4 ms·

That's a really bad idea, those rebalance daily, so you are basically betting against short-term volatility (if spy goes down 10% in a day then up 10% the next,

That's a really bad idea, those rebalance daily, so you are basically betting against short-term volatility (if spy goes down 10% in a day then up 10% the next, you are down 1% on spy, on a 2x levered etf you are down 4% or 4x the loss). Also both fees and slippage are really terrible on all levered ETFs If you really want to do 2x lever its probably best to just buy 6 month or 1 yr dated ITM calls. They're quite cheap and very liquid on SPY.

arcticbull 2y ago
And yet UPRO (3X SPY) has significantly outperformed 3X the S&P 500 since inception (since June 2009 UPRO is +8000% vs SPY +700%. The reason is exactly what you described actually. If the underlying exhibits positive momentum, generally trending up instead of oscillating back and forth, the daily balancing works for you instead of against you and the ETF outperforms the target multiple of the underlying. Yes, if your S&P returns over 3 days are +10%, -10%, +10% then SPY is up 8.9% while UPRO is up 18% (2X, not 3X). On the other hand if your S&P returns over 3 days are +10%, +10%, +10% then SPY is up 33% while UPRO is up 120% (4X, not 3X). The big levered ETFs have reasonable volume and limited slippage for any volume retail investors would be trading. Fees are like 0.9% which all things considered isn't bad - given their vast outperformance. I'm not saying go all in on these, what I'm saying is that your analysis of the levered funds is missing some important details which show up on a quick backtest. If you understand the products and what bet you're making with them, they can be quite reasonable to hold long term - despite popular misconceptions. > If you really want to do 2x lever its probably best to just buy 6 month or 1 yr dated ITM calls. They're quite cheap and very liquid on SPY. Respectfully those are much more expensive and if you're near the money quite non-linear. You're going to have to pony up pretty close to the price of just buying the index again to get 2X exposure if you're deep ITM. Near the money you'll need several options to get 2X - and you'll need to delta rebalance. You'll also get eaten alive by theta decay. To avoid having to pony up a ton of collateral or get eaten by theta, you may as well just buy more SPY on margin - or save yourself the hassle and get an /ES=F or /MES=F. If you insist on trying to trade the S&P 500 with options (especially if your expiration is only 6-12m away) use SPX or XSP -- not SPY. They're cash-settled European index options, so no early exercise to worry about, no dividends to worry about and they get 60/40 capital gains treatment no matter how long you hold them for.
- pinkmuffinere 2y ago
  +1, the criticism of “if s&p goes up and come back down, leveraged investments lose” is just insufficient as a criticism. It examines only one case. I’m probably 30% in SPUU for years now, and would like to hear real criticisms — do you have any real criticisms to share? I legitimately have found so little competent commentary on it, and I think I understand the risk I’m taking, but don’t want to miss an opportunity to get considered input.
  - jcalvinowens 2y ago
    > I’m probably 30% in SPUU for years now, and would like to hear real criticisms — do you have any real criticisms to share? I'm no expert. But it seems like writing out of the money options: it's "free money" until the market suddenly moves against you, and you get your head chopped off. When that inevitably happens, the loss has a good chance of more than wiping out all your prior gains.
    - pinkmuffinere 2y ago
      Not to “fight“, but just to add to the conversation: I agree it is taking on more risk, although potentially less than with out-of-the-money options. To lose 99% of spuu’s value the sp500 would have to drop 50% in one day, or 35% for three days in a row, or 20% for nine days in a row, etc with infinite similar cases. It’s not a rigorous argument, but I think those examples give a feel for how common/rare that occurrence would be — I think these particular cases have never happened since the sp500 started. But it’s certainly riskier-than-traditional in either case
      - arcticbull 2y ago
        > To lose 99% of spuu’s value the sp500 would have to drop 50% in one day... Which is exceedingly unlikely because of the circuit breakers. A level 3 breaker is triggered after a 20% decline and halts trading for the remainder of the day.
        2y ago

arcticbull 2y ago

And yet UPRO (3X SPY) has significantly outperformed 3X the S&P 500 since inception (since June 2009 UPRO is +8000% vs SPY +700%. The reason is exactly what you described actually. If the underlying exhibits positive momentum, generally trending up instead of oscillating back and forth, the daily balancing works for you instead of against you and the ETF outperforms the target multiple of the underlying. Yes, if your S&P returns over 3 days are +10%, -10%, +10% then SPY is up 8.9% while UPRO is up 18% (2X, not 3X). On the other hand if your S&P returns over 3 days are +10%, +10%, +10% then SPY is up 33% while UPRO is up 120% (4X, not 3X). The big levered ETFs have reasonable volume and limited slippage for any volume retail investors would be trading. Fees are like 0.9% which all things considered isn't bad - given their vast outperformance. I'm not saying go all in on these, what I'm saying is that your analysis of the levered funds is missing some important details which show up on a quick backtest. If you understand the products and what bet you're making with them, they can be quite reasonable to hold long term - despite popular misconceptions. > If you really want to do 2x lever its probably best to just buy 6 month or 1 yr dated ITM calls. They're quite cheap and very liquid on SPY. Respectfully those are much more expensive and if you're near the money quite non-linear. You're going to have to pony up pretty close to the price of just buying the index again to get 2X exposure if you're deep ITM. Near the money you'll need several options to get 2X - and you'll need to delta rebalance. You'll also get eaten alive by theta decay. To avoid having to pony up a ton of collateral or get eaten by theta, you may as well just buy more SPY on margin - or save yourself the hassle and get an /ES=F or /MES=F. If you insist on trying to trade the S&P 500 with options (especially if your expiration is only 6-12m away) use SPX or XSP -- not SPY. They're cash-settled European index options, so no early exercise to worry about, no dividends to worry about and they get 60/40 capital gains treatment no matter how long you hold them for.

pinkmuffinere 2y ago
+1, the criticism of “if s&p goes up and come back down, leveraged investments lose” is just insufficient as a criticism. It examines only one case. I’m probably 30% in SPUU for years now, and would like to hear real criticisms — do you have any real criticisms to share? I legitimately have found so little competent commentary on it, and I think I understand the risk I’m taking, but don’t want to miss an opportunity to get considered input.
- jcalvinowens 2y ago
  > I’m probably 30% in SPUU for years now, and would like to hear real criticisms — do you have any real criticisms to share? I'm no expert. But it seems like writing out of the money options: it's "free money" until the market suddenly moves against you, and you get your head chopped off. When that inevitably happens, the loss has a good chance of more than wiping out all your prior gains.
  - pinkmuffinere 2y ago
    Not to “fight“, but just to add to the conversation: I agree it is taking on more risk, although potentially less than with out-of-the-money options. To lose 99% of spuu’s value the sp500 would have to drop 50% in one day, or 35% for three days in a row, or 20% for nine days in a row, etc with infinite similar cases. It’s not a rigorous argument, but I think those examples give a feel for how common/rare that occurrence would be — I think these particular cases have never happened since the sp500 started. But it’s certainly riskier-than-traditional in either case
    - arcticbull 2y ago
      > To lose 99% of spuu’s value the sp500 would have to drop 50% in one day... Which is exceedingly unlikely because of the circuit breakers. A level 3 breaker is triggered after a 20% decline and halts trading for the remainder of the day.
      - 2y ago