DID YOU KNOW?
About Leveraged ETFs
In our Do or Did You Know? blogs we provide readers with useful information that generally is not realized by inexperienced investors. In Chapter 1 of our publication, When to Buy and When to Sell: Combining Easy Indicators, Charts, and Financial Astrology (available on Amazon), we introduce instruments called Exchange Traded Funds (ETFs), including Inverse and Leveraged. An ETF is an instrument, similar to a fund, which consists of shares of several companies/stocks (referred to as a “basket”), within a certain sector and/or industry.
Leveraged ETFs are those that act like options, multiplying the gains, or losses, based on the price movement of the specific index, sector, or industry ETF. They basically track share price and multiply the gains or losses, mostly by 2x, but some as large as 3x, in either direction the index moves. The difference, unlike options, is there is no expiration date or time decay to worry about, as they trade like stocks on major exchanges. Managers of these ETFs are also forced to re-balance the instrument daily, as they are designed to maintain the exact 2x or 3x leverage ratio to their underlying stock, whose price changes every trading session. As a result, they are riskier than regular ETFs, but are less-riskier than options that only allow for a specific amount of time to be correct on the direction of any given price move. Some examples of these are the SPXL (Direxion S&P 500 Bull 3x), the SDS (UltraShort S&P 500 2x), the DXD (UltraShort Dow 30 2x), the TQQQ (UltraPro QQQ 2x) and the SQQQ (UltraPro Short QQQ 2x).
Recently, single large-cap growth and technology stocks have also joined the party, creating their own leveraged trading vehicle. It is now possible to trade stocks like Amazon, Apple, Cisco, Google, Microsoft, Micron, Netflix, Nvidia, and many more, on a leveraged basis, without the use of options. Following are some of the most popular single-stock ETFs...
AAPU – Apple 2x Bull MSFU – Microsoft 2x Bull
AAPD – Apple 2x Bear MSFD – Microsoft 2x Bear
AMDL – AMD 2x Bull MUU – Micron 2x Bull
AMDD – AMD 2x Bear MUD – Micron 2x Bear
AMZU – Amazon 2x Bull NFXL – Netflix 2x Bull
AMZD – Amazon 2x Bear NFXS – Netflix 2x Bear
AVL – Avago 2x Bull NVDL/NVDU – Nvidia 2x Bull
AVS – Avago 2x Bear NVDS – Nvidia 2x Bear
CSCL – Cisco 2x Bull PLTU – Palantir 2x Bull
CSCS – Cisco 2x Bear PLTD – Palantir 2x Bear
GGLL – Google 2x Bull TSLL – Tesla 2x Bull
GGLS – Google 2x Bear TSLS – Tesla 1x Bear
Gold (UGL – 2x long, GLL – 2x short) and Silver (AGQ – 2x long, ZSL – 2x short) have also developed their own leveraged ETFs, as well as the following leading Cryptocurrencies…
Bitcoin (BITU-2x long, SBIT-2x short)
Ethereum (ETHA-2x long, ETHD-2x short)
Solana (SLON-2x long)
XRP (UXRP-2x long)
… and others are sure to follow.
A positive feature of these ETFs is they are almost always cheaper to buy than the underlying stock/equity they track, allowing for more shares for the money. Some also pay excellent dividends to attract trading attention. Additionally, they can provide an alternative to buying more shares of a stock that you already own, as the FIFO rule (First-In, First-Out – also discussed in our publication) can majorly disrupt your trade, both in profit/loss and tax implications. However, keep in mind that these instruments measure the moves of the stock/equity they track, and will be proportionately more volatile as well.
It is suggested that smaller shares than normal be traded, at least until familiarity with any of these ETFs is developed.
*** This information is not intended to be financial advice, and should be considered or any specific buy or sell recommendation, but rather a guide to assist the reader in some further understanding of the financial markets.
