ETFs That Might Burn Down Entire Towns

I saw the following on Twitter.

Here's a chart looking at plain Bitcoin, those two covered call ETFs and the recent one that launched from Tuttle.

Sure, covered call ETFs could help soften the downside in a longer timeframe as distributions come in but sparing any anguish caused by a fast decline it is not an expectation I would have going in.

Did you see this filing?

That's right, 5x leverage on several individual stocks and cryptocurrencies. The more volatile the underlying with 2x, the more the volatility drag impacts return but there isn't a whole lot of predictability or reliability on how the volatility drag will effect returns but it's better to assume the effect will be negative for fund holders. All the moreso with 3x funds and 5x, man, who knows what those will do?

If you're wondering how these could possibly see the light of day, as Dave Nadig points out, there is a quirk in the filing process where these might be an attempt to take advantage of the government shutdown. 

Thanks to the ETF Rule (6c11) and recent generic listing standards, as crazy as these filings may seem, they are actually "normal," and thus, if the SEC doesn't explicitly kaibash them, they go live in 75 days.

Crazy. I make the same joke about ETFs that will melt your laptop, I think the 5x might burn down entire towns. It's not for me to paternalistically say these shouldn't be allowed to trade but if they ever see the light of day, it is a guarantee that people will misuse them and get rekt. 

Speaking of leverage, the FT isolated an issue that might be impacting some leveraged ETFs, the article hit on Tesla specifically. If you remember the few conversations we had about the night effect, apparently most of Tesla's gains come from gapping up at the start of the day and the FT says that is a complicating factor for the levered funds that have a daily objective/reset. 

The 2x levered S&P 500 seems to avoid many of the obstacles that challenge the entire levered ETP concept but even then, they are not infallible. These really are the underlying plus the volatility of the underlying and there's more than just an element of they're whipping around like an unmanned fire hose. 

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