Lever Up!

Every one of the top 10 ETFs ranked by trade volume via percent change for July were leveraged vehicles. Disturbing trend to me. Options are already perceived as a “gamble” or “too risky” by those unfamiliar with how they work and large leveraged losses can only add to that stigma over time. To the risk tolerant (dare I say gambler?), they see a potential “win” that is leveraged 2x or 3x the underlying and the attraction to such products becomes even more enticing.

$UYM (27.4%)
$TNA (25.2%)
$BGU (24.3%)
$URE (23.7%)
$TQQQ (23.6%)
$UXI (22.2%)
$UVT (17.7%)
$UWM (17.3%)
$UYG (17%)
$DIG (16.9%)

Take a look at the bottom 10 ETFs ranked by trade volume via percent change for July and the same theme is there–leverage.

$SKF (-17.2%)
$SKK (-17.3%)
$TWM (-17.7%)
$SJH (-18.9%)
$SIJ (-20.5%)
$SQQQ (-22.1%)
$BGZ (-22.1%)
$SRS (-22.5%)
$SMN (-24.4%)
$TZA (-26.4%)

I’ve never been a fan of the leveraged products so I’m (obviously) biased. I’ve seen first-hand “traders” come to me with accounts that have been cut in half (or worse) through the abuse of leveraged products. Many have the mindset that if they are right in direction then doubling or tripling their returns in a short period of time is a no-brainer. What they fail to understand, in addition to how the instruments themselves actually work, is that the losses are levered as well.

Whether or not you agree with me, the fact that leveraged products dominate the trade volume is no-doubt interesting. To be fair, I also know traders who trade nothing but leveraged products and do very well. I guess I’m too risk averse…or maybe I’m holding out for the 5x levered products before diving in. I’d love to hear your thoughts in the comments.