Comments on: Double Exposure Exchange Traded Funds

By: Make Money In A Volatile, Flat Market: Short Sell Leveraged ETFs : WhereDoesAllMyMoneyGo.com

Thu, 21 May 2009 00:50:08 +0000

[...] ETFs is that most people don’t understand how they work. I’ll cut to the chase (but you can read here for more detailed info). The initial 200% exposure (or whatever the case may be according to the fund’s mandate) is [...]

By: Preet

Preet — Wed, 07 Jan 2009 01:27:44 +0000

@ Antony Pranata – thank you for the very insightful comment – much appreciated! :)

By: Antony Pranata

Antony Pranata — Tue, 06 Jan 2009 23:45:32 +0000

Hi, I just recently found your blog and have been a reader of your blog.

You are absolutely right about the performance of double ETF versus its underlying index. It is not always 200% bull/bear. Although I don’t have a background in mathematics; but I was a fan of math in my high-school.

Let’s take an example of 2-days performance. The first day, the index is up x1%. The second day, the index is up x2%.

After 2 days, the index will be:

Index2 = (1 + (x1 + x2) + x1.x2).Index0

The ETF will be:

ETF2 = (1 + (2.x1 + 2.x2) + 4.x1.x2).ETF0

As you can see, there is a difference of 2.x1%.x2%.

If we go back to your example where x1 = 25% and x2 = -20%; after two days there is a difference of 2.25%.(-20%) = -10%.

That’s why, the ETF will have a value of 90 (instead of 100) on the second day.

In reality, we don’t really see the difference (= 2.x1.x2) because x1 and x2 are relatively small (0% – 3%). Unfortunately, this may not apply for year 2008 because the market is very volatile. It means 2.x1.x2 is going to be high.

By: Leveraged and Inverse Leveraged ETFs Tracking The Same Index Can BOTH Lose Money : WhereDoesAllMyMoneyGo.com

Tue, 06 Jan 2009 01:33:02 +0000

[...] also wrote about this a few months ago here with a more detailed explanation. Share and [...]

By: Leverage Always Has a Cost | virtualgrant.com

Leverage Always Has a Cost | virtualgrant.com — Sat, 28 Jun 2008 05:39:22 +0000

[...] are based on. One reason for this is the daily rebalancing of the doubled exposure as explained by Preet Banerjee in this post. Even without this daily rebalancing, the return would not be exactly double because leverage [...]

By: Preet

Preet — Thu, 10 Apr 2008 02:41:00 +0000

Check is in the mail DE! lol

By: DE

DE — Wed, 09 Apr 2008 08:15:17 +0000

I’ve been reading your blog everyday – too bad you don’t practice in some of the other provinces. I’ve called my advisor after reading some of your posts and he’s like a deer in the headlights (over the phone) not understanding some things you talk about like a true professional advisor should be able to – objectively and knowledgably.

I have learned so much from your blog and I really appreciate it – I’m sure I’m not the only one. THANK YOU PREET!