/biz/ - Business & Finance

>>56586396
These ETFs would never pay credit card level interest, but real rates are 2-3% now and any counterparty bank would also be charging at least 0.5-1% on top as they tend to for standard margin loans. There is some small risk associated after all. While circuit breakers visibly prevent a repeat of Black Monday, the truth is that unless there's sufficient liquidity in such a collapse, you can't close the leveraged trade anyway. This may seem like a black swan that'll never happen, but wars and pandemics do happen occasionally. Plenty of foreign stock exchanges have halted and ceased trading entirely throughout history, only to never reopen again.
The point is not to say that I think those things will happen, but that no one is letting you gamble on their money for free.

I'm sure that fag will reply to this about how leverage doesn't matter though. He'll spout some absolute cope about how paying more money is actually bullish as fuck for these strategies. Conveniently quoting once again the singular ETF that won in the one period where leverage actually was free, with fabricated data to pretend that it would've been historically amazing.

>>55372539
>SOXL
>chad
pick one.
lmao. Enjoy hidden fees.

>>55369372
>the 1% fee of leveraged ETFs.
lmao

>>55272530
Isn't the decay only bad when under the 200 day moving average as per SOXL_shill's favorite paper?
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2741701
You're thinking of beta slippage due to volatility decay. I'm talking about cost of leverage. Two different concepts.
All the various leveraged ETF shill research papers are made in the midst of ZIRP bullshit and assume zero or near zero cost of leverage, or simply reference actual historic returns of leveraged ETFs during those time periods to reverse-engineer an estimated drag.
The cost of leverage right now is 5-6%. With 2 turns of leverage that means around 10% annualized decay assuming breakeven underlying, or alternatively you can look at it as needing the underlying equities to appreciate 5% just to tread water at a breakeven on the LETF. This is ignoring the effects of volatility.

Mechanically these ETFs tend to operate either through futures contracts or total return swaps to achieve leverage. Futures contracts are more vague, but in general they will tend to exist in a state of contango that will roughly price in the risk free rate of return, all else equal. Total return swaps are more explicit, although as an outsider the exact terms are opaque. The counterparty is sacrificing cash holdings to buy stocks/ETFs that precisely hedge the exposure that the leveraged ETF desires though, in return they receive a fixed interest. Since the counterparty bank could simply buy t-bills with that cash, it's natural that they'll want at least that much. SOFR is a standard baseline rate, and a small premium of ~1% is likely.

Now back to that paper you linked:
>From October 1928 through December 2020, a buy and hold strategy using leverage (with a 1% annual expense)
>1% annual expense
So, there you have it. No effort was made to seriously contemplate cost of leverage in that paper.

>>55270967
>The theta decay on leveraged ETFs is negligible
It's sad but entirely unsurprising that fools continue to propagate this myth of free leverage.
Ask yourself, why would the counterparty to those total return swaps, the bank that is putting actual cash on the line, why would they offer those total return swaps at anything less than SOFR + 1%?

Take a moment and think about it.

>>54576250
You're arguing with a moron. He doesn't understand the meaning of the word
>embedded

It's like the retards that think SOXL is accessing their leverage at <1% margin rates because they see the expense ratio and imagine their counterparties are offering them total return swaps for free.

>>54347397
I prefer to laugh at the fact that most of them still haven't realized that their 0.9% expense ratio is just a management fee.

They still can't comprehend that the banking counterparty on their total return swaps is getting at least SOFR. Somehow they've convinced themselves that leverage is free. Another consequence of the decade of ZIRP, I suppose.

>>54250620
>it's not even close to being in the same ballpark as margin rates
lmao.
Next time read the fine print.

>>53985730
sold LABD, KOLD and GDXD
bought SOXS at 20 again

WE TRADING THIS SHIT UNTIL FRIDAY'S PAYROLL DROP

>>53967950

>>53962586
>leveraged ETFs
>in 2023
lmao

Reminder that rates are at 5%

>>53445928
You can, yeah. Sometimes shorting both sides of a leveraged ETF pair can be profitable. I wouldn't generally recommend it though.

And here's a source on the SOXL hidden fees I was referring to, from their own fact sheet.