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Direxion Daily 20+ Yr Trsy Bear 3X ETF Message Board

  • goskiing99 goskiing99 May 11, 2013 5:57 PM Flag

    Looking to take a big position

    But am concerned about whether this suffers from the same contango BS that VXX displays? Or is this immune to the contango effect?

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    • It has 30%/year decay. I post this once in awhile:

      If you read the profile of an ETF, you will find the term "resets daily". That's a nice way of saying "decay." The management of the fund removes a bit of the price, every night, including their management fees. The more leveraged the fund is, the bigger the % of the decay.

      Some (most) of the decay comes from the instruments they use to get the leverage - options, swaps, and futures.

      What you want to do is join management, if possible, by shorting a "long" ETF.

      I wanted the most leverage I could get on bonds, so I looked for a triple long bond ETF, to short. Couldn't find one, so I bought TMV.

      If you're going to own an ETF, it must keep moving in your direction, or you're going to lose, over time. The loss will be 4%/year, or a lot more, in some cases. The decay, in some of them, is so severe, they do reverse splits.

      If you want to stay in them for longer time periods, use an ETN (exchange traded note), they reset on the first of every month, so management takes their piece then.

      For an example, if you want to short silver, you short SLV, if you want the leverage, you short AGQ

      This is easy to prove for yourself, just do a time study as to the ETF price-against the basis. The worst one is UNG, the natgas ETF.

      C L

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