2x and -2x MSTR ETF investors are getting hammered with 65% losses. Here's why and what to know.

Leveraged single-stock ETFs have become all the rage in 2025.

This year through the first week of November (according to ETF Action), fully 177 of these ETFs have launched. Add in synthetic and derivative income ETF launches -- which include leveraged, zero-days-to-expiration, and other complex option strategies -- the total jumps to roughly 300.

Many investors love risky products! When things are going great, they can produce big returns. But most investors aren’t aware of the structural risks involved when they buy these ETFs, and some are learning hard lessons right now.

Take MicroStrategy (MSTR), now known simply as Strategy, for example. In 2025 through Nov. 5 the stock is down 12% year-to-date. But what if I told you that the 2x leveraged and 2x inverse MSTR ETFs were both down more than 65% this year?

Weren’t expecting that, were you? But they are.

Many investors have bought into leveraged single-stock ETFs this year, imagining huge gains from some of these big tech stocks. Instead, they’re finding out how these products aren’t all they’re cracked up to be.Leveraged and inverse MicroStrategy ETFs are both getting hammered in 2025.Shutterstock

Why Leverage Isn’t 'Double Everything' Over Time

When you look at the T-Rex 2x Long MSTR Daily Strategy ETF (MSTU), it might be easy to assume that you’re getting double whatever the return on MicroStrategy stock is regardless of the time frame. If it’s up 10%, you get 20%. If it’s up 100%, you get 200%.

In reality, that’s not the case at all. Look at the fund’s website and you’ll find that MSTU’s objective is to deliver “200% of the daily performance of MSTR” after fees and expenses.

It goes on to say that it “does not seek to achieve its stated investment objective for a period of time different than a trading day.”

Translation: If you plan to hold MSTU for longer than a single trading day, your total return could differ significantly from a straight 2x.

Related: 5x leveraged single stock ETFs could be coming

MSTU might look like “double upside” on the surface. But if you hold it for days, weeks or longer, your return might be far worse than what you'd have received if you'd simply gone long MSTR stock. The daily reset of the fund’s leverage makes the story more complicated than it appears on the surface.

I mentioned earlier that MicroStrategy was down about 12% but MSTU and its inverse counterpart, the T-Rex 2x Inverse MSTR Daily Target ETF (MSTZ), are both down more than 65% year-to-date.MSTR vs. MSTU vs. MSTZ; source: StockCharts

The first and most obvious question might be: How is MSTZ not only down but down huge, when MicroStrategy is down for the year, too? There’s a reason for that and it lies in how the funds themselves are built.

Story Continues

Volatility is the enemy of leveraged ETFs

Many investors don’t care to know how the sausage is made when it comes to leveraged single-stock ETFs. They simply see the huge returns of tech stocks, imagine a way to double their returns, and bask in the thought of endless wealth.

But it doesn’t work that way. I repeatedly emphasize that investors need to know what they’re buying.

In the case of MSTU and MSTZ (and any leveraged fund really), investors need to know the risks and why these funds perform the way they do.

So let’s do that by highlighting a few key takeaways:

MSTU doesn’t invest in MicroStrategy stock at all

Despite their label of leveraged single-stock ETFs, they’re not stock funds at all.

They are invested in swap contracts designed to deliver the 2x or -2x returns on MSTR stock. As is the case with any derivatives contract, they come with an expiration date. At the end of that contract, the owner receives any proceeds and needs to reestablish a new position with another swap contract.

Since MSTR and MSTZ have daily resets, new positions need to be established every trading day. That leads to extremely high turnover and…

High turnover equals high trading costs

Here’s a fact that's little-known but one investors should know: You might look at a fund’s expense ratio and think that’s the all-in cost of ownership. In fact, it’s not.

Transaction costs typically aren’t included in the expense ratio. You may think you’re buying a cheap fund, but if it’s trading daily and turnover in it is high -- as with MSTU and MSTZ -- the total costs can end up being quite high.

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Those costs are reflected in the fund’s share price and performance. The higher the cost, the greater the drag on total returns.

But that’s not even the biggest reason why MSTU and MSTZ are performing so badly this year.

Volatility becomes very costly

The biggest issue comes from something called volatility decay.

When you buy or sell an options contract, the price is determined largely by the volatility of the underlying security. A low-volume stock, say Procter & Gamble, might be relatively cheap because the price doesn’t move much. The range of possible outcomes is smaller, so the risk premium is lower.

Options on higher-volatility stocks, such as MicroStrategy, carry a much higher premium. Because the stock’s price can swing wildly from one day to the next, options contracts carry larger risk premiums to reflect that volatility.

Key Takeaways

Leveraged ETFs carry significant downside risks that most investors underestimate. Both the 2x and -2x MicroStrategy ETFs are down more than 65% year-to-date. The volatility of the underlying stocks is the most damaging factor to leveraged ETF returns beyond a single trading day. Always know what you’re buying before you buy it. If you can’t easily understand it, you should probably avoid it.

For a fund that’s trading derivatives contracts daily on one of the highest volatility stocks in the market, that cost drag is substantial.

Leveraged single-stock ETFs are essentially paying high transaction fees every single trading day and those fees can do major damage to shareholder returns.

In short, volatility is the enemy of leveraged single-stock ETFs. Since most of these ETFs are based on high-volatility stocks, such as Tesla, Nvidia and Palantir, this volatility drag is likely to result in total return charts like the one you see above for MSTR.

Proceed with extreme caution with leveraged ETFs

If you’re looking to take a home run swing in your portfolio with leveraged ETFs, know that you’re probably going to strike out much more often if you hold them beyond a few trading days.

Sure, they can work for traders who are looking to make a single-day bet on a particular stock. A lot of retail investors don’t do that, though. Rather, they hang on for too long and end up getting stung.

The performance this year of MSTU and MSTZ demonstrates that clearly. Leveraged ETFs come with extreme risks that a lot of investors aren’t prepared for and even don’t know about.

Related: Vanguard may finally allow bitcoin ETFs

This story was originally reported by TheStreet on Nov 7, 2025, where it first appeared in the Investing section. Add TheStreet as a Preferred Source by clicking here.

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