I wasn't going to post today, but I received an email from my broker today that FINRA has increased it's margin requirements on leveraged ETFs effective December 1. Since I have indicated that I am trading these instruments, I felt that I should inform you of this change. The proposed change would effectively destroy the benefits of these ETFs for those trading on margin since the double leveraged ETFs will require twice the margin as the unleveraged ETFs they track. They still offer an advantage for those not trading on margin. I had my broker run a simulation to determine what my buying power would be under the new rules just to make sure that I would not have to exit any positions prematurely.
The double leveraged ETFs had significantly enhanced my portfolio performance since I began using them with index trend following strategies. In my opinion, the indexes do far better with these strategies than individual stocks, so I am greatly disappointed that I will have to retool my trading plan again to deal with these rule changes.
At the moment, I am looking at going to some combination of ETFs and long options, but I am not sure yet. Traders should be prepared for the inevitable ban on short trades once the next leg down in this great bear market is underway. Index futures may be the only way to short the market by that point.
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