I had kind of hoped that some people would comment about some other aspects of the ultra’s, like how frustrating the “drift” can be when you’re trying to open or close a position (and if anyone has observed any patterns). Or how much of the price action takes place outside of trading hours. Or, how unbalanced the dollar amounts traded on the SRS/URE pair have become (and what implications that might have).

The driving force behind the article was a vacuum of discussion critical of leveraged ETFs, perhaps because they buy advertising on most of the big financial websites. I hope somebody out there has thought this all through, because this looks like the fastest growing segment of the investment world right now.

Most of all, thanks to Barry for publishing it.

They are definanetly not a “free lunch” replacement for the underlying index.
If anything, they’re sort of like ITM leaps where you are eating a slight time decay over time.

I don’t like to hold them through more than one swing cycle. but to each his own.

The other thing I see all over the place is people doing traditional technical analysis on the ultras withough accounting for the slippage. This is somewhat like doing TA on an option and declaring you’ve hit support because you’ve time decayed back down to a prior level.

Because of the slippage, the price level you hit back 2-3 months ago is *not* the same as that same price level 2 months later. Unless you believe that the ultra is driving the underlying index, you are far better off doing the TA on the underlying index even if you are trading the ultra. (For an example of this, go look at that 760 resistance on RUT from earlier this year. Now look at the chart of UWM or TWM and see what the slippage does to that nice clean technical level)

I’ve made about 23% off the Ultra shorts since August. Some trading, but never completely out. I will be completely out if S&P breaks 700 or March, whichever comes first.

I don’t know if you consider this trading or buy-and-hold. I do know that the Ultrashorts deliver a lot less than 2X, probably better off with 1X shorts and less bother.

I looked into this a bit. In general they’re hard to borrow and the gains aren’t particularly stellar unless you’re seeing the once-in-a-lifetime volatility that we’ve been seeing. (Don’t forget the divs/distributions when doing long term comparisons on these). And there’s the unknown of counterparty risk and the goofy stuff that happened to the financial ultras during the shorting ban.

It makes more sense to do with the 3x inverses as they have more leverage.

Note that if you catch a move in your direction, the short ultralong will underperform the long ultrashort. (and vice versa)

These basically are short to medium term day and swing trading vehicles. They are absolutely cannot be used as long term buy and hold investments.

I like shorting SSO over long SDS since I think the market will trend down, but with occasional sharp rallys (which bleed off SDS gains as per jfeddak comments). On the other hand, SDS often works better on a day you “know” will trend down. Same with the other ULTRA twins.

Warning: these ULTRA twins develop occasional correlated biases. For example, S&P index = -2%, SDS = 3.5%, SSO = -3.5%. A rather large tracking error.

Haven’t tried shorting both sides of an ULTRA twin. Interesting.

These have noting to do with the manager and they (for the most part) track their NAV fairly well.
(Most of them have decent divvys, but thats not the issue either)

THESE ARE NOT DESIGNED TO TRACK 2x FOR PERIODS LONGER THAN 1 DAY

Pull up a spreadsheet and work it out yourself.
Say you start with an index and its ultra ETF both worth $100.

On day 1 the index drops $10. The ultra track perfectly and drops 2×10% to $80.
On day 2 the index gains the $10 back. This is an 11% move. The ultra then gains 2×11% * 80 = 97.6

You’ve now lost ~2.5% against the underlying index with no tracking errors or mismanagment.
As noted in the prospectus, this “slippage” increases with the volatility of the index. (It can even cause the ultra to “outperform” with a cascading unidirecional move)

Basically these ETFs automatically increase your leverage as they gain in value and decrease your leverage as they lose value.

QQQQ vs. QID: YTD, QQQQ -46.75%, QID +113.68%
FXI vs. FXP: YTD, FXI -53.49%, FXP -35.67%

that’s just incredible. I lost a lot on FXP, and vowed to never play that again… SKF or QID would be a lot better -_-