March, 2012 | Six Figure Investing

How do Leveraged ETFs Work?

January 20, 2022March 14, 2012 by Vance Harwood

At one point I was hazy about the internal workings of leveraged and inverse ETFs, so I constructed models of hypothetical 2X and -1X Apple ETFs to clarify my understanding. I ignored a whole host of issues (e.g., regulatory, cost-effective leverage), but even a simple model of a leveraged ETF can hurt your brain. The basic inverse and leverage mechanisms shown below are essentially the same for …

So What if Volatility ETN/ETFs are Growing—Where are the Problems?

May 14, 2023March 7, 2012 by Vance Harwood

It’s clear that the volatility ETN/ETFs have begun to dominate the VIX Futures market. What isn’t clear is whether it matters. Volatility isn’t a commodity like gold or corn that is physically limited, so future position limits don’t seem applicable. When the price of VIX futures is attractive, more can be created—and appropriate hedges put in place. But are these hedges distorting the overall market? …