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I don't understand the "Exposure Before Reset" and "Exposure After Reset" columns below. To wit, why multiply by $-2$ the:

  1. Index Level?

  2. The $-2X$ ETF Index Level?

  3. Doesn't the Leveraged ETF owner care merely about the "Level" column?

I'm not asking about multiplication; I can deduce that eg. on Day 2, $110 \times -2 = 220$ and $80 \times -2 = -160$.

Rather, why multiply

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  • $\begingroup$ I am not entirely sure what your question is. The phrase “why multiply y-2” is hard to parse. $\endgroup$
    – Brian Romanchuk
    Jun 12, 2020 at 12:46

1 Answer 1

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It’s a 2x levered ETF. It has an exposure that is -2 times the size of the fund. The exposure determines how much the fund gains or loses in response to a change in the underlying asset.

Since the exposure is 2x the assets in the fund, the exposure needs to reset daily. That is what the table demonstrates.

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