How To Reduce Your Risk With Leveraged ETFs Using Options

Leveraged ETFs have become very popular among active traders looking to increase their exposure to a given index without buying on margin. While the SEC has warned of their risk on multiple occasions, many traders continue to utilize these ETFs without taking into account all of the associated risks. For example, the daily compounding they employ means that a 10 point move down one day and a 10 point move up the next may actually produce a loss [see ETF Call And Put Options Explained]. In this article, we’ll take a look at how to reduce the risks associated with leveraged ETFs by using stock options. Why Are Leveraged ETFs So Scary? Leveraged ETFs are exchange-traded funds that use derivatives and debt to amplify the returns of an underlying benchmark. For instance, the ProShares Ultra S&P 500 utilizes swap agreements and forward contracts to produce twice the daily performance of the [...] Click here to read the original article on ETFdb.com. Related Posts: 12 Cheap ETFs Every Trader Must Know Reviewing Three Different Types Of Leveraged ETFs The Shocking Truth About Leveraged ETFs UNG’s Wild Year September Performance Debunks Leveraged ETF Myth