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UPRO: Bin Or Buy

JH Research profile picture
JH Research


  • Leveraged ETFs like UPRO are risky but potentially high-reward securities if the market moves your way.
  • A long position in UPRO is a bet on the continued upward movement of the S&P 500.
  • While historical indicators are signaling that the S&P is high, investors should exercise caution and avoid extremely volatile securities like UPRO.
  • Investors who want to consider UPRO should wait for a major market correction and use the ETF to supercharge returns in the recovery.

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The ProShares UltraPro S&P 500 (NYSEARCA:UPRO) has the potential to hugely magnify the returns of an investor's portfolio, but the leverage the ETF uses is a double-edged sword and with multiple threats on the horizon for equities, investors should take a backseat and wait for a major market correction before considering allocating funds to UPRO.

What UPRO Does

UPRO is a leveraged ETF. It seeks to replicate the daily movements of the S&P 500 multiplied by a factor of three by using financial derivatives and debt. For example, if the S&P 500 increased by 2% in a day, UPRO's price should increase by three times that amount (6%). Conversely, if the S&P 500 were to decrease on a given day, UPRO should decline in price by whatever the percentage decrease of the S&P was, multiplied by a factor of three.

Conventional wisdom is that leveraged ETFs perform poorly over the long run, due to a phenomenon known as volatility drag. For this reason, they're typically used as a short-term tool to speculate on the daily price movements of the S&P. While it isn't always necessarily true that leveraged ETFs underperform in the long run (as is evident by the exceptional performance of funds such as UPRO since their inception), volatility drag is worth having a look at in order to properly understand how movements in the S&P 500 affect UPRO.

Consider the following extreme example:

  • You buy UPRO.
  • On the first day, the S&P drops by 20%, the next day it recovers by 25%.

This article was written by

JH Research profile picture
An investor and Mathematics, Statistics and Business student with an interest in all things valuation. My more niche interests include the use of leverage for superior portfolio returns, as well as big tech in China.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (18)

They are definitely risky but that doesn’t mean they can’t be a long term investment, just need to get in at the right time. Which like you said is not right now.
JH Research profile picture
@Signup22 agreed! Although I do think timing is much less important when it comes to 2x leverage.
wolfhat profile picture
@Signup22 how's now?
thumb.ai profile picture
@Jordan Homann at what price does $UPRO interest you more?

This week we had a small correction, and for all I know it will continue next week. I have read the advice to avoid 3x ETFs when volatility is high, like VIX way over 20. It went above 25 this week.

Myself, I put in a limit order for a few shares around $73, which would take UPRO back to the lows of January.
JH Research profile picture
@thumbsoup In my opinion it’s more about the S&P than UPRO, I’d rather buy into UPRO when the S&P is low since UPRO doesn’t really trade around an intrinsic value and it could hit your price of 73 dollars just due to volatility drag.
Sort of interesting but the S&P500 didn't exist before 1957.

Who only buys one time and never invests again?

The starting point is also a bit suspect, but likely not on purpose so not blaming. The DJIA was around 225 on that date and didn't bottom until summer of 1982 after dropping almost 80%.

The start of your data tracking a single one time investment handicaps the leveraged strategy by having it more or less start off after the market dropped 80% before starting to recover.

Then the data set used doesn't account for dividends either received or received and then reinvested.

how about just move the start date to June of 1932 and run the numbers again to see what that looks like? I did and the numbers are surprising. I also ran the entire data set that goes back to 1927, no idea why you picked Jan 1930, and $1 per month in the market and 3X market was no competition. As in 146 times more money at by the end of yesterday in the levered funds.

I guess it was an interesting exercise but it actually doesn't tell us anything other than that it is obviously more volatile, which you did address, but the chart doesn't reflect much else. Even the hypothetical S&P500 data set's missing dividend income over 91 years would be huge for both in terms of return.
JH Research profile picture
@mjs_28s Hi, thanks very much for your feedback regarding the S&P's dividends, definitely an important consideration to take forward.

The choice of 1930 was somewhat arbitrary (the first 10 year mark since the beginning of the data).

I think that the data from Yahoo Finance was extrapolated back by using data from the S&P 90, before the modern 500 stock version of the index's inception.

regarding the use of UPRO for long term investments, I think it's very impractical. You can imagine investing every month for decades, you'd build up a significant holding and experiencing 95%+ dips which you may have to hold through for 10 or more years to recover can be lifechanging. For long term investments, it seems to me that 2x leverage is much better.


have a look at this write-up, it shows that optimal returns historically have lied just under the 2x leverage mark, whilst 3x leverage was only suitable in some market conditions.
@Jordan Homann

I think that it would to great with a small portion of your holdings that you contribute monthly too and harvest gains periodically.

When I did the monthly contribution using the yahoo data...it is worth it. Volatile of course, but that is what trimming profits is for.
JH Research profile picture
@mjs_28s Yeah, it does sound like it could be a good strategy, provided you make sure to trim profits like you said. 

I’m curious as to your opinion of long dated calls on 3x leveraged ETFs like UPRO, I’ve not done any concrete calculations yet, but it might be a smarter way to do it after a correction or even just generally if you want exposure to UPRO. 

Leverage on leverage allowing you to use less of your portfolio on it for a similar upside.
So interesting! Really great way of explaining this.
JH Research profile picture
@Tee_proud Thanks, it’s great to hear I was helpful
Pietros Maneos profile picture
Great essay @Jordan Homann !
JH Research profile picture
@Pietros Maneos Thanks! Really appreciate it!
Pietros Maneos profile picture
@Jordan Homann - You might like this essay.

JH Research profile picture
@Pietros Maneos Will check it out!
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