tradeking13

Long Term Investors Should Avoid Leveraged ETFs

Actually, I thought about it further. The problem is gains/losses are compounded daily since the security tries to match 2x the percentage move of the underlying index. Your situation of "If the DIA gets back to $137.90 a share, DDM will be somewhere under $66 a share, still down some $30" would only be true if the DIA got back to $137.90 in a single day (highly unlikely).

For example, if the DIA increases 4% for 12 days straight, it will go from $86 to $139 and DDM (increasing 8%) will go from $30 to $78 -- an increase of 152% vs. 60% for DIA.

It seems like the choppy up and down price action that is causing DDM to lose more of it's value than it seemingly should.

Long Term Investors Should Avoid Leveraged ETFs

Thanks for the knowledge. Most (including me) thought of these as leveraged ETFs, the same as using margin to buy the DIA. Obviously, not this is not the case.

Case in point:

10-Oct-08:
DIA: $83.60
DDM: $34.00

4-Dec-08:
DIA: $83.74
DDM: $29.42

DIA is basically flat while DDM is down 13%.

These ultras should only be used for daytrading.