The danger of Ultralongs : the leverage game PART 2
This is part two of my series on the Ultras where i try to warn the novice investor against these ridiculous trading vehicles. In this part I cover the American Ultralongs. Here is a list of the few I track:
American Leveraged ETFs
fas, erx, tna, bgu, urr, dag, bdd, dyy, dgp, ucd, uco, ule, ugl, agq,
ltl, ycl, rsu, rry, rmm, rea, rfl, rhm, rtg, uym, uge, ucc, ddm, uyg,
rxl, uxi, mvv, dig, qld, ure, ukf, uvg, uwm, ukk, uvu, sso, usd, saa,
rom, upw
In my first part I mentioned:
"The point of the Leveraged ETFs are increasingly becoming important as their popularity increases – both here and outside I am sure. The issue has definitely become magnified with the introduction of the Direxion 3x ETFs.No Denying the Danger======================I have actually used the phrase “Weapons of Wealth Destruction” against these ETFs. A lot of fools have realized their perilThese leveraged ETFs should be considered as derivatives and are dangerous like derivatives. There’s a small correction : THEY ARE DERIVATIVES , hence are AS DANGEROUS as derivatives. Ie for commonfolk that means Options.And of course with Options: you risk only capital where you are ready to loose 100% ALL THE TIME. This is of course true of a lot of stocks in this meltdown .Basics of Leverage======================I think most of the people know what this is : the simplest example is the Home Loan Mortgage: You typically have 10% down payment – the bank lends you 90% and you own the house – well that is a 10: 1 leveraged transaction (10x) – you gain/loose 10 times of each 1% movement of the house."
I would like to add that the ultra longs are DOUBLY dangerous in this recessionary environment. Because, looking at the charts you can see that the world markets are trending down. This adds to the pain for anyone foolish enough who buys these who does not know what he's doing
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"My intention is to showcase/prove that Leveraged ETFs are inappropriate for any Medium-to-Long term Investment strategy - and are only suitable as EXTREMELY short-term "market timing" trading vehicles.I am starting this profile with the "Ultrashorts" being LONG (ie Green) because I believe VIX has another destiny with 75+ left in it....I will hopefully be closing these and converting them to RED at that time- which would be TRUE "Volatility Premium Decay" play" - unnamed legend.
Check back for part 3 of this series soon