ProShares Ultra Utilities (UPW)

All Comments on UPW

  • commenter
    gparkanyi
    Apr 02 06:50 PM
    Leveraged ETFs: A Value Destruction Trap? [view article]
    Hi Tristan,

    Thanks for commenting on my blog at stockadventures.wordpr.../ .

    I will have to double-check how these ETFs are actually invested, but my suspicion is that they rely heavily on index futures. If this is the case, then most of the assets are ostensibly invested in T-Bills - used as margin for the futures, with enough index futures purchased to mimic the 2X movement of the index. A 2:1 leverage can be maintained with relatively minor adjustments to the weighting of the index futures being used (the maximum leverage of these contracts can go to 50:1 or more - depending on the prevailing futures exchange margin requirements - so 2:1 is very conservative for index futures.)

    The T-bills will generate income, so I doubt there is a net interest "cost-of-money&qu... Where it gets interesting is what happens when the index drops by 50%? The 2:1 leverage will in theory cause the capital to wiped out.

    Either way, you can monitor the net asset value of these ETFs on a daily basis. If the market value begins to adversely diverge from the net asset value, then that would be your warning flag to get out. The net asset value should track %-wise the daily movement of the underlying index (2X if it is leveraged).

    This may not apply to leveraged ETFs that could not take advantage of index futures. The dynamic then would be closer to what you have described, if the buying and selling of shares is required.

    Cheers,
    Allocator     Reply
  • commenter
    Tristan
    Yates
    Apr 02 03:47 AM
    My Website
    Leveraged ETFs: A Value Destruction Trap? [view article]
    A reader just let me know about an older ProShares mutual fund that tracked the NASDAQ with constant leverage.
    The ticker is UOPIX, and the long-term chart is pretty scary and illustrates the constant leverage trap very well. And if you're thinking of profiting from the constant value trap by shorting the leveraged long, the chart shows that it would likely be successful eventually, but it that it could be a very wild ride.

    As for David's brain teaser - is it better to be long the leveraged short or short the leveraged long? Well, you could go quadruple short if you buy the leveraged short on 50% margin. How does that sound?     Reply
  • commenter
    David
    Jackson
    Mar 30 08:02 AM
    My Website
    Leveraged ETFs: A Value Destruction Trap? [view article]
    Fascinating. Question for you, Tristan: If an investor is looking for a bearish strategy, expecting an impending downturn in the market, which is better: shorting a leveraged Rydex ETF, buying a Rydex leveraged short ETF ("UltraShort"... or shorting a simple ETF? Reply
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