Intro

First, UPRO is not the same as having a triple-leveraged stock account. It instead seeks to duplicate the daily price movement of the S&P 500 Index times three. This is an important difference.

Tip: The UPRO fund does not return 3x the dividends as the S&P 500 index fund. Please see the dividends section below.

Overview: The UPRO fund holds -199.96% of its assets in cash, meaning it borrows two dollars for each dollar in it.

This Ultra ProShares ETF seeks a return that is 3x the return of an index or other benchmark (target) for a single day.

Dividends

UPRO pays dividends. It pays mainly a nominal dividend, of about 1-2 cents a share. Why does ProShares bother with dividends? The explanation is on the funds pagethe short answer is the IRS requires it.

The UPRO fund uses investment instruments, such as financial swaps, that may generate capital gains. And the IRS requires that when capital gains occur, a dividend must be distributed.

All ETFs are required by IRS regulations to distribute substantially all of their net investment income and capital gains to shareholders at least annually. Many ETFs make regular income distributions as well as capital gain distributions.

SSO vs. UPRO

Is UPRO better than SSO? And when should you buy UPRO instead of the double-leveraged SSO? As a triple-leveraged fund, UPRO is risky. If the market goes down, you will lose lots of money.

SSO

Ayres suggests sticking with 2x leverage, not 3x or more leverage. The reasoning is that with 2x leverage, you can better recover from a market decline. If you have 3x or more leverage, your account will be decimated.

And: You will have to start over almost from the beginning. This is why SSO may be better than UPRO.

I suggest buying a small amount of UPRO shares to complement SSO shares. This will create a slightly more aggressive portfolio, but one that still lets you relax. SSO shares will keep more value when prices drop, as they will.

Beta

Beta measures volatility in stocks. This is arbitrary, but usually the index (S&P 500) has a beta of 1. The UPRO fund thus has a beta of about 3. Currently it has a beta of 3.09 according to Google Finance.

Beta and risk. Does more beta equal more risk? Beta measures systematic risk. So if all other factors are equal, a beta of 3 is riskier than a beta of 1. But non-systematic factors, such as a bad quarterly report, also affect risk.

Beta measures systematic risk based on how returns co-move with the overall market.

Expense ratio

The expense ratio of UPRO is 0.95%. This is one reason why holding UPRO in the long-term may be a poor choice. In a bull market, holding this ETF will be worth the cost. But the expense ratio will always reduce performance.

Tip: There are many reasons to avoid holding UPRO in the long-term. The high expenses are one of those reasons.

Summary

UPRO is a complicated ETF. It is only something you should buy if you know what it holds, and (in general) how it is operated.

In a bear market,

when prices decrease,

it would lose much of its value.