This trade will use the QQQ or Nasdaq, which is frequently classified as being more technology companies, as well as more volatile. ProShares Ultra QQQ (QLD) seeks daily investment results that correspond to twice the daily performance of the Nasdaq-100 Index. ProShares UltraShort QQQ (QID) seeks daily investment results that correspond to twice (200%) the inverse (opposite) of the daily performance of the NASDAQ-100 Index. These two ETFs will move in opposite direction, but not always with other market indices.
The ETF portfolio strategy is to buy the ETF, QLD or QID, based on the movement of the QQQ. At the market close on 12/2/2011, QQQ opened at $54.16 and closed the day at 56.62, for a gain of $2.46 or 4.54%. In comparison, the ultra QLD opened at $76.58 the same day and closed at $83.36, an increase of $6.78 or 8.85%.
The use of the levered QLD increased the daily return from 4.54% for the QQQ to 8.85% for the QLD. Therefore, your best trade for 12/2 was the QLD which is used when the QQQ is moving up. On the same day, the QID opened at 49.05 and closed at 44.59, a decrease of $4.46 or (9.09%). The caveat is that the leverage also works in the opposite direction so the investor must be on the right side of the QQQ price movement or they will lose more than the index.
You should watch the technicals of the QQQ, QID, and QLD to determine the intraday/short-term trend to determine which levered ETF to be invested in each day in your portfolio. The chart below compares the QLD to the QID over the last 6 months. As you can see, these ETFs move in exactly opposite directions.
For option traders, you call buy the calls or puts on the QID and QLD. Option trades can be made on both the QID and QID at the same time to double up on the trade. For example, when the QQQ is trading down you can buy a call on the QID and a put on the QLD. The vice versa should be performed (buy calls on QLD and puts on QID) when the QQQ is trading up. This provides even more leverage at a lower cost basis because of the use of options in place of ETFs. This option strategy is better aligned with experienced option traders.
Source: Chart prepared by Get Rich Investments with Google Finance.