Direxion Daily Semiconductor 3x ETFs (which are Bear, (NYSEARCA: SOXS) and Bull (NYSEARCA: SOXL)) show us both the joys and dangers of using geared ETFs. Both of them, SOXL and SOXS are among the most traded ETFs on the markets. People really like playing with these. The danger, and the interest, can be seen here:
SOXS from NASDAQ
And here:
SOXL from NASDAQ
The aim of both ETFs is to track an index of semiconductor companies. One is bear, the other bull, that's self-explanatory. They are also geared - so the performance should be 3 times the movement in the underlying index on any one day. As a function of them being geared they are really not - no, just not - for any long term holding. Their price resets each day, the management costs are high, this is something for intraday trading - possibly overnight if really desired. But these are trading instruments, gambles almost, not investments
The point here is that sure, semiconductor companies have done really well just recently as Nvidia and Marvell and so on showed how wondrous the world of AI is going to be to those who make silicon. The prices of those underlyings have been moving sometimes 20% in a day which is huge for things already valued in the billions. The effect on the index of the sector will be dampened, of course, given the spread of any such index across many companies. But that outperformance can be gained again by using an ETF geared against the index performance. Thus SOXL and SOXS.
The point for us here is that yes, guessing the direction of the index can be very profitable. But guessing it wrong is equally a terrible pain in the wallet. Which is the point we really want to make here. Yes, geared ETFs are intraday trades and speculations. They are also absolutely speculations so any position needs to be both carefully chosen and modest. This just isn't a part of the investing game where we go all out. Actually, it's not really investing at all, this is speculation - gambling even. That can be great fun but it's something to be modest about in size.
