How would you like to buy a stock – or ETF – that tripled in value in less than two months?
Sounds impossible? It’s not – that’s exactly what triple leveraged inverse fund DWTI did recently.
Shares of the ETN tripled from the $60.00 per share level to the breakout high above $180.00 today.
Let’s take a look at this monumental movement but also highlight the huge risk inherent in any double or triple ETF.
Here’s DWTI, the Triple Inverse (3x Short) Crude Oil ETN:
If oil moves up 1% in a day, the DWTI ETN (ETF) is calculated and balanced to return as close to -3% as possible.
And if oil moves down 1% in a day, the ETN “should” return close to a 3% price gain.
Because commodity prices tend to trend or move in one direction for a sustained period of time, this can quickly add up for those holding positions.
The reward can be large, as seen from December into January with a powerful movement up from $50.00 to $200 (quadrupling in two months) or the March 2015 movement from $100 to $180 in about two weeks.
That’s an extreme, powerful, and potentially large return for those who bought this fund into the downswing in the price of Crude Oil.
Of course, in the real world, you’re not going to buy the bottom and sell the high.
There’s another hidden reality to this golden profit machine and it’s the immense drop or collapse in price during even a modest (small) rally in the price of Crude Oil.
The lower chart plots $WTIC – Crude Oil itself – with two yellow highlighted periods.
At the time when Crude Oil “only” moved up from the $45.00 level toward $50.00 per barrel, the price DWTI collapsed from $200 to $100, losing half its value in one week.
With great reward comes immense risk. Continue Reading…