Balaji Viswanathan

Explaining Inverse and Leveraged ETFs

SolarBear:
Feel free to translate, as long as you attribute the source and link to the SeekingAlpha page.

The 50% upside is an interesting question. It depends on whether the 50% down happens in one moment (market closes at 10K and reopens at 15K) or it happens in sequence of steps over a long period of time. Ideally the ETF would have a curve resembling 1/x and hence would not go to 0. Just on the upside, it will be decelerating on the downside too if the market goes up slowly. Take a look at DUG when oil doubled from 2007 to summer 2008.


On Nov 09 04:49 PM SolarBear wrote:

> Hi Balaji,
>
> Thanks for your explaining. One question for the inverse ETFs, what
> if the index rallys up more than 50%? Although it's kind of impossible,
> after 3xETFs appear, maybe we can see something very "insteresting&...
> I just wonder if the NAV of the inverse ETFs (even leveraged ETFs)
> could be negative due to the huge volatility of the stock market.
> Thanks.
>
> By the way, I am thinking about translating some good articles into
> Chinese and post it on my blog. May I quote your articles in my
> blog?