Leveraged ETF Lesson

As far as the ETF, last we checked, it had $576MM of assets with $320MM in borrowing.

After a decline of 30.55%

$576 MM - $176MM = $400 MM with $320 MM borrowing = $80 MM = 80 per share.

Wait, we started with $100 and the underlying asset is back to its original price, but we have less than we started.  

That's because we bought higher and sold lower.  

Leveraged ETFs do exactly what they were designed to do - provide a constant leveraged daily return of an asset.  However, that payoff return is dramatically different than the traditional interpretation of a leveraged return over an extended period of time.

I love to day trade leveraaged ETFs.  And in rare circumstances, I will hold them for a few days.  But I do so understanding my changing exposure based on the math above.

However, there is nothing I like better than using this decay to my advantage, by shorting leveraged ETFs as a way to express a view.  But beware - in a trending market, this is a worse position you could have.

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