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Monday, July 6, 2009

Leveraged ETF's Giving Big Premiuns for Short Trade

With just 10 days left until the option expiration, I have crunched the numbers on some of the most popular leveraged ETF's and it looks as if they're getting some summer heat. I am the first to admit that I think these ETF's are only for traders (and are an investor's nightmare), but they are so volatile, and bring such great premiums, it is hard for a trader of options like me to resist. A very short hold of 10 days could yield you a nice return considering it is only for ten days (crunch the numbers on an annual basis). I have developed several strategies with these leveraged ETF's which seem to return steady profits month after month, and I usually wait to implement them within the 2 week expiration period.

This analysis requires the knowledge of options. These would be returns based on the buy/write option strategy (as of market close Monday July 6, 2009). To gain a better understanding of the buy/write option strategy and options in general check out my stock options trading E-Books for sale on this blog.

For this analysis I used a rather bullish approach on both the bear and the bull ETF's to gain a higher return (assuming the ETF expires above the indicated strike which is unlikely but very possible) and a lower downside protection. If using any of these ideas, you will most likely have to adjust strike price and expiration according to your opinion.

Understanding the Tables:

Strike Price: The price I chose for the ETF to close at or above at expiration in order to sell the stock (stock sold at strike price).
% Return: This is how much the position would return (less commissions) if the stock were purchased at beginning of trade and the indicated option immedietly sold, and the stock closed at or above the indicated strike price as of July 18, 2009 (option expiration).
% Protection: This is how much the stock could go down before you start losing money on the position.

ETFTickerStrike%Return% Protection
2X Leveraged Bull ETF's



Ultra Basic Materials ProShares UYM164.64.6
Ultra DJ-AIG Crude Oil ProShares UCO115.95.9
Ultra Dow30 ProShares DDM283.62.8
Ultra Financials ProShares UYG411.52.2
Ultra Gold ProShares UGL332.32.3
Ultra Industrials ProShares UXI195.52.4
Ultra Oil & Gas ProShares DIG256.52.8
Ultra QQQ ProShares QLD363.23.7
Ultra Real Estate ProShares URE3214.6
Ultra Russell2000 ProShares UWM184.24.9
Ultra S&P500 ProShares SSO253.73.2
Ultra Semiconductor ProShares USD205.83.2
Ultra Technology ProShares ROM302.34.5





2X Leveraged Bear ETF's



UltraShort Basic Materials ProShares SMN204.57.5
UltraShort DJ-AIG Crude Oil ProShares SCO206.45.7
UltraShort Dow30 ProShares DXD503.92.8
UltraShort Financials ProShares SKF455.74.6
UltraShort Gold ProShares GLL151.43.7
UltraShort Industrials ProShares SIJ453.54.8
UltraShort Oil & Gas ProShares DUG216.13.7
UltraShort QQQ ProShares QID3443.2
UltraShort Real Estate ProShares SRS206.15.9
UltraShort Russell2000 ProShares TWM4554.3
UltraShort S&P500 ProShares SDS595.12.9
UltraShort Semiconductor ProShares SSG354.16.4
UltraShort Technology ProShares REW402.25.9





3X Leveraged Bull ETF's



Direxion Daily 10 Yr Trsy Bull 3X Shares TYD502.21.8
Direxion Daily 30 Yr Trsy Bull 3X Shares TMF402.75.2
Direxion Daily Devlpd Mrkts Bull 3X Shrs DZK506.75
Direxion Daily Energy Bull 3X Shares ERX255.87.1
Direxion Daily Financial Bull 3X Shares FAS911.83.8
Direxion Daily Large Cap Bull 3X Shares BGU326.44.5
Direxion Daily Small Cap Bull 3X Shares TNA267.25.5
Direxion Daily Technology Bull 3X Shares TYH803.27.6





3X Leveraged Bear ETF's



Direxion Daily 10 Yr Trsy Bear 3X Shares TYO702.72
Direxion Daily 30 Yr Trsy Bear 3X Shares TMV805.83
Direxion Daily Devlpd Mrkts Bear 3X Shrs DPK3512.97
Direxion Daily Energy Bear 3X Shares ERY255.97.3
Direxion Daily Financial Bear 3X Shares FAZ56.18.4
Direxion Daily Large Cap Bear 3X Shares BGZ397.84.1
Direxion Daily Small Cap Bear 3X Shares TZA258.25.5
Direxion Daily Technology Bear 3X Shares TYP22.54.95.6

From the list above I am most interested in: (UCO), (SCO), (SRS), (SMN), (ERX), (TNA), and (TZA). These leveraged ETF's are among some of the highest return % if called out and offer good downside protection. Many of these are the bears which is another reason I am interested in using them as my portfolio is about 80% long positions, and this will help reduce my risk.

There are many more covered call ETF strategies to profit from. If you're more conservative and want to take on less risk check out the ETF's listed in the table below. However these all receive much lower premiums than the leveraged ETF's. Compare the leveraged ETF option premiums to the option premiums on the most popular ETF's (no leverage tracks basket 1X) such as those in the table below:

Consumer Discret Select Sector SPDR (XLY)
Consumer Staples Select Sector SPDR (XLP)
DIAMONDS Trust Series 1 (DIA)
Energy Select Sector SPDR (XLE)
Financial Select Sector SPDR (XLF)
Industrial Select Sector SPDR (XLI)
iShares Dow Jones US Energy (IYE)
iShares Dow Jones US Real Estate (IYR)
Materials Select Sector SPDR (XLB)
PowerShares QQQ (QQQQ)
SPDR Gold Shares (GLD)
SPDR S&P 500 (SPY)
SPDR S&P Metals & Mining(XME)
SPDR S&P Retail (XRT)
Technology Select Sector SPDR (XLK)
United States Natural Gas (UNG)
United States Oil (USO)
Utilities Select Sector SPDR(XLV)

Any of the ETF's listed in the above table are much more safe and investor friendly, however if you are a trader and seeking premium it would be in your best interest to keep an eye on some of the leveraged ETF's mentioned in this article.

To get more information about trading options check out my E-Books.

For your convenience I have put together printable spreadsheets of both the 2X and 3X leveraged ETF's ranked from least to greatest % Return and % Downside Protection below.

2X Ranked by Return:


2X Ranked by % Downside Protection:


3X Ranked by % Return:


3X Ranked by % Downside Protection:
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