has to do with how they achieve leverage, using derivatives and options, and they "reset" every day at close
I've heard this about some other ETNs, but not with CEFL, BDCL and MORL. I think it does have to do with how they achieve leverage. All of those have done fairly well for me, although I've held them for less than a year.
If they are black holes, sure, short them. Why not? If the leveraged note is a black hole, you might as well always keep 3% or so of your holdings short the black hole. You can suffer the short term increases in price, but over the long term they're going to zero. I've tried to short UVXY and can never get the shares from the broker. Look at it's chart, something like 80,000 to 27 in a few years, it is seriously a black hole!
This is amazing,. yes:
finance.yahoo.com
And the best thing about shorting a stock like that is you never have to cover and realize the capital gain. You just stay short the shares as they head toward zero, but never quite get there. Thus, not tax implications.
But I don't know how CEFL gets its leverage. Since it is sponsored by a bank (UBS, I believe) I don't know why it couldn't just borrow 1x it's cash value at the one week rate every day, and double it's holding of the index it "tracks". That wouldn't cause any black hole issue. |
