"These ETFs simply aim to match the relative daily returns of their respective index and occupy the bottom left spot on the aforementioned two dimensional spectrum. A closely related (albeit far less popular) type of product that occupies the bottom middle is the leveraged ETF. A leveraged ETF seeks to obtain a daily exposure on an underlying index scaled by a constant l; which, at this time, is somewhere between -3 and 3 for products currently on the market. If l is less than zero, the ETF provides short exposure to the index and are often called "bear" ETFs; conversely, if l is greater than zero, the ETF provides long exposure to the index, commonly referred to as "bull" ETFs. These securities are usually implemented by means of a rolling futures strategy."
"At face value, a retail investor might assume that if the S&P 500 returned 10% in a given year, a 3x leveraged ETF would return 30%. Fortunately or unfortunately depending on your perspective, this is not the case as the ETF seeks to maintain a 3x multiple on the daily return of the S&P 500 instead of the annualized return."
The post is about how the conventional wisdom behind these ETFs as "trading tools" is simply not true. All these ETFs do is to increase your beta exposure, in much the same way that buying high beta stocks increase your beta exposure. Practically speaking, there's little difference between a portfolio of stocks with an average beta of 2 and a 2x levered S&P 500 ETF. The risks are the same. Yet, no one goes around calling AMD (which has a beta of 2.83) a single day "trading tool." In fact, holding AMD is way riskier than holding a 3x S&P 500 ETF!