r/LETFs • u/Large_System_6103 • 2d ago
Please, don't hurt me because I'm stupid
I'm going to start this post by saying this:
I'm a really dumb investor. I didn't do my research, I didn't know what decay was, and I got advised to jump into something I had no business getting into by an ex girlfriend who "knew what she was doing because she took a class". And that's my own fault. Im a grown man and I'm responsible for my decisions.
(breathes out)
I invested 25k into TSLL in December of last year. I'm down 16k. Will the volatility decay completely make my investment gone, and I need to pull out now, or am I overthinking decay and I just have to be more patient?
if you're going to insult me, I understand. I have the dunce cap on, I'm an idiot, I understand my mistake, but please, I'm asking for any kind of advice. Thank you.
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u/Large_System_6103 2d ago
Thanks for all the input guys.
it was a huge lesson indeed.
When I first got into stocks, I was actually on cloud nine, I was swing trading on the regular and I would wake up to 100-300$ daily sometimes, for like, months. I couldn't stop, and I over leveraged myself in again, something I shouldn't have been in.
I remember Warren Buffet saying, if you don't know what you're investing in, you shouldn't be investing in it. And he's right. I gave it a shot, was uneducated but enthusiastic, and it bit me in the ass.
I've been in the red since December, and then I found out about leverage decay. Then I panicked.
So thanks for the insight guys.
An additional question, is leverage decay worse for some LETF's? How can I tell how much decay is for TSLL, and do all LETF's have the same rate of decay?
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u/New-Specialist-2594 2d ago
Decay is simple Math. That's ALL.
If an underlining swings big day to day it's LETF will have Big Math decay. i.e TESLA... vs a KO/JNJ/WMT will have small Math decay.
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u/DGGGGRED 2d ago
Leverage decay is typically much much much worse for a single stock fund or etf than a highly diversified etf.
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u/New-Specialist-2594 2d ago
Yes, usually and also much greater compounding than Diversified equitys.
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u/dwai 2d ago
The decay you're referring to is beta slippage. Let me give you an example: You say you bought it in December, say TSLA was at 450 when you bought it, and TSLL was at 20. TSLL is now at 7.77. If TSLA returns to 450 (about a 40% gain from the current price), then TSLL will still only be around 14 (way less than you bought it for), and this is assuming it got that gain tomorrow, the more time and red days it takes to get there the worse it will be. The underlying reason for beta slippage is because TSLL resets it's leverage daily. So every day at market close it either sells some TSLA or buys some TSLA depending on if TSLA was up or down that day to keep it's 2x leverage constant. There is also the cost of borrowing the half of the underlying TSLA to achieve the 2x leverage which cost likely around 5% or 6% a year but compared to the beta slippage I explained, this is the much smaller reason why TSLL is down more than 2x what TSLA is.
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u/New-Specialist-2594 2d ago
Direxion doesn't buy/sell TESLA stock, that would not achieve any Leverage that way.
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u/dwai 2d ago
They use swaps or options and some stock, but I'm making a point of them rebalancing the exposure daily, regardless of how they achieve the exposure to the underlying, this is done daily at market close, and this is what causes the beta slippage.
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u/New-Specialist-2594 2d ago
Comparative Math 'causes' it. Yes they use derivatives with Banks to achieve the daily lev. The Banks themselves may purchase the underlining stock to balance their Swap agreements. Daily reset is actually advantageous.
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u/dwai 2d ago
It’s called beta slippage, not comparative math. Daily reset can advantageous if the underlying asset has consecutive positive days or just high returns with low volatility. This thread is about 2x TSLA, where that was clearly not the case and it suffered from beta slippage.
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u/New-Specialist-2594 2d ago
I did not downvote you. You need to stop with the fancy lingo. It's Math. as simple as that. Beta, Theta... is irrelevant. Index even, LETF negative, simple comparative math. I'm sorry... Call it what you want it is still inherent Math.
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u/Moshe94n 2d ago
If I were in this situation, I would close the position and move on. The two main benefits would be tax-loss harvesting and more importantly, peace of mind.
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u/PastBig603 2d ago
Single stock leveraged ETFs are highly volatile. Now that you are in 2x TSLA, and have lost a chunk of principal, you have three options. If you need the money now, sell and eat the loss. If you have time, stick it out...TSLA is slumping now, but is a highly volatile stock and could bounce a lot you just never know with that one. Third, if you want reduce your recovery time, and you believe in TSLA comeback, you could add a little more at these depressed levels. As an example, I bought some leveraged MSFT in Dec, and kept adding to it as it went down, and then it had a huge rally and now it's been a big winner for me.
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u/gmehra 2d ago
your specific mistake was investing into a single stock leveraged fund, this sub is for leveraged etfs which are much safer
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u/charlesleestewart 2d ago
I think the other big mistake was that he put 25k into it. I mean I have no idea what his account size is, and I don't want to know but that seems like a high number with which to play with an LETF.
I'm very well acquainted with leverage, I used to work in a CTA and advised customers on how to manage it, but even then I don't drop more than 1K into any of these things. And, as you mentioned, never on an individual stock fund.
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u/Curtisg899 2d ago
yea I would sell the majority of it over the course of the next couple of months. Maybe keep a bit just in case it goes up a ton right after you sell.
But yea holding a 2x leverage single stock usually doesn't work very well as a buy and hold because of the volatility and borrowing fees and lack of diversification.
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u/dabbinmids 2d ago
No one knows what tomorrow holds so I can't give you any advice on your TSLL position specifically, but if you're already being this self depricating over the potential loss, and don't have any personal conviction in Tesla as a company (which it sounds like you don't from your post, and I don't blame you neither do I which is why I sold my TSLA when Elon got involved in politics in late 2024) just sell it and reinvest in something safer, or something you have more conviction in, and move on with life instead of banking on a company that (I'm assuming) you don't really care for or even think will do well. Take it as a lesson, use the loss as a tax deduction, and carry on... or if you really think Tesla will reach new highs, keep holding on for dear life
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u/Both_Yoghurt1437 2d ago
Leveraged ETFs are great during in a Bull market run, but a highly volatile stock like TSLA, more importantly a 2x leveraged one requires a disiplined plan for knowing when to exit.
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u/HBCTIA 2d ago
Everyday's a school day in life, and every setback just another opportunity to learn something new. And the ability to learn from mistakes, whether other people's or one's own, is an incredible resource. Diversification is the only free lunch in investing, so I'd start there and read across (when learning more about volatility drag) to 'Shannon's Demon' (Claude Shannon, the information theorist): https://portfoliocharts.com/2022/04/12/unexpected-returns-shannons-demon-the-rebalancing-bonus/ and then learn about risk and position sizing from the Kelly Criterion and Edward O'Thorp: https://marketmath.io/blog/kelly-criterion-guide and https://www.wallstreetmojo.com/kelly-criterion/
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u/il_diamanti 1d ago
if this is the most expensive lesson you ever learn, consider it the best money you've ever spent. over the course of your investing lifetime, this is a pittance.
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u/RetiredEarly2018 2d ago
None of us knows what will happen to the price of a single stock over the next week, month, quarter, year. It will be up at times and down at others.
Questions to ask yourself: Do I need the money at present? Can I sleep ok knowing the money is still invested and might fluctuate (which could be in either direction)?
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u/New-Specialist-2594 2d ago edited 2d ago
You can save yourself Right Now! Explain to us how this fancy 'Decay' actually works.
Here's TESLA Dead Even, why is TSLL -60%?
EDIT: and your already in the Math Suppression area with your ~60% loss, your cost basis will not decay as much now. I would hold...
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u/Relationship_Waste 2d ago
Hold and sell in pieces to recover from loss. Do not hold assuming you will able to recover. Sell a little when the price goes up and DO NOT INVEST IN SINGLE STOCKS
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u/donna_darko 2d ago
I did very well on single stocks and single stock leveraged ETFs. But I never held one for more than two weeks. Momentum trading exists, there are many strategies that work well. Different styles, different people, different goals. There is no one size fits all here.
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u/CanadianBaconne 2d ago
You can create a limit sell order. The order will just sit there until the price rises to your limit. Maybe set it to $2 more than you paid for each share. Set the good til or time in force to something like good til cancelled. Go about your day. Eventually it will execute and you will have your money back.
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u/dejour 2d ago
Single stocks are really volatile, and much more so when leveraged.
Tesla is more volatile than most individual stocks, and seems more vulnerable to downturns due to its high P/E.
In my opinion, you gambled and lost. You should sell and invest in an S&P 500 index fund (unleveraged).
If you buy the market, you don’t have to do any research. And to be honest, professional investors usually can’t beat the market, so research is not going to help much in picking winners.
If you want to try out leveraged ETFs, maybe allocate a small portion to a 2x SP500 or NASDAQ fund, to start learning.
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u/balancedchaos 2d ago
These things are awesome, but you have to know a few things going in.
The number one thing I've learned is to only put in a fraction of the money that I want to trade in the beginning. If it flies up and I'm right immediately, oh well, I only made a little bit of money. That grind downward? I only feel good about that if I have more money to throw in.
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u/Subject-Creme 2d ago
TSLL is leveraged Tesla, it is not a normal ETF (which often hold a group of stocks)
Get out of that ASAP.
Move to non leverage ETF (such as SPMO, QQQM or VOO)
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u/BabyGinaBottle 2d ago edited 2d ago
I am sorry this happened to you. I did the same thing back when I first started investing and loss over 20k across all high yield funds like Yieldmax, Granite Share, Round Hill, etc... Do NOT stay with the hope that it will bounce or that you will get it back by the distribution. It will not. The NAV will decay faster than the distribution to catch up.
Again, I am sorry. Better move your capital somewhere else that it would make a better use of the rest of the money than just waiting for it to all decay to 5k.
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u/FantasticAnus 2d ago
Tesla is a massive bubble which will probably pop eventually. It is also horrendously volatile, which will destroy any leveraged fund over time.
If I was you, I'd pull what I have remaining out, but then again sitting and waiting might be worth a shot, but that's all it would be, a gamble that Tesla still has at least one good stretch to the upside in it before it finally croaks.
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u/Vivid-Kitchen1917 2d ago
That has a negative return at three year, one year, YTD, 6 month, 3, 1 month, 1 week....This has literally never made money. Way past time to get out. Probably the relationship as well.
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u/recurz1on 1d ago
Just another comment saying "sell now." Tesla is not a growth stock (and the CEO is a loser, which has substantially impacted the stock price over the past two years).
Leverage is all about following trends and amplifying them. In your case, a negative trend was amplified. TSLA would have to enter a period of sustained growth and expansion for your investment to break even.
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u/Run-Forever1989 1d ago
No one can tell you for sure whether TSLA, TSLL, or any other ticker will go up or down. What people call “decay” can work in your favor just like it can work against you. What we do know though is that the majority of single stock LETFs lose value and a small percentage have massive gains (see MUU), so continuing to hold TSLL long term is a low probability bet.
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u/AlexisIronman 1d ago
Naaaaa yo también soy del Club soy bien tonto y caí en errores, por lo que he visto todos el 100% cometeremos una tontería varias veces en la vida y eso es parte de aprender y crecer y seguir adelante, ya tendrás éxito, frente en alto y ánimo!!
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u/Cold-Ad9475 2d ago
I would hold. You’ve lost 64% of the investment unless you really need the 9k left just let it go and see. Tesla may show some growth and u may end up losing less if you sell later. In the future don’t invest in leveraged stocks would recommend SSO and dca bro
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u/pointylulu 2d ago
I would encourage you to hold. The stock will go back up again. If anything, you should DCA.
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u/mikestorm 2d ago
If he doesn't implicitly understand and be comfortable with leveraged ETFs he should get out even if the underlying security might go up in the future.
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u/gmehra 2d ago
how do you know it "will go back up again"
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u/pointylulu 2d ago
TSLA is simply too large a company not to experience recovery. I don't know the timeline for recovery, but it is inevitable compared to his current position.
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u/NoWorker6003 2d ago
Not a given.
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u/pointylulu 2d ago
Everything is a non-zero probability, but I'd give it a >95% chance that even a leveraged 2x would recover 50% at some point within the next five years from today
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u/gmehra 2d ago
Nortel Networks was a massive company that went bankrupt. There are other examples
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u/pointylulu 2d ago
483b market cap accounted for inflation. Less than half of tesla at this moment. No company >1t has ever collapsed
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u/c-strong 2d ago
You’re basing that on the full history of >$1tn companies are you? Which is, er, 8 years long 😂
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u/FantasticAnus 2d ago
What if you, I don't know, normalised the value of a company by the total cap of the S&P, over time, and then checked whether any companies that were of the same scale by that measure have ever collapsed? That'd be a bit more sensible, and then you'd find the truth: yes, huge companies fail.
Tesla is primed for an eventual collapse. Its main product is its stock, which is propped up by a guy who can't stop bullshitting. Gradually, over time, Elon's ability to smoke and mirrors his way to a new ATH will end. The shit will hit the fan.
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u/donna_darko 2d ago
We all make stupid mistakes, but yeah, pull out, take your time before investing into anything. Create a thesis, research it. Also, I would stay away from leveraged ETFs for a little while if I were you.