this is flawless thinking. can i give you money to invest for me?
What about selling OTM puts and buying OTM calls? Should take advantage of that volatility skew. It would be great to just own a bunch of calls, but they are expensive.
Yes, bchad’s calculations are not compatible with “borrow and invest”. So most likely, the ETF is buying futures to achieve 200% delta and rebalancing daily(?).
use these only got for short-term trades b/c if you hold them long-term the volatility will crush you
many smart HF guys are short all of these 3X ETFs b/c if you do the math (as above) they will go to zero over time in a volatile market
buyer beware
Anything over 1.5x has to use options. you can only borrow 50% of your portfolio to leverage for yourself to get ~1.5x. The only way to get 2x is if you use options to lever. Typically, people who lever up this way need to understand derivatives very well. It’s not as easy as buying a call option, since they will need to roll it everytime in a consistent manner to manage delta, gamma, theta, etc, etc. A lil warning on options, as noted above there is limited downside, but the limited downside requires you to pay a premium which wipes out your return. Borrowing debt on the other hand, has a downside similar to a stock, but magnifies the downside by including the risk free rate. Leveraging through borrowing is attractive since market returns are typically attractive. Leveraging through options, however, is not due to the premium one must pay which makes options a zero sum game.
Additionally, I cannot confirm this 100%, but I think there is a rule that prevents you to lever by margin when investing in levered etfs. But it’d be a nice COMBO for capitulation should a downside occur.