How to Trade Leverage Gold ETF - Nugt & Dust

By: Julie Jordan Scott

If you are a savvy investor, you can make quite a sum by trading leverage Gold ETF's in Nugt and Dust.

What is NUGT & Dust

  • NUGT - Direxion Daily Gold Miners Index Bull 3x Shares)
  • DUST - Direxion Daily Gold Miners Index Bear 3x Shares) 

Both NUGT and DUST are leveraged ETFs that tracks the GDX. They try to simulate GDX by amplifying its gains (Nugt) and losses (Dust). By trading Nugt and Dust, you can make a nice sum of money.

GDX is a NYSE traded ETF that follows Arca Gold Miners Index GDMNTR. GDMNTR is an index that monitors the results of publicly traded companies that are involved in the gold mining industry. Thus, both GDMNTR and GDX should perform the same.

How to Trade Nugt & Dust
In a nutshell, should the price of gold or gold sentiments or miners go up or shows bullishness, Nugt will have almost 3 times the gains for that day or week. On the other hand, should the price of gold or gold sentiments shows a bear mood, Nugt will drop 3 times while dust will have 3 times the gains. 

By trading Nugt and Dust, you can make a nice sum of money by knowing when to enter dust and sell nugt and vice versa.

Do note that leverage ETFs are not stocks or ETF's and should not be dealt with the same way you deal with stocks e.g buy and hold. Leverage ETFs are meant to be traded.

Understanding NUGT

NUGT has 5 splits history. 

  • 1. April 02, 2013. 1 for 5 reverse split.
    For each 5 shares of NUGT owned, you now owned 1 share. e.g 1000 shares becomes 200 shares. 
  • 2. August 20, 2013. 1 for 10 reverse split,
    For each 10 shares of NUGT owned, you now owned 1 share. 200 shares becomes 20 shares. 
  • 3. October 01, 2015. 1 for 10 reverse split,
    For each 10 shares of NUGT owned, you now owned 1 share. 20 shares becomes 2 shares. 
  • 4. August 25, 2016. 5 for 1 split.
    For each share of NUGT owned, you now owned 5 shares. 2 shares now becomes 10 shares.
  • 5. May 01, 2017. 1 for 4 reverse split.
    For each 4 shares of NUGT owned, you now owned 1 share. 10 share now becomes 2.5 shares.

What Happens When Nugt splits its shares.

The market capitalization before and after the split remains the same. The only difference is that you as the shareholder now owns more shares while each share is valued at a lower price per share. However, since a lower priced stock on a per-share basis generally attracts a wider range of buyers, the share price may appreciate as a lower share price tends to attract more buyers to trade. This may result in the total market capitalization to rise after the split. 

What Happens When Nugt Reverse its Shares 

When Nugt conducts a reverse share split, it is usually because shares have fallen to a lower per-share price point than the company would like. Certain types of mutual funds might have a limit governing which stocks they may buy, based upon per-share price. The $5 and $10 price points tend to be important in this regard. 

So when a company does a reverse split, it may want to prop up its share price and prevent too much trading like what happen to Nugt on 1 May 2017. However, the share price will normally drop after a reverse share split causing the market capitalization to drop. 

Nugt Historically

Looking at the NUGT split history from start in 2013 to May 2017, your original position size of 1000 shares would have turned into 2.5 today if you had bought and hold the stock. In a nutshell, Nugt is not a stock that you buy and hold. It is a stock that you trade daily, weekly and monthly. 

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