3x Leveraged Biotech ETF Explained

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Posted Jan 1, 2025

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A 3x leveraged biotech ETF is a type of investment fund that aims to provide a return three times that of the biotech sector, but with a catch: it can be extremely volatile.

These funds use derivatives and other complex financial instruments to achieve their leverage, which can amplify both gains and losses.

The 3x leveraged biotech ETF typically tracks an index, such as the NASDAQ Biotechnology Index, and seeks to provide a return that is three times the daily performance of the underlying index.

Investors should be aware that these funds are designed for advanced traders and may not be suitable for everyone.

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Pricing & Performance

The 3x leveraged biotech ETF, LABU, has been performing well over the past few years, with a 3-year return of 49.81% as of January 13, 2025.

Its inception date was May 28, 2015, and it has been in operation for over 9 years. The expense ratio for LABU is 0.96% (gross) and 0.96% (net), which is relatively low compared to other funds.

Credit: youtube.com, LABU: 3X Biotech Bull - How the pros trade leveraged ETFs like TQQQ, SQQQ

The NAV and market price for LABU are currently very close, with a 1-month return of -28.08% for NAV and -28.30% for market price. This is not unusual for a leveraged ETF, which can be more volatile than unleveraged funds.

Here's a summary of the performance for LABU as of January 13, 2025:

TimeframeNAV ReturnMarket Price Return
1M-28.08%-28.30%
3M-30.03%-30.09%
YTD-25.92%-26.01%
1Y-25.92%-26.01%
3Y49.81%49.89%
5Y39.83%39.85%
Since Inception-30.95%-30.96%

Note that short-term performance is not a good indication of a fund's future performance, and an investment should not be made based solely on returns.

Investing Strategies

You can use 3x leveraged biotech ETFs like LABU to magnify your short-term perspective with daily 3X leverage.

These funds are designed for short-term trading and can help you take advantage of opportunities in the biotech market.

Direxion Daily S&P Biotech Bull 3X Shares ETF, or LABU, provides three times the daily performance of its benchmark index, making it a powerful tool for risk-taking investors.

LABU had a record sequence of nine consecutive months with negative returns starting in September 2021, but LABD, the bear fund, returned 207% during the biotech downtrend from September 2021 to April 2022.

In fact, LABU is designed for swing traders, providing 3x daily exposure to a biotechnology index.

StrategyBenefits
Magnify your short-term perspectiveDaily 3X leverage
Go where there's opportunityBull and bear funds for both sides of the trade
Stay agileLiquidity to trade through rapidly changing markets

ETF Trading Strategy

Credit: youtube.com, I made $100,000 avoiding this common ETF investing mistake

ETF trading strategy is all about timing the market and making the most of short-term trends. Leveraged ETFs like Direxion can help you achieve this by providing 3x daily exposure to a particular index.

For instance, the Direxion Daily S&P Biotech Bull 3X Shares ETF (LABU) provides three times the daily performance of its benchmark index. This makes it a powerful tool for risk-taking investors.

However, it's essential to understand that leveraged ETFs are riskier than alternatives and should not be expected to track the underlying index over periods longer than one day. They are not suitable for all investors and should be utilized only by those who understand leverage risk and actively manage their investments.

To make the most of LABU, you should buy and sell at the correct price. LABU is more volatile than unleveraged funds, due to its 3-times investments in the derivatives of stocks listed in its benchmark index.

Explore further: List of Direxion Etfs

Credit: youtube.com, Why ETFs are the Perfect Option for Swing Trading

Here are some key things to keep in mind when trading LABU:

  • LABU provides 3x daily exposure to a biotechnology index.
  • It's designed for short-term trading and may suffer tracking error over longer periods.
  • It's essential to understand leverage risk and actively manage your investments.

LABU has shown impressive returns in the past, such as returning 207% during the biotech downtrend from September 2021 to April 2022. However, it's essential to be aware of the risks involved and to use stop-loss orders to limit potential losses.

In conclusion, ETF trading strategy requires a deep understanding of the market and the tools available to you. By using leveraged ETFs like LABU, you can make the most of short-term trends and achieve significant returns.

Near-Term Cap Gain

Near-Term Cap Gain is a strategy that involves leveraging long ETFs, which can be a lucrative way to boost your returns.

Market makers, or MMs, play a crucial role in facilitating this strategy by hedging deals that allow institutional investors to fill large block trades.

By borrowing shares that are otherwise unavailable, MMs can sell short and then hedge the risk of the short sale. This allows them to cover their shorts in accommodative market periods.

LABU, a leveraged-long ETF, has been identified as a top choice for near-term cap gain among these leveraged-long ETFs, according to market makers' hedging deals.

Here's an interesting read: Leveraged Etf Strategy

Benefits and Features

Credit: youtube.com, LABD ETF: 3X Biotech Stocks Bear - How Pros trade leveraged ETFs

With a 3x leveraged biotech ETF, you can magnify your short-term perspective with daily 3X leverage.

These funds are designed to help you go where there's opportunity, with both bull and bear funds for both sides of the trade.

You can stay agile – with liquidity to trade through rapidly changing markets.

Leveraged and inverse ETFs pursue daily leveraged investment objectives, which means they are riskier than alternatives that do not use leverage.

Here are the benefits of a 3x leveraged biotech ETF at a glance:

  • Magnify your short-term perspective with daily 3X leverage
  • Go where there’s opportunity, with bull and bear funds for both sides of the trade
  • Stay agile – with liquidity to trade through rapidly changing markets

Frequently Asked Questions

What is a 3X leverage technology ETF?

A 3X leverage ETF is a type of investment fund that uses borrowed money to amplify daily or monthly returns by a factor of three, tracking various assets like stocks, bonds, and commodities. These funds come in long and short varieties, offering investors a high-risk, high-reward opportunity for growth.

Krystal Bogisich

Krystal Bogisich

Lead Writer

Krystal Bogisich is a seasoned writer with a passion for crafting informative and engaging content. With a keen eye for detail and a knack for storytelling, she has established herself as a versatile writer capable of tackling a wide range of topics. Her expertise spans multiple industries, including finance, where she has developed a particular interest in actuarial careers.

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