dtrader

Leveraged ETFs: Handle with Care

Kevin...the ultra 2x and 3x ETFs are at least misleading and at worst fraudulent. You are doing a disservice to the public if you allow yourself to just buy into their explanation and accept that as being ok. As such you are just condoning how Proshares and others mislead the public can produce products that are so disingenuous. It you or I did did something like this we would be immediately arrested . Even your website seeking alpha doesn't get it and as such is helping to perpetrate this misrepresentation in the marketplace. Here's how Seeking Alpha describes the objective of these ETF's.

"What Are They?

Like many traditional index ETFs, leveraged market cap ETFs offer a simple way to get exposure to broad US market indexes, in this case defined by market cap (small cap, midcap or large cap stocks).
But unlike traditional index ETFs, these ETFs provide double the performance of a traditional index. So if the S&P 500 rises by 1%, for example, the ProShares Ultra S&P500 ETF (SSO) would rise by 2%.
Leveraged ETFs are able to do this by using by options and futures contracts. Because futures provide leverage (more exposure than the actual cash invested), ETFs that use futures contracts have uninvested cash, which they usually park in interest-bearing bonds. The interest on the bonds is used to cover the expenses of the ETF and to pay dividends to the holders."


No mention that after one day ProShares and the others say all bets are off on 2x and 3x ETF's and that the deviation from the 2x and 3x can be as much 40% to 50% within several months. This charade shouldn't be allowed to go on with the public unknowingly getting into something that will be very costly for them after a short period of time.

Kevin you should be going after ProShares and others and not be giving them a free pass. If they can actually put out a product that is 2x and 3x these indices I love it but as this is it is not and is dangerous because it is not what people think it is.

Of course if this is allowed I propose you and I start a 10x ETF that tucks away in a disclaimer somewhere this is only valid on Tuesday's and Thursdays between 12:00 and 12:15 if there is a full moon.