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Anyone using those 2x leveraged funds/etfs?
Old 05-24-2007, 10:28 AM   #1
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Anyone using those 2x leveraged funds/etfs?

I'm just wondering if anyone has found any use for those leveraged proshares/rydex ETFs or funds? I know most people use them for short term speculative and hedging plays, but I had a thought that I wanted to bounce off you guys. I am sure this isn't a new strategy, but what about using the S&P500 2x leveraged long fund or etf and then only buying half as much? Then you could invest the remaining money in the money market, or something else, and not tie up as much money.

I realize it is an expensive fund, but you could buy a bit over 1/2 to make up for expenses.

Does it track very closely to make this a doable strategy? Or is the tracking error too high, and there is something else I am not considering?
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Old 05-24-2007, 12:52 PM   #2
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How does this thing work? I can understand twice the gain. But twice the loss? Wouldn't you go below zero if the underlining stock fell too much?
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Old 05-24-2007, 02:15 PM   #3
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I have around 30k in my Roth and 100k in my 401k now. I do plan to open a Rydex account soon to use the ultrabull for around 5% of my Roth allocation (for large cap).

My allocation is:

45% large cap (40% conservative, 5% ultrabull)
15% mid cap (10% diversified, 5% aggressive, probably Hennessey)
15% small cap (10% diversified, 5% aggressive, probably Hennessey or Manning&Napier)
15% International Large Cap
10% international small cap

The plan for the 15% aggressive positions is to move from retirement at age 60 to something earlier.
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Old 05-24-2007, 03:51 PM   #4
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They also have an ETF share-class now, so if you are at a cheap brokerage, and plan to do a lump sum, it might be worth a look. It has a bit lower ER I believe.
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Old 05-24-2007, 08:37 PM   #5
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I have RYVNX, which is described as follows:

"The investment seeks investment results that correlate to 200% inverse of the NASDAQ 100 index."

It has an expense ratio of 1.69%.

I'm probably in the minority, but I'm one of those people who think we're still in a bear market.
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Old 05-27-2007, 07:54 AM   #6
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Quote:
Originally Posted by Olav23 View Post
I'm just wondering if anyone has found any use for those leveraged proshares/rydex ETFs or funds? I know most people use them for short term speculative and hedging plays, but I had a thought that I wanted to bounce off you guys. I am sure this isn't a new strategy, but what about using the S&P500 2x leveraged long fund or etf and then only buying half as much? Then you could invest the remaining money in the money market, or something else, and not tie up as much money.

I realize it is an expensive fund, but you could buy a bit over 1/2 to make up for expenses.

Does it track very closely to make this a doable strategy? Or is the tracking error too high, and there is something else I am not considering?
Olav: I'm doing this with RYCVX. After about six months I'm running about 1% behind a perfect doubling of my percentage gain (a 15% gain on an 8% index rise). I'm satisfied. I suspect near the end of the year I'll get a small dividend or some facsimile of one to make up for not getting the regular DOW etf dividend . . . but maybe not. I don't have a lot, and I watch it pretty carefully.

I'll flip to the double down bear funds if conditions warrant. But right now my plans are to buy a bit more RYCVX on a decent dip. I'm still bullish.
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Old 05-27-2007, 09:35 AM   #7
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Random question I've been wondering about... what happens to your long 2x leveraged fund holdings when there's a more than 50% drop in the market?
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Old 05-27-2007, 10:55 AM   #8
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Originally Posted by dmpi View Post
How does this thing work? I can understand twice the gain. But twice the loss? Wouldn't you go below zero if the underlining stock fell too much?


No, but you might experience a 100% loss when the underlying had only gone down 50%. The details are in the prospectus for each fund. I have stayed away from this kind of thing, preferring margin when I feel that the chance of a large drawdown is very small. (Not any time recently!)

Right now I do own one fund which seeks to give inverse returns of a junk bond index. It is not however leveraged. If nothing much happens I will be out the (rather high) expenses, and some interest. If spreads widen or L.T interest rate levels increase I will get a reasonably good return. If both happen I should do very well.

ha
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Old 05-27-2007, 11:25 AM   #9
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Random question I've been wondering about... what happens to your long 2x leveraged fund holdings when there's a more than 50% drop in the market?
My understanding is that if the index you are tracking goes down 1% that day, then your 2x fund will go up or down 2%--depending on the type. So a 2% loss on $100 would be $2 for the day; next day a 2% loss would be on $98. And so on. So after a severe and long-term downward spiral over many days a 10% loss on a 5% index drop when you only have $1 left in your account: 10 cent loss . Very, very, very hard to lose everything; but easy to lose a lot quickly if you don't monitor things closely. Think of the problem as one of percentage gains or losses accumulated daily rather than a hypothetical doubling of losses and/or gains over longer periods. At least on the way down the 2% loss is taken out of an ever smaller previous day's balance; same proportions/percentages if it's going up in value. The math whizzes-ers can probably explain it better.
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