Amplifying the Volatility: Dive into the T-REX 2x Long GME Daily Target ETF
Effortlessly Amplify Your GameStop Stock Profits - or Deficits
Ready for a wild ride? Introducing the T-REX 2x Long GME Daily Target ETF (GMEU), the latest addition to the stock market scene that promises a double dose of GameStop (GME) stock's notorious volatility.
The ETF took off on Thursday, joining its sibling ETF tracking shares of Snowflake (SNOW) with a shared goal: doubling the daily performance of their underlying stocks using derivative contracts. Stock prices were still climbing at the time of writing; GameStop was up less than 1%, while Snowflake surged about 7%.
GME stock is as unpredictable as ever – a favorite among the supremely online traders, and a symbol of 2021's meme stock craze. In June 2021, retail trading influencer Keith "Roaring Kitty" Gill sent the stock soaring nearly 50% with a single livestream announcement. This stock's skyrocketing and nosediving performances have been boosted on multiple occasions by Gill's cryptic social media posts.
Investing in leveraged ETFs like GMEU requires an understanding of several risks that come with the territory. Here's what you need to know:
Unleashing the Risks: What's at Stake
1. Volatility Drag: Leveraged ETFs, like GMEU, focus on daily returns, not long-term investments. Volatility drag can occur, causing the actual return to differ significantly from what's expected over time, often resulting in a net loss.
2. Higher Risk Profile: Leveraged ETFs involve higher risks and are not suitable for long-term investment strategies.
3. Counterparty Risk: Leveraged ETFs, such as GMEU, frequently utilize derivative instruments like swaps. If the counterparty fails, the ETF may face severe losses.
4. Liquidity and Slippage Risks: During market turmoil, derivatives and ETF shares can become illiquid, leading to unfavorable trade prices, or slippage, which increases trading costs.
5. Interconnection Risk: Complex interplays of derivatives can create a domino effect in times of market stress, intensifying losses.
And when it comes to GME stock, its extreme volatility can both amplify potential gains and losses within the leveraged ETF, potentially worsening volatility drag and increasing trading costs.
GMEU might not be the ideal pick for buy-and-hold investors, as its purpose is to double the stock's daily performance. Over longer periods, it's likely to lose money if GME's performance remains flat and can still lose money even if the performance increases.
While the appeal of leveraged funds may be strong amid this year's market volatility, investors are advised to tread carefully and approach these funds with caution as part of a sophisticated trading strategy. Keep in mind the intricacies and risks associated with these funds, especially when investing in exceptionally volatile stocks like GME.
- The T-REX 2x Long GME Daily Target ETF (GMEU) is a new addition to the stock market scene, aiming to double the daily performance of GameStop (GME) stock.
- GMEU utilizes derivative contracts to achieve its goal, similar to the ETF tracking shares of Snowflake (SNOW).
- GameStop stock is known for its unpredictable nature, often subject to sudden surges and drops, especially due to cryptic social media posts from retail trading influencer Keith "Roaring Kitty" Gill.
- Investing in leveraged ETFs like GMEU involves higher risks, and is not suitable for long-term investment strategies.
- Volatility drag, counterparty risk, liquidity and slippage risks, interconnection risk, and amplified potential losses in exceptionally volatile stocks like GME can all impact the performance of GMEU.
- While the attraction of leveraged funds might be high amid the current market volatility, investors should approach them carefully and employ a sophisticated trading strategy, fully aware of the risks associated with these funds.
