/biz/ - Business & Finance

>>27523281
All ETFs suffer from volatility decay including unleveraged ones. By your logic you shouldn't buy unleveraged 1x ETFs either because 0.5x would "decay" even less But that logic implies 0.25x would be even better and so on This is obviously absurd taken to it's conclusion but that is the simpleton tier logic being advocated.
What's being missed is there is nothing magical about 1x leverage. As a matter of fact, historically in most market environments worldwide 2x daily leverage is about the sweet spot. The only glaring exception is Japan where 0.5x would bizarrely have been most appropriate
This would be known by actually reading the literature or God forbid thinking for oneself instead of regurgitating r*ddit dogma
Start at $100, subtract 10% then add 10% What does that leave you with? Not 100 Congratulations Volatility decay
I realize there's some subtlety there so imagine you put half your account in cash and half your account in a 1x, i.e. unleveraged ETF. You are effectively 0.5x "leveraged". Now if the underlying drops 10%, your account only drops 5%. When the underlying goes back up 10% as in the previous example, you will have lost less to volatility decay versus being all in the unleveraged ETF. The effect is a continuous function negative and positive and 1x as I stated previously is not magical in any way
SSO (DBPG for euroanons) is a 2x leveraged ETF based on the S&P 500 and it is one of the few leveraged ETFs that existed before the Great Financial Crisis of 2008. Had you bought SSO (DBPG) at the literal top of the market before the recession in October 2007, as of this moment, you would have gains of 176%. Had you bought the underlying SPY on the same day you would have gains of 98%. So had you bought the leveraged ETF, even at the worst possible time, you still would have ended up with almost double the gains
Remember this next time somebody throws shade on leveraged ETFs because of volatility decay. Buy the index based levered ETFs and win