How to Trade Leveraged ETFs

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This is a good post on Minyanville that is a great strike against the negative noise usually associated with leveraged ETFs, enjoy!

http://www.minyanville.com/trading-and-investing/etfs/articles/leveraged-ETFs-trading-tips-trading-ETFs/6/11/2012/id/41634

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Leveraged ETFs are the Most Powerful Investments on Earth!

1) They help Young Professionals multiply daily returns and become millionaires.

2) They reduce investment risk for Baby Boomers by reducing the amount of capital and time invested in the market

3) They help Retirement Investors make up time by accelerating gains

They are quite frankly the greatest thing since sliced bread.

And they require expert handling.  I am that expert.

If you are considering using leveraged ETFs I invite you to contact me,   Maurice Wilson, via phone at 704-222-4162 or e-mail me at maurice@wilsonwealth.com

Join me on Facebook: www.facebook.com/wilsonwealth

Company Website: www.wilsonwealth.com

DISCLAIMER:  The information presented in this article is meant for informational and educational purposes only and is not be construed as investment advice.   Please contact your financial advisor before using this information in your investment portfolio.  At any given time Maurice Wilson or  the advisors of Wilson Wealth Management Group, LLC may hold positions in the investments mentioned in this article and thus have a potential conflict of interest.

Three Arguments Against Leveraged ETFs and How to Beat Them

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If you are a leveraged ETF investor you have to be prepared to defend your use of them against the conventional wisdom of the crowds (i.e. CNBC types and your typical financial journalist who’s never actually used the products).  Here are three common arguments against using leveraged ETFs and how to beat each and every one of them.

1.  Leveraged ETFs aren’t buy and hold investments.

How to Beat This Argument : Before the dawn of leveraged ETFs people had to be persuaded to NOT sell their  stocks when they started to go down.  They had to be persuaded to become BUY AND HOLD investors.  This is because at the first sign of losses investors cut and run.  This is the old behavioral finance problem.  Why would investors who sell at the first sign of trouble in unleveraged investments change their behavior with leveraged ETFs?

2.  Fees

How to Beat This Argument:  If you don’t hold these funds for a year then how or why would you pay the higher costs as reflected by their expense ratios?  Secondly if you did hold these funds for a period of more than 30, 60, or 90 days that would mean you were getting some pretty high returns relative to the stock market.  Isn’t that worth paying a higher fee?  What happened to getting what you pay for?  These are the ultimate investing vehicles.  Using their costs as a reason not to buy them is akin to arguing that a BMW costs more than a Ford.

3.  Losses

How to Beat this Argument – I could use the same argument as the buy and hold segment, but I’ll add something that is really a strong hold of classic investing – asset allocation.  As an advisor who specializes in using leveraged ETFs I restrict new clients to using no more than 25% of their portfolio to leveraged ETFs.  This has great psychological and real world benefits.  If a client losses 100% of their investment which let’s face it is pretty remote, then the total loss to their portfolio is 25%.  This gives us an absolute bottom on the strategy and a big psychological boost that losses are limited.

So to summarize.  Leveraged ETFs are criticized as not being buy and hold investments, carrying high fees, and exacerbating losses.  You can mitigate these “cons” by:

1)  not buying and holding these funds as you would long-term investments, but using strategic buy and sell points,

2)  using 30, 60, or 90 day holding periods,

3)  and implementing assets allocation to limit losses as a percentage of your overall portfolio.

What’s important here is to not let the media and people who may or may not be using these products prevent you from benefiting from them.  I know that if these products were off-limits to mainstream investors, they’d be clamoring for them (see principle of scarcity).

The ironic thing is that for many regular investors the tools these products use to produce potentially higher returns were largely out of reach until leveraged ETFs came on the scene.

Leveraged ETFs are an example of filling a void in the marketplace – a cornerstone of American enterprise.

____________________________________________________________________________________________

Leveraged ETFs are the Most Powerful Investments on Earth!

1) They help Young Professionals multiply daily returns and become millionaires.

2) They reduce investment risk for Baby Boomers by reducing the amount of capital and time invested in the market

3) They help Retirement Investors make up time by accelerating gains

They are quite frankly the greatest thing since sliced bread.

And they require expert handling.  I am that expert.

If you are considering using leveraged ETFs I invite you to contact me,   Maurice Wilson, via phone at 704-222-4162 or e-mail me at maurice@wilsonwealth.com

Join me on Facebook: www.facebook.com/wilsonwealth

Company Website: www.wilsonwealth.com

DISCLAIMER:  The information presented in this article is meant for informational and educational purposes only and is not be construed as investment advice.   Please contact your financial advisor before using this information in your investment portfolio.  At any given time Maurice Wilson or  the advisors of Wilson Wealth Management Group, LLC may hold positions in the investments mentioned in this article and thus have a potential conflict of interest.

I Don’t Day Trade Leveraged ETFs, But When I Do…

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Although I don’t advocate day trading leveraged ETFs as this breaks the first rule of my Rules for Using Leveraged ETFs, I’d be intellectually dishonest if I didn’t acknowledge that there are ways to use them in a day trading scenario.

For any day trading system to be taken seriously it must be based on some objective data that triggers a buy or sell.  In this particular scenario I like using leveraged ETFs to maximize the direction of a market when the futures are moving 50 points or more in any given direction.

For example if the Dow Jones futures are up 50 points before the market opens I’m prepared to buy a leveraged Dow Jones or S&P 500 ETF that day.  Conversely if the Dow Jones futures are down 50 points I’d reach for the inverse leveraged ETFs for the respective market index.

Now through back testing and actual application I have come to conclude that on almost any given day the first 60 minutes of market action provides desirable entry points for buying leveraged ETFs.

My favorite entry point for a leveraged ETF day trade is 1% below the opening price.  The reason being that even on the most bullish of days markets rarely move straight up so if one is patient they can catch the market taking a break in the early opening minutes before rocketing up.  This is when you may wish to buy.

Conversely my exit point would be at least 1% above my entry point.  I would look for more gains if the futures were 100 points or more or if the market sentiment (ex: headlines) proved to be supportive of a higher move.  In either case getting 1% is a must to have a successful trade.

When would I apply a strategy like this?

The time to use this strategy is when you have missed capitalizing on a longer trend in the market and are simply looking to make up ground, or you are a couple of points away from your target gain for the year.  I target an annual 25% return so if I had an account 5 percentage points away from this number and was nearing the end of the year this would be a strategy I would consider.

For those of you out there who simply prefer day trading over holding leveraged ETFs overnight this strategy could be the only one you use to carefully craft a desired return in the 8 – 10% range free of the stress of a buy and hold position (leveraged or unleveraged).  I say 8 – 10% because I assume you’ll get about 20 chances to execute this trade and you should be successful at least 50% of the time.

Putting it all together

Your trigger is a 50 point move in the Dow Jones futures (or similar gain percentage wise in the S&P 500 futures).

Your entry point is 1% below the opening price of the leveraged ETF.

Your exit point is 1% above the entry point.

Exceptions – you can target a higher gain if the futures are 100 points or more, but this is getting away from the sell discipline that keeps you out of trouble.  Of course nothing ventured nothing gained and most day traders are pretty adventurous.

____________________________________________________________________________________________

Leveraged ETFs are the Most Powerful Investments on Earth!

1) They help Young Professionals multiply daily returns and become millionaires.

2) They reduce investment risk for Baby Boomers by reducing the amount of capital and time invested in the market

3) They help Retirement Investors make up time by accelerating gains

They are quite frankly the greatest thing since sliced bread.

And they require expert handling.  I am that expert.

If you are considering using leveraged ETFs I invite you to contact me,   Maurice Wilson, via phone at 704-222-4162 or e-mail me at maurice@wilsonwealth.com

Join me on Facebook: www.facebook.com/wilsonwealth

Company Website: www.wilsonwealth.com

DISCLAIMER:  The information presented in this article is meant for informational and educational purposes only and is not be construed as invesment advice.   Please contact your financial advisor before using this information in y0ur investment portfolio.  At any given time Maurice Wilson or  the advisors of Wilson Wealth Management Group, LLC may hold positions in the investments mentioned in this article and thus have a potential conflict of interest.

Investopedia Releases Leveraged ETF Video

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This is a great short video about leveraged ETFs from Investopedia:

http://www.investopedia.com/video/play/explaining-leveraged-etfs/#axzz26sf0j6XB

____________________________________________________________________________________________

Leveraged ETFs are the Most Powerful Investments on Earth!

1) They help Young Professionals multiply daily returns and retire early

2) They reduce investment risk for Baby Boomers by reducing the amount of capital and time invested in the market

3) They help Retirement Investors make up time by accelerating gains

They are quite frankly the greatest thing since sliced bread.

And they require expert handling.  I am that expert.

If you are considering using leveraged ETFs I invite you to contact me,   Maurice Wilson, via phone at 704-222-4162 or e-mail me at maurice@wilsonwealth.com

Join me on Facebook: www.facebook.com/wilsonwealth

Company Website: www.wilsonwealth.com

Class Action Lawsuit Against ProShares Dismissed

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Please read about the latest the class action lawsuit against leading leveraged ETF provider ProShares:

http://newsandinsight.thomsonreuters.com/Legal/News/2012/09_-_September/New_York_judge_dismisses_class-action_over_leveraged_ETFs/

If you have any questions please give me a call.

_________________________________________________________________________________________

Leveraged ETFs are the Most Powerful Investments on Earth!

1) They help Young Professionals multiply daily returns and retire early

2) They reduce investment risk for Baby Boomers by reducing the amount of capital and time invested in the market

3) They help Retirement Investors make up time by accelerating gains

They are quite frankly the greatest thing since sliced bread.

And they require expert handling.  I am that expert.

If you are considering using leveraged ETFs I invite you to contact me,   Maurice Wilson, via phone at 704-222-4162 or e-mail me at maurice@wilsonwealth.com

Join me on Facebook: www.facebook.com/wilsonwealth

Company Website: www.wilsonwealth.com

Good Article on Trading Leveraged ETFs

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Here is a really good article on trading leveraged ETFs that I found on MarketWatch:  http://www.marketwatch.com/story/checklist-for-trading-leveraged-etfs-2012-07-26

Some of what is found in this article is similar to what I have in my “Rules for Using Leveraged ETFs” post.  It’s good to see that other leveraged ETF investors/traders are taking the same approach.

Maurice

 

Another Attack on Leveraged ETFs

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As an investment professional who specializes in the use of leveraged and inverse leveraged ETFs I am always interested in articles that malign the products I use to create wealth for my clients.  Ironically I welcome this kind of financial journalism.  If we had such discourse around the topic of collateral mortgage backed securities in the years leading up to the real estate crisis I think we could have avoided a lot of pain.

Having a litany of investment professionals and writers bash leveraged ETFs invites more oversight and scrutiny from the public and the SEC.  That’s not a bad thing.

Read:  http://www.cbsnews.com/8301-500395_162-57407243/another-rip-off-leveraged-and-inverse-etfs/

What makes leveraged ETFs so confounding for traditional financial service professionals and journalists is that they don’t fit neatly into a box.  They are not “buy and hold” “set it and forget it” products.  They require expertise on the part of the owner.  Instead of acknowledging this – the investment journalism community has dismissively labeled these products for short term traders and speculators only.

The truth, at least for my practice and personal investments, is somewhere in the middle.  I don’t day trade leveraged ETFs nor do I blindly hold them for years on end.  I typically hold a position for 10, 20, or 30 trading days.  In some cases I’ve wanted to hold them longer and intend to do so when I feel that I can go to sleep at night and not have Europe blow up due to their debt crisis or the US have a surprise jobs announcement.  These are events that would worry me even if I were a connoisseur of non-leveraged investments.

History will show that leveraged ETFs are ideal for investors who want to pursue out sized returns without going through the headache of setting up margin or options accounts.  In the case of middle class investors who typically have all of their investments in IRA accounts and therefore can’t use margin or options – leveraged ETFs are an equalizer.

_________________________________________________________________________________________

Leveraged ETFs are the Most Powerful Investments on Earth!

1) They help Young Professionals multiply daily returns and retire early

2) They reduce investment risk for Baby Boomers by reducing the amount of capital and time invested in the market

3) They help Retirement Investors make up time by accelerating gains

They are quite frankly the greatest thing since sliced bread.

And they require expert handling.  I am that expert.

If you are considering using leveraged ETFs I invite you to contact me,   Maurice Wilson, via phone at 704-222-4162 or e-mail me at maurice@wilsonwealth.com

Join me on Facebook: www.facebook.com/wilsonwealth

Company Website: www.wilsonwealth.com

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