Any investor that thought 200% leveraged ETFs, also known as ultra ETFs, were too wild for their liking need to take a step back. As early as this week the newest wave of volatile ETFs are going to start trading publicly. Say hello to triple leveraged ETFs by Direxion.
A Exchange Traded Fund (ETF) is simply a security that tracks an index, group of stocks, commodity, etc. but is traded like a stock on a stock exchange. SPY for example tracks the S&P 500, so whenever the S&P 500 goes up 1% so does SPY.
In the case of leveraged ETFs, the 1 to 1 ratio is taken a step further. For ultra ETFs the relationship is 2 to 1, so every 1 & of movement would equate to 2% of movement in the ETF. And now with 300% leveraged ETFs this relationship will be a mind boggling 3 to 1.
The following eight triple leveraged ETFs by Direxion are set to launch in November 2008:
- Large Cap Bull 3x - BGU - Russell 1000
- Small Cap Bull 3x - TNA - Russell 2000
- Energy Bull 3x - ERX - Russell 1000 Energy
- Financial Bull 3x - FAS - Russell 1000 Financials
- Large Cap Bear 3x - BGZ - Russell 1000
- Small Cap Bear 3x - TZA - Russell 2000
- Energy Bear 3x - ERY - Russell 1000 Energy
- Financial Bear 3x - FAZ - Russell 1000 Financials
Availability for these ETFs is still to be determined, but we assume they will be tradable with any top broker. Just like regular and ultra ETFs as they grow in popularity individually liquidity will increase. Investing in these types of ETFs will be inherently risky and probably not suited for new investors.
More information about Direxion's ETF offerings can be found at their website.
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