Where to Get 50X Leverage on Stock Indices

Last Friday, Jason Kelly put up a very funny blog entry about his launch of a pair of fictional 100x levered ETFs, with the ticker symbols SOAR and SINK:

Kelly Capital will reset and relaunch the funds at the beginning of each trading day. The company is in talks with the Security and Exchange Commission (SEC) about the possibility of relaunching the funds after lunch should they go bust in the morning session, but the SEC is balking. SEC spokesperson Ben Meriwether remarked, “We recognize the right of investors to employ as much leverage needed to find fortune or ruin in a day, we just aren’t sure of the need to extend that right twice per day.”

By Wednesday, Kelly was depressed enough about the email traffic he got in response that he posted an update:

A full 65% of people expressed an interest in owning products that would “go bankrupt within the course of most trading days.” A stunning 5% thought they already owned them. Only 30% of respondents got the humor.

John Carney picked up the datapoint in a blog entry headlined “Is It Possible To Invent An Investment Product Too Stupid To Find Buyers?” — something I then tweeted.

What none of us appreciated, however, is that products much like these already exist. As Amy Nauiokas rightly notes, in the spread betting market, which is huge in the UK and elsewhere, 50-1 leverage is common. IG Index, for instance, gives an example of how a £10-a-point bet on the FTSE can generate a gain of £560 — or a loss of £480 — in one day.

Spread bets don’t exist in ETF form, but they’re essentially the same thing, just much more highly leveraged than any fund. They’re hugely popular in the UK — which just goes to prove that yes, if you offer an insanely leveraged way of betting on intraday moves in stock indices, there’s no shortage of people who will flock to your door. Even in boring old England.

Comments

[Alan Young]

I would be a buyer — of both, any day. Any day the market moves more than 1%, the 100x leverage would bankrupt one but increase the other by more than 100%, so you'd come out ahead.

I would worry about all the people who thought it was serious, but I think that number is probably another joke.

2009 Nov 20 07:26 PM

[Analyste de Boston]

Since this is the 'random thread of digressions,' has SA figured out how to BAN the spammer Cretin? Can't they just block his Turkish IP ?

2009 Nov 21 12:56 PM