PolaroidBear

Explaining Inverse and Leveraged ETFs

I thought that by definition the interval during which these funds try to replicate the returns is one day, so if the underlying index moved 50% in one day, why wouldn't the 2x short ETF need to move by -100%?


On Nov 10 01:44 PM Balaji Viswanathan wrote:

> 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.