Tragedy of retail leveraged ETFs

I wrote a Twitter thread on one of the largest #natgas ETF which is 2x leveraged, BOIL

You can find it here and follow me

After touching $10 last year, Natural gas has been in a big downfall. Professional traders were all bearish this summer even last year. Winter weather and Freeport downtime, exacerbated this move

However, retail investors not knowing the fundamentals did what they have been known to do recently. YOLOing into 2x leveraged BOIL ETF

BOIL started adding shares since December and has added about $2 billion in the ETF

The problem with leveraged ETFs is that they are great in a trending market and as a short term instrument. However, they are a money burning pit in general as they suffer from negative gamma

What is negative gamma? To maintain the leverage multiple, the ETF sponsors buy as prices of the underlying go higher and sell as the price of underlying goes lower. Tell me if you would invest in a fund that buys high sells low every single day

BOIL started adding shares since about 12/21 and continued to add about $1.9 billion dollars till 02/22, they took $470 million off the table on the rally from 02/22 to 03/03 when April contract touched $3.00 for a day, but most of this went right back in as natural gas continues to fall

Out of the $2~ billion "invested", $850 million has been lost

These are very big numbers

Unfortunately, BOILers (as I call them) don't understand that with the current natural gas volatility and the tendency by the ETF to buy high, sell low their chances of breaking even become slim every day

They took some profits when we had a rally from $2.00 to $3.00 in April contract but have added about $500 million back into the ETF since March

As per our analysis, July futures will have to reach $2.89 to wipe out its losses on the accumulations since March and will have to reach $3.70 to erase its losses on since December

As of this morning, July contract has a 43% chance to hit $2.89 and 13% chance for $3.70 These may act as major resistance levels as well and need to be monitored

We are talking about just recouping the losses here and not even making profits. This is what happens when retail piles into something that trades more or less on fundamentals

Generally, I talk about futures and options only, but given the billion dollar size, this ETF has become a large part of natural gas analytics

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