Quick overview

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Leveraged ETFs traditionally allowed investors to experience losses that can escalate quickly while also providing the potential for increased gains.

However, new single-stock funds linked to companies like Tesla, Nvidia offer an alternative approach. These funds use options to provide monthly leverage that aligns with stock performance rather than exacerbating declines.

The ETFs created by Leverage Shares by Themes are structured to cap potential gains at a fixed level, typically around 20 percent, enabling traders to achieve up to double the stock’s return over a month. For example, investors can earn the full 20 percent gain even if Tesla’s stock only increases by 10%.

Conversely, if Tesla’s shares drop by 20%, the Leverage Shares 2x Capped Accelerated TSLA Monthly ETF (ticker: TSLO) would decrease by 20%. While this drop would be painful, it would not be as severe as what a traditional 2x leveraged product might face.

This structure resembles a buffer strategy, where investors are shielded from losses up to certain thresholds, thus protecting them from the disproportionate declines often associated with standard leveraged products.

Issuers want traders to adopt this strategy to pursue higher returns while minimizing the significant losses often associated with traditional leveraged investments. Paul Marino, the Chief Revenue Officer at Themes, explains, “It’s an options strategy within an ETF wrapper that offers downside protection along with the potential for enhanced returns.”