correct me if im wrong but theres not just contago risk. Volatility also causes decay or tracking error from the math alone.
An example: Say Oil on day one rises 10% and then drops 9.1% the next day. Say you buy your 2x etf at 20$.
Day 1: 20 x (1 + 0.1 x 2) = 24
Day 2: 24 x (1 - 0.091 x 2) = 19.63
So you've lost 0.37 or 1.85% per share in tracking error alone. Obviously this is less extreme with lower volitility.
I'd imagine this would be useful for hedging. Say theres a gas report pending and you have a mix illiquid securities you can buy one of the inverse ones to esentially reduce your commodity risk and not have to sell into an illiquid market.
Other then hedging, IMO this isn't an investment but simply gambling.
An example: Say Oil on day one rises 10% and then drops 9.1% the next day. Say you buy your 2x etf at 20$.
Day 1: 20 x (1 + 0.1 x 2) = 24
Day 2: 24 x (1 - 0.091 x 2) = 19.63
So you've lost 0.37 or 1.85% per share in tracking error alone. Obviously this is less extreme with lower volitility.
I'd imagine this would be useful for hedging. Say theres a gas report pending and you have a mix illiquid securities you can buy one of the inverse ones to esentially reduce your commodity risk and not have to sell into an illiquid market.
Other then hedging, IMO this isn't an investment but simply gambling.
