideways underperformance (while still being hit with the full downside volatility) like 2015 and early 2016. The bigger danger is, what happens if and when we experience a 30%+ correction in the QQQs? What happens to these leveraged ETFs in times of real panic? I don't know what the answer is, and I'm not trying to be negative or deter the usage of them, but these are legitimate concerns that we haven't seen played out yet.
@@superchuck3259 In the prospectus for leveraged ETFs you can usually find termination event clauses that covers what happens to the ETF in the event of some extreme volatility as you describe.
@@TradeRisk Cool, well looking that up only took me 5 minutes, well I found you can't lose it all, only 90% in one day! "If a Fund’s underlying index moves more than 33% on a given trading day in a direction adverse to the Fund, the Fund’s investors would lose all of their money. The Funds’ investment adviser, Rafferty Asset Management, LLC (“Rafferty” or “Adviser”), will attempt to position each Fund’s portfolio to ensure that a Fund does not lose more than 90% of its net asset value on a given trading day. The cost of such downside protection will be limitations on a Fund’s gains. As a consequence, a Fund’s portfolio may not be responsive to underlying index movements beyond 30% on a given trading day, whether that movement is favorable or adverse to the Fund. For example, if a Bull Fund’s underlying index was to gain 35%, that Fund might be limited to a daily gain of 90%, which corresponds to 300% of an underlying index gain of 30%, rather than 300% of an underlying index gain of 35%." www.sec.gov/Archives/edgar/data/1424958/000119312515198270/d932160d485bpos.htm
So if you wanted to catch the overall rebound on the airline industry after this virus crap is over what ETF would you hold for a few months without the decay
TVIX since the 26th MAR, was not fully informed. So, if I hold for two weeks and sell by the 9th. Bought at 350 ends at 500, however multiple swings before the high.. I am out for a loss?
Not sure I fully understand the question but I'll answer it this way: whatever price you see TVIX or any other leveraged product last traded for is in fact its real price. So if you bought it at $350 and weeks later it's $500, you certainly get to enjoy that $150 per share profit. The contents in this video about potential slippage, erosion in value etc. are all occurring under the hood of the ETF but ultimately the quoted price you see reflects all of that. Hope that makes sense.
Trade in and out of tvix on days. Never keep it for longer than a week. If you want to hold Tvix for the long term, then it's best to short tvix and let the decay works in your favor in the months ahead.
@Sylvia :D I would suggest reading through the paragraph: *What Are Leveraged ETFs* here: www.thetraderisk.com/trading-leveraged-etfs-for-max-profits/ and review the example given. It will return 2x or 3x versus the underlying ETF its tracking. That means if you bought a leveraged ETF at 30 and sold it at 31 the underlying ETF its tracking would have only moved from 30 to 30.50, therefore your leveraged ETF moved more.
Sure you can, but option writers know they decay and therefore options are priced with that already factored in. In other words, you'll want to have another reason/edge to put call spreads on other than decay.
It is not clear to me that if I hold an ETF more than a month that I'm not going to make money? For instance something like labd, that has been going down has now turned around, say I have it for 2 months and I have it at $19, it is at $15 now, say in the next month it goes to $25, I sell, I make money? I'm at a loss as how if I hold it longer I will not make money? I know I'm missing a major key point of how the ETF value goes down overtime, but I still don't understand holding it longer how it's a detriment? Sorry new to the ETF market. If anyone with wise words, that would be great. Maybe I am not alone in this confusion?
An off the top of my head analogy after reading your post might help. One way you can think about ETFs that have steep contango effects like commodity ETFs and inverse ETFs is that it's like traveling up hill instead of on a flat road. You can absolutely still get to your destination traveling up hill, in your example, buying at $19 and selling at $25, it's simply going to take more force and effort to make it happen, it's harder, then a regular old ETF which is the flat road path. Another way to think about it, is there are just more frictions you need to overcome, and the longer you overstay your welcome, the more likely those frictions will erode your progress. Hope that helps and I would also suggest reading through the blog post for this video which has some more updated examples.
Hello, I have been trading sqqq and tqqq, do you know how is the expense ratio deducted? I saw that its 0.98% expense ratio but based on what? Is it 0.98% of every time I buy the stock? I'm freaking out because I have been trading this stock for months and my total cost now is 3 million does that mean I will have to pay 30k on fees?
Good question. Expense ratio costs are baked into the underlying price of the ETF so no additional payment is required. Leveraged ETFs do have higher expense ratios than most and if you look up the prospectus you can find exactly what those costs are.
All decay mentions are in reference to the leveraged ETF equity, not options. Do note, I did mis categorize some of the decay risks and have since updated the blog post and addressed those issues in this comment section. Here's the takeaway: The third risk is something called volatility decay. An easy way to understand this is with the classic example of a portfolio that loses 50% of its value in a drawdown. In order to get back to even, it’s not a simple 50% return, instead, it requires a 100% rally to get back to that high water mark. Leveraged ETFs are no different. The values aren’t so extreme, but what you have is lots of micro moves back and forth that causes the ETF to lose precision particularly in choppy market environments. Finally, It is worth noting, there are some leveraged ETFs that do decay faster than others. The popular leveraged index ETFs like SPXL, TQQQ, and TNA tend to exaggerate returns in both directions. If you’re in a strong bull trend, you may even see these outperform over 3X to the upside. On the flip side, choppy or bearish markets can cause performance to cut deeper than -3X. Commodity ETFs for example, tend to be much worse than equity ETFs (in all environments) due to the extreme forces of contango.
@@anthonysimmonsacousticmusi1098 You can compare your return versus the natural gas futures contract, factor in your 3x leverage, and then see how much ugaz deviated.
It's a similar concept, but the underlying reasons are a bit different. Options contracts decay largely because there is an expiration date associated with every option. Google *theta decay options* and that should give you some insight.
So right now I have 4 shares of sqqq which i bought in the span of two weeks. Im buying through robin hood so no extra fees. What are my decay factors if i decide to hold for another month.
There's no way to know for sure but let's just use to the last 21 days (1 month) of trading as an example. The S&P500 is up +4.84% over this period. In a perfect world, SQQQ (3x inverse) would be down -14.52%. Instead we see that it is actually down -17.58%. So it tracked about 300 basis points worse than perfect. Does that mean the next 1 month has to skew this negative? No, but it at least gives you some reference.
@@TradeRisk That is not true. These leveraged ETFs, SQQQ, TQQQ, etc. use a benchmark of 3x for A SINGLE DAY. You can not multiply 1 day's results as you did here. The results would not be 4.84*3 Each day begins a new 3x benchmark, which may or may not be achieved.
@@rotagbhd Yes correct rotagbhd, they are designed to benchmark on a day to day basis, this is discussed in the accompanying article under volatility drift section. The example I gave wasn't for how they are constructed, rather, an illustration of how actual returns often differ from a traders expectations.
@@JohnDoe-xr5is I guess we all had to start from somewhere. Good for him at least getting his feet wet. Hopefully he didn't get beat up to bad over the Roni and he's still investing in the down turn!
@@TradeRisk Nice do the patterns used in various futures trades apply here as well? I know that a lot of times it's claimed that futures setups work across charts and timeframes. aka does a two legged pull back, traps, breakouts and failed breakout apply?
@@Utoko So that applies here as well? nice. Do you know if the patterns used in various futures trades apply here as well? I know that a lot of times it's claimed that futures setups work across charts and timeframes. aka does a two legged pull back, traps, breakouts and failed breakout apply?
@@legionreaver Yes those formations you describe are considered fundamental characteristics of price action and free markets, so breakouts, reversals, etc. will be found across all stocks, futures, commodities, etc. At times, some markets may "work better" then others, but they apply everywhere.
What kind of daily decay are you seeing for Urty, Tqqq, and Upro holding several months or longer term?? I think you needlessly scared the shit out of a lot of leveraged etf investors of these indices. I'm looking at 2018 performances.
Daily decay has only a subtle impact on the Index ETFs, so strictly speaking, those are certainly more acceptable to hold for longer periods of time. I've updated the article version of this video to explain those differences as the distinction wasn't made very clear when originally recording this video.
you said "I didn't cherry-pick it" several times. yet you picked a nontraditional growth stock such as a leveraged ETF following the S and P or NASDAQ.
Wonderful, very informative, to the point video. I jumped into the world of leveraged ETFs cold-turkey. Lost a lot of money by holding-on too long, but learned a lot in the process. Fighting my way back nicely. I guess you only understand what is being said by experiencing it. Final points; you must understand the underlying product extremely well, then overlay the market sentiment and momentum, and remember "Yet their strength and their speed are still based in a world that is built on rules. Because of that, they will never be as strong or as fast as you can be.” ~Morpheus, Matrix They have algorithms and speed, you have institution; use it accordingly.
User One my is quite the opposite. I hold on for too short and let it go too quickly. I prefer buying in my losses and letting my winners ride cause I’ve learned I often sell low buy high when ever stocks drop and that’s costing me.
I guess I found GASX a few weeks ago because I started seeing daily charts from a more patient perspective. This week has been rewarding. This weekend..I'm statring to get nervous.LOL
The contents in this video about fees, potential slippage, erosion in value etc. are all occurring under the hood of the ETF which means the price you see the ETF trading at reflects all of that. There are no additional fees you have to pay out of pocket.
@@TradeRisk Thanks for pointing that out. Many presentations talk so much about decay and rebalancing etc. that they imply you can't make a profit. The bottom line is that all those fees and decay and rebalancing are reflected in the price of the ETF. Thus, if the ETF makes a 20% move in the price, there are no additional fees (other than brokerage fees) that would make the profit less than the 20% you would see based on quoted ETF prices.
When day trading or swing trading, what is the best investment vehicle you use for tax efficiency purposes? I can imagine someone swing trading 10-20 times a month can take quite a hit for taxes. What’s the best account to balance out the capital gains taxes? Thank you, big fan! 👏🏼
Hey Nicholas, saw this same comment on my other video but I'll reply here as well. Yes you are spot on, active trading strategies can have a high impact come tax time. I just recorded a video on this topic, check this out: ruclips.net/video/8dPat3gYFv8/видео.html
Good question, you cannot lose more than your initial investment. As long as you're not buying on margin, the maximum loss is the total amount of capital used to purchase the ETFs.
You are completely WRONG on Index Fund leveraged ETFs. SPXL up over 1000% (yes thousand) over last 8 years CONSISTENTLY vs VOO (Vanguards S&P 500) straight ETF is up 145%. So 1000% (with “decay”) vs 145% (with no decay) - give Me decay ALL YEAR after Year Long!
Yes, I've addressed there is a big difference between long-term holds in commodity and inverse leveraged ETFs and the popular leveraged long only equity ETFs (like SPXL..) in this comments section and in the original blog post as this distinction was not made clear in the video. What you'll find with ETFs like SPXL, TQQQ, TNA is that they tend to exaggerate returns in both directions. If you’re in a strong bull trend, you may see these outperform over 3X to the upside. On the flip side, choppy or bearish markets can cause performance to cut deeper than -3X. Take for example right now (5/17/18) SPY YTD is +1.93% and SPXL is +0.72% instead of +5.79%. The path the underlying market takes influences the returns of the leveraged products.
@@superchuck3259 Yes, but the inverse funds would have made a fortune! Just trade the inverse pairs; exit one and enter the other. You will be in the market all the time, making money in both directions. Why hold on to anything if it is losing? Switch to the opposite side!
You don’t know how much I appreciate this video. 🙏🏽 LEGEND
I just spent literally 2 hours figuring out how the TQQQ works (Mechanically) and then I stumbled onto this video and your video made it crystal clear and easy to understand! Great 👍🏻 video, Thank you 🙏
So glad to hear it, thanks!
Buy and Hold on leveraged ETFs works *if* the ETF tracks an index that has a daily probability above 0.5 to go up, decay or not. Only a few do. Oil, gold, etc. do not (basically, the nature of leverage is to spread out and change the shape of the return distribution...where the majority of that probability mass lies is essential for success). The other costs associated with this besides that of leverage are the higher fees and the lower liquidity of the etfs (TMF vs TLT comes to mind).
Great video. But I beg to differ when it comes to holding leverage etf long term. Just pick the more stable ones and you we’ll see some good growth. For the past 14 years QLD average annual return is 24% and TQQQ 36% for the past 10 years. QQQ has beaten SPY 86% of each quarter since its inception. We live in the 21st century and technology is becoming more prevalent and important day after day in our daily lives, at home, school, work, business and entertainment. I don’t see NASDAQ crashing in the long term. So leverage etf following QQQ should not crash and most likely gain value in the long term. Great video for trading. Thanks.
Would you agree that leveraged ETFs are great for swing trading?
@@Rogelio_007 leveraged ETFs can definitely be great for swing trading.
Wow. Was very clear to understand. I was sooo confused at first. I tried using a Rhythm and Pattern strategy but wasn’t accurate lol. THANKS.
Wow... you just explained why the leveraged ETF I’m holding is UNDERPERFORMING a similar non-leveraged fund! Many thanks 🙏
So glad to hear this was helpful!
Brilliant video. There is a lot of rubbish out there but you know when the Trade Risk decides to do a video it is going to be unbiased and informative. Thanks Evan.
Appreciate the comment! Glad it was helpful :)
Wow! What a great and informative explanation of reverse ETFs. Thank you.
So many people use percentages and flawed maths as examples for how leveraged ETFs decay. TY for explaining that it decays due to the complexity of the instruments and index. Instead of the bullshit advice other RUclipsrs gives like "IF IT FALLS 10%, AND IT RISES UP 10% THE NEXT DAY AGAIN, THERES A DECREASE IN UR STOCK VALUE" LOL. When in actuality, when the stocks falls 10%, it'll require a 11.1% price increase of the compounded stocks for it to increase
Thanks for the video. I'm still not convinced that they are not good for long term. If you keep a good risk management and avoid big drops, leveraged ETFs have much higher returns. For examples, I compared SPXL with SPX and the return is about 5x on all major trends (duration about 1 year). TQQQ is even more compared with QQQ. Of course, if you use them during high volatile market, the decay effect becomes significant.
Well said!
This is a wonderful lesson. Thank you :)
Thanks! Glad it was helpful.
It is April 2020. The Coronavirus has caused the SPX to drop 30%. Good time to use leverage to buy more while they are cheap. My country doesn’t allow borrowing for share investments, so leveraged ETF look attractive. Instead of explaining that medium and long-term investing in 3X companies it is better to look at their 3- and 5-year returns. 15% without leverage and 25% in a 3x leveraged ETF. It’s not triple the gain but is still good.
which leveraged ETF did you buy? how has it been working out?
Thanks for this. Excellent video. Nailed the topic in a very concise fashion. BTW, NUGT/DUST are excellent day trading vehicles. Huge volume, nice moves and tight spreads. I'm sure the same is true for other leveraged ETFs, but I haven't traded them much.
Right on, thanks Dori! I completely agree on the NUGT/DUST, they're fast movers, and they trade a ton of volume. Perfect vehicles when the setup presents itself.
Great video! What percentage of your portfolio do you allocate to leveraged ETFs?
Glad you enjoyed! I only hold leveraged ETFs when I have trade signals for them. Right now, for instance, one of my systems has about 15% allocated to leveraged ETFs, but it can be less or more depending on the environment.
@@TradeRisk Nice! Thanks.
This is excellent. Thanks for this information
Thanks Roger
What is wrong with buying 100 shares of TQQQ at 70 and selling it at 100 six months later? Where does the DECAY bs come in?
The decay is priced in to the share. Buy at 70 / Sell at 100 six months later is $30 per share either way you look at it. Without decay that $100 sell price could have been $120 six months later.
*note* I pulled that $120 number out of thin air as I don't know what the exact price would actually be without six months of decay.
Thanks for the informative video.
And?? If it would have been 120 without decay, the 30 return is either way a great return
@@Financial180-13 all the examples I see of decay are using non-realistic examples (examples we have never historically seen) or the "decayed" leveraged return is still greater than the non-leveraged return.
The Professionals will find a way to play the opposite way. They think the market is going to rise, they will short the Bear fund. Because selling a bear fund short is betting it will decrease in value. Plus there is the bonus of the choppy time decay over long time periods. Now if things trend for many days, it can compound too!
Absolutely nothing Vince. If you dont mind waiting 6 months. You made a nice profit! Well done.
Very, very well done! Thank you 😎
I have a quant strategy that I'm currently testing, and it's looking promising.
Great work! Thanks for this!
I never thought about considering liquidity.
I'll place some trades on my paper trading account to understand how it all works but I'm not sure how well it'll simulate liquidity. 🤔
Liquidity is a bit tricky to simulate and it depends how large your order is relative to the average dollar volume traded. When I'm concerned about low liquidity trades I'll typically increase my slippage when backtesting.
I have always heard about this decay on the leveraged ETFs but I don't see it. If I pull the chart on QQQ , QLD and TQQQ for 1 year. I see no decay. The returns are 1x, 2x and 3x. What am I missing?
long term, SP500 is always up but if you look at a leveraged short term, for example imagine a 3x starts at $100, increases by 30% ($130) and then decreases by 30% ($91). That's a 10% decrease. If you just did SPY, it would've gone from $100, increase by 10% to $110, and then decrease by 10% to $99. Only a 1% decrease.
Basically you lose exponentially more than you'd gain exponentially. You just have to go longer term and don't mind the crazy dips.
There was a lot of momentum the past 10 years with the bull run.
@@brianwachter4944 correct 👌
Do you not think that buying during a bear market like now (06/16/2022) and holding long term assures greater gains eventually? All the losses have already been felt by the investors holding. Even though I expect the immediate future to keep crashing, the huge percentages effectively take out smaller amounts of capital as we head towards single digits potentially. Averaging down and waiting for the next bear market seems unbeatable to me, I’m going big into TQQQ soon
You left out a very important word. At 2:09 you say the funds seek to double or triple the returns ... The word you left out is "DAILY". They seek double or triple the DAILY returns. That's an important distinction.
Yes you are 100% correct, a very important distinction indeed. Thanks!
Great educational video on Lev ETFs
Thanks Sam!
@thetraderisk thanks for the video! How would you mitigate overnight marco event risk?
Would trailing stop loss help in any way?
A trailing stop would not help in that situation since markets would be closed overnight and you'd be stuck a stock position. Fortunately, there are two ways you could mitigate overnight risk:
1. The first and most practical would simply be position sizing. Only allocate what you could afford to lose, aka whatever you foresee the worst case scenario being, and with leveraged ETFs, the worst case might be a termination event.
2. Maintain a hedge using options, maybe a far out of the money put that acts as disaster insurance that you continue to roll month after month so long as you hold the core leveraged position. Alternatively you could also attempt to hedge with futures if you're confident with your ability to react during a risk event.
Maybe someone else reading has another solution but I think those would be your two paths. Hope that helps!
Your definitions are inaccurate. They seek 2x or 3x the DAILY return of the underlying index, not long-term return.
Yes! You are correct. We've since made updates to the blog post to make that clear. Thanks for the comment.
What do you think about the brzu 2x etf? It was at 1400 before the pandemic and dropped all the way down to below 50, now it’s going back up at 118. Do you think this is a good time to buy?
Sorry I've never looked at BRZU before, no helpful thoughts on that one.
Hi. Great video. I was thinking of selling short put on $GUSH and $DRIP (sometimes). By selling puts instead of buying the ETF, I can collect a nice weekly profit without the Contango. Any suggestions? Thanks.
Glad you enjoyed the video. Sure I think it can work, but It's not clear to me that leveraged ETFs would offer any structural benefit with regards to premium selling over individual stocks or their underlying ETFs. The premium will be larger but it's in line with the increased volatility of the instrument. Like all premium selling strategies, your success will largely be dictated by your ability to time your option sales. Good luck!
Perfect for me!!👌
thx bud would buy shares or buy call option for example SPXS should i buy 100 shares or 1 call option if i am thinkig stock is going to go down in next 15 days ?
Sorry I can't offer up anything helpful here, it's too specific of a question that depends on lots of trading strategy questions. The one comment I'll add is that options on leveraged ETFs now introduces you to derivatives of derivatives of derivatives which basically equates to lots of potential slippage and sometimes unintended consequences. If I'm going to trade options which are inherently a leveraged bet I prefer to just trade them on the underlying stock or ETF.
for UCO do you need to enter and sell a new poistion each day? lets say you buy the Aug 2016 dip right at bottom can you hold that trade on that same contract say 2 weeks (given you beiieve that was the temp low based on TA and news) or will decay effect you over just 2 weeks and need to close out positions each day?
You'll be fine with short-term swings. What to do is compare UCO entry and exit prices over a two week span to the underlying ETF and compare the percentage differences as a test.
👌🏼Great explanation!
Glad it was helpful!
Will the SPXS or the SQQQ go to zero eventually assuming the bull market continues well into the future?
Great question! They would probably be trading at 0.01 by now if it wasn't for the reverse stock splits they do every 1 to 2 years. That helps keep the price from going to zero.
Long term, as in over 5 years, on leveraged is ok with dow or s&p index fund imo . Upro spxl. I wouldn’t do a nasdaq leveraged etf due to much higher volatility
I like TQQQ long term. I don’t use a trade strategy, I use investment strategy. I buy what I believe in. The NASDAQ 100 represents the crime of tech and growth. With AI, EVs, CRISPR, Solar, Biotech in the long term future, this is a good play. So when TQQQ dips, I buy more. I’ve always owned at least 300 shares, up to 3,000 shares. Right now I own 1,200 shares. When I analyze my performance of past trading vs. if I would have just bought and held at $30/share, I would have never sold, even during extreme pullbacks.
My biggest position is TSLA at $80/share average cost. Investing has beat trading for me, all the way around.
FNGU has been my buy and hold for the last year. I regret diversifying some of the profit. Fortunately I moved some of it into crypto last August.
Setting a trailing stop makes "risky" positions very safe. I used 10% on FNGU and usually got back in at a better price.
@@tombarr949 FNGU looks interesting, I’m not excited about Facebook holding. There is some added risk to leveraging only 10 stocks, especially if you don’t like one or two of the names. It looks to me like the holding has done very well over a couple of years.
@@wademt I am with you wade. I prefer a more diversified position in tech. TSLA MSFT GOOG AMZN APPL is the top holding of QQQ. and QQQ ha about 103 stock holdings in total and TQQQ follow QQQ at 3x and the expense ratio is moderate at .95% and it has pretty significant trade volume which gives it some strength and liquidity. I saw the spread on bid-ask price on TQQQ which is usually at a penny apart. That is as good as SPY.s spread. Have you been buying any leveraged ETFs? which ones have you bought? What has your experience been like?
Nice lesson i finish it until the end !!
Just started day trading inverse ETFS - and holding for 24-48 hrs. So far so good have made up to 8 % on the capital i have allocated just for this - playing SQQQ & TQQQ! This is an awesome video and clarified and confirmed a lot of things i was guessing at!! 5 yr old video - but it lives on!! Thank you!
Great to hear about your progress and thanks for the comment!
Can you just buy and sell every day to avoid decay?
Do you mean buy at the open and sell at the close every day? You can, but you also won't be participating in any overnight movement doing that, so you should expect very different results than buy and hold.
What a brilliant Video!! WOOW. Thank you so much
I have a question: Could a leveraged ETF fall to zero?
For example if QQQ falls 35% in one day, will the 3x TQQQ fall all the way to 0?
Absolutely. Google "XIV blow up" or "XIV termination event" and you can read about a leveraged volatility product that blew up. I don't think we've ever seen a traditional stock market ETF go to zero, but it is possible.
Nice video..but i observed that most of these leveraged etf have a high expense ratio. My question to you would be for a given trade how much real returns would you obtain when you subtract expense ratio, commissions/fees and taxes when you trade them frequently? And whether they are worth the risk? Could you provide an insight on this since you trade them frequently? Would much appreciate your response. Thank you.
Hi Amrut, you're exactly right on the expense ratios they are high, the average probably falling somewhere between 1 and 1.5% per year. But for short-term trading (1 week or so hold time) the expense ratio as a cost is fairly negligible (maybe a basis point or two, again depending on hold time).
The good thing about all of these costs is that they are known upfront. You can calculate the approximate expense ratio costs if you know your hold time upfront. You can then add in commission costs, slippage, etc. at which point you have all of the information necessary to determine if the expected payout of the trade is worth the risks and costs associated. Hope that helps!
The Trade Risk thank you for your prompt response. Appreciate it :) I must say i was only aware of the leveraged etfs for the S&P, DOW and NASDAQ, however, the table you mentioned at the end the video really gave me a wide variety of options to play with. Thanks a lot.
Thank you! great video!
Super interesting! Thank you!
also I dont see why one would use UPRO over SPXL, except looking at option chain the premium is cheaper
Thank you for the info
Our pleasure!
I feel like I'm missing something. I had UCO for just over a year until it recently dropped $40 per share, and then I sold. Are there fees and charges that I can expect at the end of the year for holding so long or is all that included in the price? Also, I have been looking at inverse ETFs and most things I've read say not to hold them for more than a day? Can I hold an inverse ETF until the next market crash and then bank on the equity? I guess its just all really confusing at this point. Thanks.
There are no additional fees - everything is reflected within the share price.
Great video. Well done and good explanation.
Thank you Carter!
Thanks
Waw!! This video are perfect!!! thanks for sharing all these informations! I have a little question by the way... I don't really understand the difference between a 3XBull and a 3XBear They don't react the same?! Thanks again!
Thanks Jean! I am glad the video was helpful. So for many of the leveraged ETF products they offer a bullish and bearish version.
The 3XBull ETF rises as the underlying commodity/ETF rises.
The 3XBear ETF does the exact opposite. As the underlying commodity/ETF falls lower, the Bear ETF rises.
Does that make sense? They move in opposite directions.
You could also think of the Bear ETFs as effectively "short" the underlying.
So if I correctly understand, if I short a 3XBear ETF, it like buying a 3XBull ETF, it's gonna be the same result right? Thanks again!!!
Exactly right, yes it will. Finding shares to borrow might be hard, and expensive, but yes provided you can get shares short of a Bear ETF, it would be identical to Bull equivalent.
I like trading options on leveraged etf's because of the high implied volatility. Quick and easy money 😊
How are ETFs like TQQQ not seeing the decay that you mentioned?
They hold up much better primarily because they don't suffer from such extreme forces of contango like commodities do. We discuss it a bit more in article format: www.thetraderisk.com/trading-leveraged-etfs-for-max-profits/
@@TradeRisk OK, I read the article and you clearly point out "Do not hold [primarily commodity AND INVERSE] leveraged ETFs as investments or long-term trades!". My confusion is long holding ETFs like TQQQ and FNGU seem like a no brainer. Seems to be more nuance than your explaining so it would be helpful to understand that nuance. Unless the nuance is simply, don't long hold commodity ETF in which I think it would be helpful to make more clear in the video. Otherwise people watching the video are lead in the wrong direction.
@@_0O0O0O0_ This is exactly why I want to be very careful here, and to be clear I don't agree at all that holding TQQQ or FNGU as a long-term allocation is a no brainer, there are still high risks associated with them.
Two brief reasons why:
1) Look at TQQQ, SPXL, TNA, right now (as of 7/13/20) and compare their year to date performance with the performance of the underlying indices. None of them are tracking where they should be and SPXL and TNA are way off and skewed negative. You got all the downside volatility in those ETFs without all of the recovery reward.
2) What happens if there is a flash crash of -33% in the broad indices in a single day? It sounds crazy, and the odds are obviously low, but a flash crash or some mechanical meltdown is possible, in which case, those leveraged funds have very high odds of triggering their termination events, and blowing up.
Ultimately, holding these ETFs for trades with proper position size, and an underlying strategy can make sense (I do that myself) but they are not without risks. Hope that helps, good luck!
@@TradeRisk Thanks. Yeah, I follow you.
@@TradeRisk Please comment. I have heard stories about the ETF TQQQ risk of becoming insolvent if the price of QQQ falls 33 percent. But I have been wondering if that could be possible in today's markets which have market halts if the market price drops suddenly even just 15 percent. and a breaker switch is executed at the exchanges. And if it drops I believe 20 or 25 percent in the day. they shut down trading for the day. I am wondering if this mechanism protects TQQQ from a flash crash. I am still learning.
Thanks a lot great video.
Great video. Simple informative
Hi, what is the mostly traded 3x leveraged etf for bull & bear for day trader? Is the bear 3x gives 3x the movement of SPY? How does it compare to TVIX?
All of the major indices bull and bear 3X ETFs trade a lot of volume and are used by day traders. Those are the ETFs like UPRO SPXS TQQQ SQQQ TNA TZA etc. TVIX is an aggressive ETF that moves based on volatility. Trading TVIX will be similar to SPXS.
Very good explnation
The how you explain TECL or SOXL? Look at the 5 years chart Or 10 years. I see Hugh profit and no decay...
Yes, they hold up much better primarily because they don't suffer from such extreme forces of contango like commodities do. We discuss this more in article format: www.thetraderisk.com/trading-leveraged-etfs-for-max-profits/
thanks for all video .
Can you please explain a concept. Say you did leap calls on sqqq for 1-2 yrs out, with the Greeks and decay, couldn't one capitalize on a severe collapse if it happened? I understand the option is black or white, meaning 100% expected loss vs a potentially galactic gain if the apocalypse happened, but wouldn't this work in theory if market dropped 50-80% sometime before expiration? And, of course, if the thesis didn't happen it would be worthless and even in the short-term would be worthless or is there something I'm missing? Many thanks
The answer is mostly no, but it largely depends on the timing of the apocalyptic event you're playing for. For instance, if your time horizon for leaps is 2 years out, if we look at the SQQQ right now compared to where it was 2 years ago, SQQQ has lost approximately 95% of its value over that time span. Even during the height of the coronavirus meltdown last February, the SQQQ was still 60% down from its value 2 years prior in 2018. It's really hard if you're trying to play that far out in advance. Where the trade works, is if you buy 2 year out leaps and the apocalyptic event happens in weeks or even a couple months after your purchase, then yes you for sure would cash in, but timing is the factor.
Trading the triple longs is the easiest way to become wealthy...start trading these yesterday!!!
Daddy Dividends how has your profit been so far?
What are the triple longs?
Fingers crossed you got out in time!
3X long gets hurt badly in a bear market.
Thank you
Thanks for a very informative video! Can leveraged/ inverse ETFs fall to 0?
Yes absolutely. They are called termination or liquidation events and if you google the funds prospectus you can usually find some details on what can trigger that from happening.
Awesome thanks. This is such an underrated channel, subscribed and will spread the word amongst my finance friends. Keep it up!
Thank you Jason, much appreciated!
If you keep the etfs long term will you have to file taxes on them?? I heard of something about taxes with etfs is that true?? Im thinking about keeping a leveraged etf for at least 6m-1yr to see how it does. So far i have 7 shares in etfs for less than a month. I watch them daily because i know they can go down quickly. Just not sure about the taxes/fees.
Quick disclaimer, you'll want to consult a CPA to discuss your situation, I am no tax professional and cannot give specific advice. With that out of the way - every time you sell a stock or ETF it is a taxable event. If you buy a security, hold onto it, and don't sell, you won't owe taxes until you actually sell some shares. Other taxable events include dividends, if a stock or ETF you are holding makes distributions, you'll owe taxes on those pay outs. Hope that helps.
Also watch out for reverse splits when they go below $10 or so.
good point!
Very informative
Would you buy GUSH? Great video btw!
Thanks! GUSH is not in my lineup of ETFs I track so I'd have to go with a no.
No Trimble short for silver? Excellent Job !!!
Thanks Dave!
I'm trying to understand why the price of TNA and TZA are not the same? Aren't they long/short the same portfolio?
The actual dollar price of those ETFs is an entirely different topic that goes down the rabbit hole of fund structures, but frankly it's largely irrelevant and meaningless. TNA could be $10 and TZA could be $5000 a share and everything would still be just fine, the key distinction is that each of those ETFs move approximately inverse to one another on any given day and that's what you want to see.
Opinion on selling options on leveraged ETFs?
Quick question, why would you not want to hold long during a bull market? If you held tqqq from 2010 until now, you would have returned over 10x gains.
Hi Michael, Yea absolutely, looking back over the past 8 years it seems like a no-brainer since we haven't had any deep corrections, but even so, you would have still had to have held on and not lost faith during many 60%+ drawdowns and long periods of sideways underperformance (while still being hit with the full downside volatility) like 2015 and early 2016.
The bigger danger is, what happens if and when we experience a 30%+ correction in the QQQs? What happens to these leveraged ETFs in times of real panic? I don't know what the answer is, and I'm not trying to be negative or deter the usage of them, but these are legitimate concerns that we haven't seen played out yet.
@@TradeRisk More likely would be a Biotech crash intraday of 35% would LABU go negative? Open at 50 and trade during the crash to zero?
@@superchuck3259 In the prospectus for leveraged ETFs you can usually find termination event clauses that covers what happens to the ETF in the event of some extreme volatility as you describe.
@@TradeRisk Cool, well looking that up only took me 5 minutes, well I found you can't lose it all, only 90% in one day! "If a Fund’s underlying index moves more than 33% on a given trading day in a direction adverse to the Fund, the Fund’s investors would lose all of their money. The Funds’ investment adviser, Rafferty Asset Management, LLC (“Rafferty” or “Adviser”), will attempt to position each Fund’s portfolio to ensure that a Fund does not lose more than 90% of its net asset value on a given trading day. The cost of such downside protection will be limitations on a Fund’s gains. As a consequence, a Fund’s portfolio may not be responsive to underlying index movements beyond 30% on a given trading day, whether that movement is favorable or adverse to the Fund. For example, if a Bull Fund’s underlying index was to gain 35%, that Fund might be limited to a daily gain of 90%, which corresponds to 300% of an underlying index gain of 30%, rather than 300% of an underlying index gain of 35%." www.sec.gov/Archives/edgar/data/1424958/000119312515198270/d932160d485bpos.htm
Good find!
So if you wanted to catch the overall rebound on the airline industry after this virus crap is over what ETF would you hold for a few months without the decay
What’re your thoughts on buying LBJ etf cheap and waiting 2 weeks to sell
sorry no idea can't answer that.
hello , im very new , how do i sell the ultra short stocks after they are in my portfolio after i just keeping them ?? just with market sell order ??
I recommend you contact your broker and ask them how to exit a position.
@@TradeRisk will ask then, how you do it ?
@@tornadof5thenature109 Limit orders and sell stop orders are how I exit trades.
@@TradeRisk so do i , but what if you are not in trades you just got stocks on your portfolio and you want to sell them ?? you at the alive price ??
@@tornadof5thenature109 If you have a stock that you want to sell your choices are limit orders or market orders, both do what you're looking for.
Good video. Thank you.
Thanks Angus!
TVIX since the 26th MAR, was not fully informed. So, if I hold for two weeks and sell by the 9th. Bought at 350 ends at 500, however multiple swings before the high.. I am out for a loss?
Not sure I fully understand the question but I'll answer it this way: whatever price you see TVIX or any other leveraged product last traded for is in fact its real price. So if you bought it at $350 and weeks later it's $500, you certainly get to enjoy that $150 per share profit. The contents in this video about potential slippage, erosion in value etc. are all occurring under the hood of the ETF but ultimately the quoted price you see reflects all of that. Hope that makes sense.
Trade in and out of tvix on days. Never keep it for longer than a week. If you want to hold Tvix for the long term, then it's best to short tvix and let the decay works in your favor in the months ahead.
SO question if lets say i bought 1k worth of tqq and im down say -$100 and decide to get out will that -$100 turn into -300?
If you're down $100 then you're down $100. No other penalties or "leverage" is applied when you sell.
@@TradeRisk ty very much I been thinking about trading t qqq and sqqq lately
@@rayomar32 good luck! you can definitely get a lot of movement out of tqqq/sqqq. movement = opportunity & risks
So if I buy tqqq at $30 a share and sell quickly at $31 dollars then will I make $ bucks profit? Will the rest of my portfolio be safe?
Yes if you buy at 30 and sell at 31 you will make $1 per share in profit, everything is safe.
@@TradeRisk Thanks, but where is the x3 at? If it's a leveraged stock I wouldn't make more than a normal stock? I was hoping for $3 dollars.
@Sylvia :D I would suggest reading through the paragraph: *What Are Leveraged ETFs* here: www.thetraderisk.com/trading-leveraged-etfs-for-max-profits/ and review the example given. It will return 2x or 3x versus the underlying ETF its tracking. That means if you bought a leveraged ETF at 30 and sold it at 31 the underlying ETF its tracking would have only moved from 30 to 30.50, therefore your leveraged ETF moved more.
Could you trade longer term call spreads on them then since they are guaranteed to decay?
Sure you can, but option writers know they decay and therefore options are priced with that already factored in. In other words, you'll want to have another reason/edge to put call spreads on other than decay.
@@TradeRisk Yeah that's a good point. Damn, if only it were that easy 😆
It is not clear to me that if I hold an ETF more than a month that I'm not going to make money? For instance something like labd, that has been going down has now turned around, say I have it for 2 months and I have it at $19, it is at $15 now, say in the next month it goes to $25, I sell, I make money? I'm at a loss as how if I hold it longer I will not make money? I know I'm missing a major key point of how the ETF value goes down overtime, but I still don't understand holding it longer how it's a detriment?
Sorry new to the ETF market. If anyone with wise words, that would be great. Maybe I am not alone in this confusion?
An off the top of my head analogy after reading your post might help. One way you can think about ETFs that have steep contango effects like commodity ETFs and inverse ETFs is that it's like traveling up hill instead of on a flat road. You can absolutely still get to your destination traveling up hill, in your example, buying at $19 and selling at $25, it's simply going to take more force and effort to make it happen, it's harder, then a regular old ETF which is the flat road path. Another way to think about it, is there are just more frictions you need to overcome, and the longer you overstay your welcome, the more likely those frictions will erode your progress. Hope that helps and I would also suggest reading through the blog post for this video which has some more updated examples.
Hello, I have been trading sqqq and tqqq, do you know how is the expense ratio deducted? I saw that its 0.98% expense ratio but based on what? Is it 0.98% of every time I buy the stock? I'm freaking out because I have been trading this stock for months and my total cost now is 3 million does that mean I will have to pay 30k on fees?
what is expense ratio in an etf, does a trader have to pay that separately or is it priced into the price of the etf
Good question. Expense ratio costs are baked into the underlying price of the ETF so no additional payment is required. Leveraged ETFs do have higher expense ratios than most and if you look up the prospectus you can find exactly what those costs are.
Then buy "Chinese for Dummies".
When you talk about decay do you mean just for options trading or standard stock trading
All decay mentions are in reference to the leveraged ETF equity, not options. Do note, I did mis categorize some of the decay risks and have since updated the blog post and addressed those issues in this comment section. Here's the takeaway:
The third risk is something called volatility decay.
An easy way to understand this is with the classic example of a portfolio that loses 50% of its value in a drawdown. In order to get back to even, it’s not a simple 50% return, instead, it requires a 100% rally to get back to that high water mark.
Leveraged ETFs are no different.
The values aren’t so extreme, but what you have is lots of micro moves back and forth that causes the ETF to lose precision particularly in choppy market environments.
Finally, It is worth noting, there are some leveraged ETFs that do decay faster than others. The popular leveraged index ETFs like SPXL, TQQQ, and TNA tend to exaggerate returns in both directions. If you’re in a strong bull trend, you may even see these outperform over 3X to the upside. On the flip side, choppy or bearish markets can cause performance to cut deeper than -3X.
Commodity ETFs for example, tend to be much worse than equity ETFs (in all environments) due to the extreme forces of contango.
I got in on ugaz at 15.90 and it dropped to 11 ive had to hold for over a week how do i calculate the decay.
@@anthonysimmonsacousticmusi1098 You can compare your return versus the natural gas futures contract, factor in your 3x leverage, and then see how much ugaz deviated.
Does decay work the same with options?
It's a similar concept, but the underlying reasons are a bit different. Options contracts decay largely because there is an expiration date associated with every option. Google *theta decay options* and that should give you some insight.
So right now I have 4 shares of sqqq which i bought in the span of two weeks. Im buying through robin hood so no extra fees. What are my decay factors if i decide to hold for another month.
There's no way to know for sure but let's just use to the last 21 days (1 month) of trading as an example. The S&P500 is up +4.84% over this period. In a perfect world, SQQQ (3x inverse) would be down -14.52%. Instead we see that it is actually down -17.58%. So it tracked about 300 basis points worse than perfect. Does that mean the next 1 month has to skew this negative? No, but it at least gives you some reference.
@@TradeRisk That is not true. These leveraged ETFs, SQQQ, TQQQ, etc. use a benchmark of 3x for A SINGLE DAY.
You can not multiply 1 day's results as you did here.
The results would not be 4.84*3
Each day begins a new 3x benchmark, which may or may not be achieved.
@@rotagbhd Yes correct rotagbhd, they are designed to benchmark on a day to day basis, this is discussed in the accompanying article under volatility drift section. The example I gave wasn't for how they are constructed, rather, an illustration of how actual returns often differ from a traders expectations.
Four whole shares? Wow! That's $80...You're a high roller!
@@JohnDoe-xr5is I guess we all had to start from somewhere. Good for him at least getting his feet wet. Hopefully he didn't get beat up to bad over the Roni and he's still investing in the down turn!
Thanks. I agree excellent video.
Whats the best way to short real estate?
Sorry, beyond googling real estate ETFs and using one of those funds, I couldn't say.
Do you use weekly charts or daily charts?
Majority is daily, but I use both.
You want to confirm the trend on higher timeframes. Don't limit yourself to one timeframe.
@@TradeRisk Nice do the patterns used in various futures trades apply here as well? I know that a lot of times it's claimed that futures setups work across charts and timeframes. aka does a two legged pull back, traps, breakouts and failed breakout apply?
@@Utoko So that applies here as well? nice. Do you know if the patterns used in various futures trades apply here as well? I know that a lot of times it's claimed that futures setups work across charts and timeframes. aka does a two legged pull back, traps, breakouts and failed breakout apply?
@@legionreaver Yes those formations you describe are considered fundamental characteristics of price action and free markets, so breakouts, reversals, etc. will be found across all stocks, futures, commodities, etc. At times, some markets may "work better" then others, but they apply everywhere.
What kind of daily decay are you seeing for Urty, Tqqq, and Upro holding several months or longer term?? I think you needlessly scared the shit out of a lot of leveraged etf investors of these indices. I'm looking at 2018 performances.
Daily decay has only a subtle impact on the Index ETFs, so strictly speaking, those are certainly more acceptable to hold for longer periods of time. I've updated the article version of this video to explain those differences as the distinction wasn't made very clear when originally recording this video.
@@TradeRisk Word.
you said "I didn't cherry-pick it" several times. yet you picked a nontraditional growth stock such as a leveraged ETF following the S and P or NASDAQ.
I'm not sure I follow your comment, what timestamp are you referring to?
Wonderful, very informative, to the point video. I jumped into the world of leveraged ETFs cold-turkey. Lost a lot of money by holding-on too long, but learned a lot in the process. Fighting my way back nicely. I guess you only understand what is being said by experiencing it. Final points; you must understand the underlying product extremely well, then overlay the market sentiment and momentum, and remember "Yet their strength and their speed are still based in a world that is built on rules. Because of that, they will never be as strong or as fast as you can be.” ~Morpheus, Matrix
They have algorithms and speed, you have institution; use it accordingly.
User One my is quite the opposite.
I hold on for too short and let it go too quickly.
I prefer buying in my losses and letting my winners ride cause I’ve learned I often sell low buy high when ever stocks drop and that’s costing me.
I guess I found GASX a few weeks ago because I started seeing daily charts from a more patient perspective. This week has been rewarding. This weekend..I'm statring to get nervous.LOL
So I bought jnug bull x2 do I pay fees on it or what
The contents in this video about fees, potential slippage, erosion in value etc. are all occurring under the hood of the ETF which means the price you see the ETF trading at reflects all of that. There are no additional fees you have to pay out of pocket.
@@TradeRisk Thanks for pointing that out. Many presentations talk so much about decay and rebalancing etc. that they imply you can't make a profit. The bottom line is that all those fees and decay and rebalancing are reflected in the price of the ETF. Thus, if the ETF makes a 20% move in the price, there are no additional fees (other than brokerage fees) that would make the profit less than the 20% you would see based on quoted ETF prices.
@@hmf130 Yes exactly, you are correct
are you trading etfs in a margin account?
yes, we trade ETFs in margin and cash tax-deferred account types
When day trading or swing trading, what is the best investment vehicle you use for tax efficiency purposes? I can imagine someone swing trading 10-20 times a month can take quite a hit for taxes. What’s the best account to balance out the capital gains taxes? Thank you, big fan! 👏🏼
Hey Nicholas, saw this same comment on my other video but I'll reply here as well. Yes you are spot on, active trading strategies can have a high impact come tax time. I just recorded a video on this topic, check this out: ruclips.net/video/8dPat3gYFv8/видео.html
Thanks. Your a 😇
I am new to leveraged ETFs. Can you lose more than your initial investment ??
Good question, you cannot lose more than your initial investment. As long as you're not buying on margin, the maximum loss is the total amount of capital used to purchase the ETFs.
Thanks for the quick answer.
When everybody is doing 3x etf, the market will be insane.
🙏🏿🙏🏿🙏🏿🙏🏿
Due to Covid-19, I heard the EDD etf is very popular.
You are completely WRONG on Index Fund leveraged ETFs. SPXL up over 1000% (yes thousand) over last 8 years CONSISTENTLY vs VOO (Vanguards S&P 500) straight ETF is up 145%. So 1000% (with “decay”) vs 145% (with no decay) - give Me decay ALL YEAR after Year Long!
Yes, I've addressed there is a big difference between long-term holds in commodity and inverse leveraged ETFs and the popular leveraged long only equity ETFs (like SPXL..) in this comments section and in the original blog post as this distinction was not made clear in the video.
What you'll find with ETFs like SPXL, TQQQ, TNA is that they tend to exaggerate returns in both directions. If you’re in a strong bull trend, you may see these outperform over 3X to the upside. On the flip side, choppy or bearish markets can cause performance to cut deeper than -3X. Take for example right now (5/17/18) SPY YTD is +1.93% and SPXL is +0.72% instead of +5.79%. The path the underlying market takes influences the returns of the leveraged products.
The Trade Risk Not in this video - this video is factually false
Now if we have a brutal and steady bear market like in March 2000 thru 2002 those bull funds will be destroyed!
@@superchuck3259 Yes, but the inverse funds would have made a fortune! Just trade the inverse pairs; exit one and enter the other. You will be in the market all the time, making money in both directions. Why hold on to anything if it is losing? Switch to the opposite side!
Max Profits comes with Max Loss.
ONLY ONE RULE APPLIES HERE: BUY LOW AND SELL HIGH..ALL ELSE IS B.S.
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