How do Leveraged ETFs Work?
At one point I was hazy about the internal workings of leveraged and inverse ETFs, so I constructed models of hypothetical 2X and -1X Apple ETFs to clarify my understanding. I ignored a whole host of issues (e.g., regulatory, cost-effective leverage), but even a simple model of a leveraged ETF can hurt your brain. The basic inverse and leverage mechanisms shown below are essentially the same for …
