Re:The Line Between Aggressive and Crazy
by ThrustVectoring on Monday October 30, 2017 @12:26PM
(#15586314)
That only helps you if your rebalancing period is less frequent than it should be, letting your leverage drift up on good days and down on bad days. If the market goes down by 16.6%%, your levered ETF goes down by 50%, and your portfolio is now 80% treasuries and 20% 3x levered ETF.
If you rebalance daily in order to maintain your desired stock exposure, you end up owning the S&P 500 as your buy and sell orders of the levered ETF counteract the ETF's buy and sell orders on the underlying index to maintain its leverage. All you're doing is paying higher fees, trading costs, the spread on T-bills vs institutional margin costs, and realizing capital gains and losses pointlessly.
What you want is to buy call options on the S&P 500 index. The market is far more efficient here and way better for you.
That is not necessarily true regarding leveraged etfs.
Leverged ETFs when used as a substitute for being fully invested can be more safe than being fully invested in the non-leveraged version. The idea being one puts 1/3 of their capital in the 3x S&P 500 ETF and the 2/3 in T-bills. The maximum loss, no matter what, is still only 33%.
Ruin (if it is defined to mean 100% loss of capital) is impossible with a leveraged etf [it just means your wealth asymptotically approaches zero], but it is possible with margin debt.