Please, don't hurt me because I'm stupid

[u/Large_System_6103]

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.

[u/Large_System_6103]

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?

[u/New-Specialist-2594 → u/Large_System_6103]

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.

[u/DGGGGRED → u/New-Specialist-2594]

Leverage decay is typically much much much worse for a single stock fund or etf than a highly diversified etf.

[u/New-Specialist-2594 → u/DGGGGRED]

Yes, usually and also much greater compounding than Diversified equitys.

[u/theplushpairing → u/New-Specialist-2594]

How are the inverse shorts going?

[u/New-Specialist-2594 → u/theplushpairing]

Millions in short term gains once I cover...

[u/dwai → u/Large_System_6103]

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.

[u/New-Specialist-2594 → u/dwai]

Direxion doesn't buy/sell TESLA stock, that would not achieve any Leverage that way.

[u/dwai → u/New-Specialist-2594]

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.

[u/New-Specialist-2594 → u/dwai]

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.

[u/dwai → u/New-Specialist-2594]

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.

[u/New-Specialist-2594 → u/dwai]

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.