How to Cash in on the ETF Craze

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Limit the Leverage

The use of leverage in ETFs is all the rage these days. But like options trading, if you don't know what you're doing, you could end up in big trouble.

ETFs that employ double and even triple leverage are great ways to play a sector over very short time periods, i.e., several weeks at the most. But because these two, and particularly three times, levered ETFs require the use of various options to achieve their two- and three-beta performance objectives, they must constantly turn over various options contracts. This can be a tricky proposition, and over the long term it can lead to returns that fall short of the two- and three-time performance goals. Over the short run, however, these high-beta, levered funds are great, provided you know when to take your profits -- or losses -- and run.

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