To shed light on your objective: ” First I have to figure out how and where these ETFs manage to lose money almost everyday so I can be on the profit end of that practice. So far, no-one knows, which is an ugly sign.”

Here’s the deal. Leveraged ETFs create daily leverage by investing in futures contracts & credit swaps. If you are not familiar with these subjects, read into the nature of derivatives (which include options, futures, credit swaps, etc). The ETF fund managers purchase derivatives with high specificity to maximize correlation to the underlying index.

Who profits from this transaction? The seller of the derivative. There are three articles below which explain derivatives, the nature of leveraged ETFs, and some potential investment strategies. These investment vehicles (underlying derivatives) are highly speculative and require a lot of research and “trial-runs” before executing any strategies, many of which are complex yet effective. The “lost” money is a result of the volatility created by the derivative.

Kevin is spot-on about the mathematical decay behind leveraged ETFs. Within any given period > 1 day, the greater the volatility, the greater the decay. If the market trends in one particular direction, the respective ETF (bear or bull) will experience a greater magnitude of gain/loss. The best investment strategy? Understand these animals, create a hedged strategy, run some trials with smaller amounts of capital (2% of your investment capital) and decipher the trading patterns (both of yours & the market) before investing with significant amounts of capital.

Overview of Derivatives
http://invest-faq.com/cbc/deriv-basics.html

Operational side of Leveraged ETFs
http://www.etftrends.com/2009/01/how-short-leveraged-etfs-work.html

Investing strategies for leveraged ETFs
http://www.optionsatoz.com/leveragedETFs.aspx

Take a chill pill, Pairs Profit? I am hardly an issue, just a single voice with questions. Talk to UBS, Ameriprise, LPL, Smith Barney, and Schwab. They mean so much more than I.

There is not much wriggle room. In order for the stock price to go down, either NAV declines, the number of outstanding shares grows, or there is a disconnect between stock price and NAV. If it does not work this way, what way does it work?

I hope you are right and these ETFs stay in business with high volume long enough I can be the one taking their money everyday. First I have to figure out how and where these ETFs manage to lose money almost everyday so I can be on the profit end of that practice. So far, no-one knows, which is an ugly sign.