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Tuesday, September 1, 2009

Caution on leveraged short funds, FAS, FAZ, SRS, TZA, etc

It was announced today that the fund DXO was closed today, with specifics as to why not explained. DXO is a leveraged ETF, based on Oil futures. For every % Oil moves, DXO moves 2x%. There are many leveraged ETF's, most are new to the stock market.

I have mentioned leveraged ETF's such as SRS, FAS, FAZ, etc. What this means to the individual investor? Well if you in a fund, and it went "against you", hoping (praying) for the fund to return to the purchase price, you may be in for a surprise.

The fund could have the same fate as DXO and be liquidated. The losses you have at that time are sealed, with no mechanism to get the same % return, unless you start trading the futures markets.

The same goes for far dated options, on the ETF's.......which I am an owner of some.

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