The T-Rex 2X Long MSTR Daily Target ETF (MSTU) soared 5.4% in pre-market trading on Wednesday, tracking gains in MicroStrategy (MSTR) stock and the price of Bitcoin. MSTU is a new leveraged ETF that aims to provide 200% of the daily performance of MicroStrategy, a company that has shifted its focus to accumulating Bitcoin, making its stock price a proxy for the cryptocurrency.
MSTU works by entering into swap agreements with financial institutions, investing at least 80% of its assets in these swaps to gain 200% daily exposure to MicroStrategy. It rebalances its portfolio daily to maintain this 2x leverage. However, this structure introduces several risks that investors should be aware of.
The article outlines potential risks such as rebalancing risk, where the ETF's exposure to MSTR may not accurately track the 2x objective, sector risk due to MSTR's Bitcoin exposure, volatility and compounding risk that can cause MSTU's performance to deviate significantly from 2x MSTR's performance over time, and counterparty risk related to the swap agreements.
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