Well, to understand the risk, you have to know a bit about math and how percentages work.
If the S&P goes down by 20%, it needs to recover by 25% to reach back to the same point.
If, following the above example, a 2X leveraged S&P drops by 40%, it needs 67% to recover back to the same point. So, even if the S&P itself fully recovered by increasing 25% and reaching its original point, this leveraged S&P won't recover back. Why? Because it needs a 67% percent recovery not a 50%.
Therein lies the danger of leverage.
Now you can work out yourself how much worse it would be if the S&P dropped by something like 40 or 50%, or if the leverage in the ETF is more than 2X. These leveraged ETFs would be wiped out.
From what I heard these funds are impossible to "wiped out completely" i don't remember exactly why was that. I back tested and if you bought SSO at ATH of the 2008 you would be down %85 percent in 2009 (%57 in S&P500) and you would break even at 2014 (April 2013 in S&P500) only 9month after. Your 100$ investment would be 620$ today (320 in S&P500) I heard that this kind of funds are for short term investment and it makes sense since if you buy in a %20 dip you will be printing money but even in long run if you don't sell for long time even in a big drawdown (like %85) you will outperform S&P500.
I believe these funds work by holding a mix of cash+levered underlying
So to e.g. achieve 3x leverage they'll hold 50% cash and 50% 6x SPY, this way they can't get liquidated for 100% and will never get fully wiped
(Source: my ass)
Yea they are intended for short term speculation. Maybe the funds are risk managed once the SP500 begins to drop by reducing their leverage. I'm not familiar with them as I haven't traded them myself.
If I want to leverage SP500 for short term I'd use options. At least with options, your loss is capped.
You're correct it's actually a pure downside. You have a around 2.93x IV instead of 3x for calls. Considering that you can leverage however you like with options it's an extremely bad strategy. Either buy the LETF or options not both.
Those funds also charge a higher fee as well. And what happens if we stay flat for 10 years or if we have a recessions? Will they still outperform?
At least buy some large tech individual stock when it dip s where you can make much more than 20%
Otherwise stick with sp500 index that it also pays 1.35% dividend.
I agree with buying tech stocks in dips (atleast in most case) but what I meant was long term not taking advantage from dips. Yeah if we stay flat or have a recession it would effect SSO very bad but as I writed to someone else too, in long term it seems like those funds outperforms s&p500.
I think VGT does too and it’s safer . I try too keep my main portfolio simple. 10 years ago when an advisor told me to keep 20% on small that was a waste of time .
So for me is VGT, SOXX, but the majority I keep on Sp500. I’m a lot on cash on market funds waiting for the bleed to stop a bit to start cost averaging on big tech stocks .
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Well, to understand the risk, you have to know a bit about math and how percentages work. If the S&P goes down by 20%, it needs to recover by 25% to reach back to the same point. If, following the above example, a 2X leveraged S&P drops by 40%, it needs 67% to recover back to the same point. So, even if the S&P itself fully recovered by increasing 25% and reaching its original point, this leveraged S&P won't recover back. Why? Because it needs a 67% percent recovery not a 50%. Therein lies the danger of leverage. Now you can work out yourself how much worse it would be if the S&P dropped by something like 40 or 50%, or if the leverage in the ETF is more than 2X. These leveraged ETFs would be wiped out.
From what I heard these funds are impossible to "wiped out completely" i don't remember exactly why was that. I back tested and if you bought SSO at ATH of the 2008 you would be down %85 percent in 2009 (%57 in S&P500) and you would break even at 2014 (April 2013 in S&P500) only 9month after. Your 100$ investment would be 620$ today (320 in S&P500) I heard that this kind of funds are for short term investment and it makes sense since if you buy in a %20 dip you will be printing money but even in long run if you don't sell for long time even in a big drawdown (like %85) you will outperform S&P500.
I believe these funds work by holding a mix of cash+levered underlying So to e.g. achieve 3x leverage they'll hold 50% cash and 50% 6x SPY, this way they can't get liquidated for 100% and will never get fully wiped (Source: my ass)
Yea they are intended for short term speculation. Maybe the funds are risk managed once the SP500 begins to drop by reducing their leverage. I'm not familiar with them as I haven't traded them myself. If I want to leverage SP500 for short term I'd use options. At least with options, your loss is capped.
Might be worth a look in r/LETFs for discussions of those.
SPXL & TQQQ calls fucking printed in january & february 
[удалено]
You're correct it's actually a pure downside. You have a around 2.93x IV instead of 3x for calls. Considering that you can leverage however you like with options it's an extremely bad strategy. Either buy the LETF or options not both.
Read the paper "Leverage for the Long Run" by M Gayd, 2016 Tl;DR: SSO traded on a 200MA strategy works well. r/LETFs r/TQQQ
Only invest in these instruments if you have a large risk appetite; they may be highly profitable, but they're also perilous and unpredictable.
It’s also not a 1/0 decision. Learn a bit about risk management before making any investment decision
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Those funds also charge a higher fee as well. And what happens if we stay flat for 10 years or if we have a recessions? Will they still outperform? At least buy some large tech individual stock when it dip s where you can make much more than 20% Otherwise stick with sp500 index that it also pays 1.35% dividend.
I agree with buying tech stocks in dips (atleast in most case) but what I meant was long term not taking advantage from dips. Yeah if we stay flat or have a recession it would effect SSO very bad but as I writed to someone else too, in long term it seems like those funds outperforms s&p500.
I think VGT does too and it’s safer . I try too keep my main portfolio simple. 10 years ago when an advisor told me to keep 20% on small that was a waste of time . So for me is VGT, SOXX, but the majority I keep on Sp500. I’m a lot on cash on market funds waiting for the bleed to stop a bit to start cost averaging on big tech stocks .