Leverage Risk Study · Daily / Weekly / Monthly Rebalancing
What 4× leverage does to SPY, QQQ, IWM & SOXX — and how one blows up
Constant-leverage buy-and-hold on four index ETFs, simulated over five years with proper
asset/debt accounting so a position can actually be margin-called to zero. Inspired by the July 2026
collapse of the Situational Awareness fund.
Read this first — what the numbers can and can't tell you
This is a five-year window (Aug 2021→Jul 2026). It does contain the 2022 bear market
and the April 2025 tariff crash — but not 2008 or the 2020 COVID crash, where a 4×
position would have been liquidated outright.
Prices are split-adjusted, not total-return — dividends aren't reinvested, so the 1× baseline is understated by ~1–2%/yr.
Financing is a flat 6% on the borrowed 3×. Real margin rates ran ~0% in 2021 then 5–7% from mid-2022; a flat rate is a simplification the results are sensitive to.
Sustained 4× is only reachable via portfolio margin or a swap — a standard Reg-T account caps you near 2×. Treat 4× as the fund-style leverage that blew up, not a retail default.
Leverage ladder — more leverage is not more return
Peak five-year wealth sits at 1–2× for every ETF at every rebalancing
frequency. By 4×, volatility decay and drawdown have eaten the extra exposure — and for IWM &
SOXX, 4× ends below where it started. Switch frequency above: less-frequent rebalancing lifts the
2–3× results slightly (less decay) but pushes the tail toward wipeout — SOXX 4×
monthly goes to $0.
4× by rebalancing frequency
In Drawdown view, the shaded red band is the zone beyond −90% underwater
and each dot marks a point where a scenario crossed that line. SPY 4× never enters it; the rest do.
Time spent beyond −90% drawdown
Trading days more than 90% below the prior peak, out of ~1,255 total (~5 years), with the
month of first breach. Being 90%+ underwater is not a paper dip you wait out — in a real fund it means
redemptions and margin calls have already forced liquidation. SPY 4× is the only scenario that never
breaches −90%.
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