I've done a lot of research on this over the years, and the source of much of the underperformance is that the leveraged funds are forced to rebalance to their target leverage ratios by the market close each day. They have to buy/sell, this is public info and can be front run, and the more the stock/market moves, the quantity of shares they must do increases exponentially. This is part of what drives the market's tendency to fall into the close on big down days. It's also a useful trading opportunity for Wall Street trading desks (and people like us who know about this).
I've looked at them, the problem is that when shit hits the fan it hits so hard, and at the same time as everything else is hitting the fan. There's serious blowup risk.
I've done a lot of research on this over the years, and the source of much of the underperformance is that the leveraged funds are forced to rebalance to their target leverage ratios by the market close each day. They have to buy/sell, this is public info and can be front run, and the more the stock/market moves, the quantity of shares they must do increases exponentially. This is part of what drives the market's tendency to fall into the close on big down days. It's also a useful trading opportunity for Wall Street trading desks (and people like us who know about this).
Often wondered about shorting levered ETFs due to the decay, but blowup risk is unpredictable.
Australia has a 50K margin limit regardless of account size? Oz has become gay and retarded since I left....
It's not regardless of account size, I think once you get over $2m or something like that you can qualify, or if you have your AFSL.
Excellent post. I would be interested in your analysis of some volatility ETFs, such as UVXY, and the best approach to shorting them.
I've looked at them, the problem is that when shit hits the fan it hits so hard, and at the same time as everything else is hitting the fan. There's serious blowup risk.
Great post!
Are you able to share what charting platform you use?
Yes, I used Testfol.io. But I have also done more extensive analysis of a few of them using Python to just check it wasn't off.
Thanks!! That is a very good tool.
Thanks interesting article - reminds me of the XIV blowup. In those days I was a regular on Wall street bets...
this is so interesting
Very good article, lots of food for thought you referenced a chart for MSTR that you seem to have forgotten to add.
Thank you for pointing that out, I missed that in the editing and have added the chart. Thanks for the feedback.