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| red sox 777 06/03/20 2:34:13 PM #453: | Colegreen_c12 posted... Math is weird. A 50% drop followed by a 50% rise actually is still a 25% drop. (100 to 50 to 75). Yes, this is why levered ETFs like NUGT experience such extreme time decay. They are designed to double the daily performance of the underlying stocks. So if the underlying stocks are +5%, NUGT is supposed to be +10%. And if -5%, then -10%. Suppose the underlying stocks are up 10% one day, and down 9% the next day. If you had bought them, starting from 100, after day 1 you would be at 110, and after day 2 you would be at 100.1, for a gain of 10 cents. Now, suppose you bought NUGT instead. On day 1, it gains 20% and you are at 120. On day 2 it falls 18% and you are at...98.4. So instead of gaining 20 cents as you would expect, you lost $1.6. This effect compounds exponentially over time and you get the result that while you would turned a profit buying gold mining stocks and holding them for years, by buying the 2x leveraged ETF you end up losing 99.9% of your investment. --- September 1, 2003; November 4, 2007; September 2, 2013 Congratulations to DP Oblivion in the Guru Contest! ... Copied to Clipboard! |
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