Direxion Daily Gold Miners Bull 2X (NUGT)

[silver100]

From http://seekingalpha.com/article/1023051-no-bull-about-leveraged-gold-bull-etfs?source=yahoo

The prospectus for the Direxion Daily Gold Miners Bull 3x Shares ETF provides a lengthy description of the product and risks. Here is a small section which summarizes their key points:

(3) The Funds seek daily leveraged investment results. The pursuit of these investment goals means that the return of a Fund for a period longer than a full trading day will be the product of the series of daily leveraged returns for each trading day during the relevant period. As a consequence, especially in periods of market volatility, the path of the benchmark during the longer period may be at least as important to a Fund's return for the longer period as the cumulative return of the benchmark for the relevant longer period. Further, the return for investors that invest for periods less than a full trading day or for a period different than a trading day will not be the product of the return of the Fund's stated goal and the performance of the target index for the full trading day. The Funds are not suitable for all investors.

The Funds are designed to be utilized only by sophisticated investors, such as traders and active investors employing dynamic strategies. Such investors are expected to monitor and manage their portfolios frequently. Investors in the Funds should:

a. understand the risks associated with the use of leverage,

b. understand the consequences of seeking daily leveraged investment results,

c. understand the risk of shorting, and

d. intend to actively monitor and manage their investments.

Investors who do not understand the Funds or do not intend to actively manage their funds and monitor their investments should not buy the Funds. There is no assurance that any of the Funds offered in this prospectus will achieve their objectives and an investment in a Fund could lose money. No single Fund is a complete investment program.

If a Fund's underlying benchmark moves more than 33% on a given trading day in a direction adverse to the Fund, the Fund's investors would lose all of their money.

In other words, the daily rebalancing to buy three times the number of forward contracts on the portfolio positions will consume part of the underlying capital. If you buy the bull position, and gold plummets 33% (as this is leveraged 300%) during your holding period, your position will be worth zero. Direxion lengthily explains that this is NOT a long-term investment - in fact, it is a one-day trade (or at most, a few days). It appears that the investor must anticipate a price spike, buy, and then sell immediately (within a few days at most), to make money.

The opportunity for leverage is to magnify your gain over a short term trade. The challenge is that if you do not accurately guess the short-term market direction, or choose to hold the leveraged security for longer than the trading day that you purchased the leveraged-fund, your capital is consumed by the rebalancing of the contracts, regardless of whether the investment is the leveraged commodity or the miners.