Here is a link to the Prospectus for the Direxion Funds.
Keep in mind the funds rebalance daily and are only really intended for day and short-term trading. The prospectus says they are not suitable or intended for long holding periods. The funds will perform poorly when the markets are range bound. The funds will be at their best in steady directional trends.
Pages 4 and 7 will be helpful to look at in understanding that increasing market volatility will hurt the long-term performance of both funds (BGU, BGZ).
Pages 58 and 59 explain a bit about taxes and distributions and says that the fund will announce ahead of time the div date. However, I couldn't find one posted anywhere as of now.
If anyone finds the dates or when it is made available I will place the dates on the blog so that it is easily visible for everyone. Similar for the Proshares funds (SSO, SDS, etc). Please comment if you know the div dates.
Pete
Pete,
ReplyDeleteGreat info... I hope I didn't cause a degree of alarm with our previous discussion as I have read about and knew about the decay factors in leveraged ETFs. It is definitely something everyone needs to know with these.
I reflected back on my own trading experiences, and realized that the nature of my prompting this discussion was in the differences between using leveraged ETFs as trading vehicles and the method I had used when first delving into individual equities at all, which was using channeling methods if one finds a stock that moves relatively predictably in a trading range. Common stock positions don't have the decay aspect to them... PPS has meaning for those but not so for leveraged ETFs, and you have done a great service in explaining why something like a channeling strategy is flawed with leveraged ETFs.
Again thanks for your great insights on these!
From my understanding it's still a good strategy to short both in a volatile market?
ReplyDeleteFrom the prospectus and practical experience as well, these funds will both tend to lose value and be at their worst during highly volatile non-directional moves (Nov 08 to June 09 a good real life example).
ReplyDeletePlease realize that the purpose of the blog post was more of a warning and visualization of what is likely to happen if you hold one of these funds for several weeks or months while the market moves is moving against your trade. I don't want any blog traders to get stubborn and hold onto a loser without knowing what will be the likely result.
So shorting both does seem to be letting the mathematics play in your favor. The obvious danger on a very basic level seems to be if you shorted them right before a period where the market exploded upward and the value of BGU went up in excess of 100% over the course of several weeks/months.
I have no plans of suggesting a double short for the blog, so don't take it as a recommendation. Do your own due diligence on that.
Thanks for all the comments and feedback.