Key Concepts

Leveraged Products

Leveraged products are underlyings that track different underlyings and attempt to amplify their move by a certain multiplier. A good example of a leveraged product is UVXY, which attempts to replicate twice the daily return of a modified VIX futures contract with an average maturity of 30 days. Not all leveraged products are positively correlated. Some products are negatively correlated and experience a loss when the replicated product experiences an increase.

It is very important to know when you are trading a leveraged product, as your actual results will differ greatly than the expected results you may have if you assume the product is not leveraged.

At tastytrade, we avoid leveraged products in the long term due to the negative drag they tend to have. We may, however, use leveraged products for short-term, speculative assumptions. Doing this allows us to realize substantial gains in a short period of time, as long as our assumption is correct. We have also found that we can manage winners much sooner, due to the leveraged nature of the product.

Leveraged Products Videos