I received a few questions as to why I would possibly buy a leveraged ETF or an option on a leveraged ETF when it is well known that they can suffer from volatility decay over time. The key here is time, and how much of it. The secondary point that sometimes is overlooked is how they act in a trending market.

First. Time. I generally don't anticipate holding anything long (call or long shares) for more than a few days to two weeks. Even in a two week span, you will find that on average, volatility decay is not significantly. It can be in a very volatile up and down market, but we aren't seeing that right now. In an up and down environment, the length I will hold these will only be a few days at best.

Second. Compounding and daily resets. The market is trending, and ironically, it is your friend whether you are long or short with these. If you are long, then you are getting longer each day as it compounds higher and higher. If you are short (ie. long an ultrashort), then you are actually get less short each day. Looking at the two Direxion Financial Daily ETFs, FAS and FAZ, we see that FAS is up about 9.89% for the year, while FAZ is only down 9.37%. Being long FAZ has been less painful than being short FAS. Also, you'll usually find the calls on FAZ will hold more premium than the puts on FAS. The pricing of the calls on the leveraged short ETFs is something that is very interesting that I am covering in a longer article since it requires a bit more detailing than the space I have here.