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Inverse or leveraged ETFs are terrible for anyone except for day traders. You can't buy and hold them, because they degrade over time, especially the leveraged
by ping_pong 7y ago
Inverse or leveraged ETFs are terrible for anyone except for day traders. You can't buy and hold them, because they degrade over time, especially the leveraged ETFs. If you really want to short, then short the stock directly with proper stop losses or buy puts, but options are very complicated with various types of premium, most importantly time premium which also causes prices to degrade.
- atombender 7y agoCorrect in principle — from what I recall, leverage ETFs' beta decay over time is caused by the overhead of the leverage. You can see this with SH, for example; while it seems to perfectly mirror SPX, there's a slow rate of value loss over time. However, if you look at ETFs like TMF over time, short-term gains easily overcome the decay. If you'd invested in TMF on Jan 1, you'd be up 92% now. And it's not like options and shorts don't come with premiums. There's no free lunch, but there's the possibility of returns wildly beyond your initial investment.