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How Calendar Reset ETFs Work
Tradr’s Matt Markiewicz explains how monthly and quarterly reset leveraged ETFs work.
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Daily vs. Monthly & Quarterly Reset Leveraged ETFs
Key Takeaways
- A daily reset leveraged ETF seeks its stated multiple of a reference security’s performance for a single trading day. Monthly & Quarterly Reset Leveraged ETFs — also known as “calendar reset” leveraged ETFs — seek a multiple of a reference security’s performance for a full calendar month or calendar quarter.
- In 2024, Tradr launched the industry’s first monthly and quarterly reset leveraged ETFs.
- The reset period is the window to which the stated multiple applies. Bought mid-period or held across periods, a leveraged ETF’s return can differ significantly from the stated multiple, whatever its reset period.
- Monthly and quarterly resets are designed for investors who intend to stay in leveraged positions for more than a few days. The reset period can be aligned with a longer time horizon, the uncertainty introduced by daily compounding within the period can be reduced, and the burden of daily monitoring is eased.
- All leveraged ETFs, daily, monthly or quarterly, carry significant risks, including possible loss of the full principal value, whether shares are held for a single reset period or across multiple reset periods.
What Does “Reset” Mean in a Leveraged ETF?
A leveraged ETF seeks its stated multiple (e.g., 2X) for a specific window of time called the reset period. At the end of each period, the fund’s exposure is reset to its target and a new period begins. The reset period is one of the three levers that define any leveraged ETF, alongside the reference security and the exposure. For more on this, see What Is a Leveraged ETF?
How Do Daily Reset Leveraged ETFs Work?
The first leveraged ETF launched in 2006 had a daily reset, and that had been the case for nearly two decades for subsequent ETF in the U.S. A daily reset fund seeks its stated multiple of the reference security’s performance for a single trading day — defined as the close of trading on one business day to the close of trading on the next — and then resets.
“Dailies” are well-designed for active traders, retail or professional, who can continually watch and move in and out of positions. They can be an effective way to seek amplified returns on a very short-term basis — namely, one day at a time.
Held beyond a day, three effects begin to shape returns: volatility drag, compounding, and the mechanics of daily rebalancing. Together they mean a daily fund’s return over longer periods can differ significantly from the stated multiple of the reference security’s return — the fund can lose money when the reference security is flat and, in some cases, even when its performance is positive.
Learn more: Volatility Drag & Compounding in Leveraged ETFs ⟶
What Are Monthly & Quarterly Reset Leveraged ETFs?
In 2024, Tradr launched the industry’s first monthly and quarterly reset leveraged ETFs. Monthly & Quarterly Reset Leveraged ETFs — also known as calendar reset leveraged ETFs — seek 2X of a reference security’s performance for a full calendar month or a full calendar quarter, rather than a single trading day.
They offer an ETF alternative for investors who seek leveraged returns and intend to stay in their positions for more than a few days. Rather than compounding a leveraged result every trading day, the stated 2X objective applies to the entire month or quarter — measured from the close of trading on the last business day of one period to the close of trading on the last business day of the next. Investors can align the performance reset period with their investing time horizon.
Like Tradr’s daily funds, the monthly and quarterly funds use derivatives, primarily total return swaps, and are rebalanced at each reset to maintain their target exposure. There can be no assurance that the funds will achieve their objectives.
Ticker
Fund Name
Reference Security
Leverage
Reset Period
MQQQ
Tradr 2X Long Innovation 100 Monthly ETF
Invesco QQQ®
2X
Calendar month
QQQP
Tradr 2X Long Innovation 100 Quarterly ETF
Invesco QQQ®
2X
Calendar month
SPYQ
Tradr 2X Long SPY Quarterly ETF
SPY
2X
Calendar month
Nasdaq, Inc. is the owner of the registered trademark QQQ®, and Invesco QQQ® is used by Invesco under license from Nasdaq, Inc.
How Do Daily, Monthly and Quarterly Resets Differ in Practice?
Daily
Monthly
Quarterly
Time period
A single trading day
A full calendar month
A full calendar quarter
Measured
Close of trading, one business day to the next
Close of trading, last business day of one month to the last business day of the next
Close of trading, last business day of one quarter to the last business day of the next
Resets per year
Each trading day
12
4
Designed to align with
Day-at-a-time trading
Positions held for a month
Positions held for a quarter
Compounding of the leveraged result
Compounds every trading day beyond a one-day hold
Compounds month over month beyond a one-month hold
Compounds quarter over quarter beyond a one-quarter hold
Monitoring
Continual — designed for investors watching positions daily
Active monitoring still required; the burden of daily rebalancing math is eased
Active monitoring still required; the burden of daily rebalancing math is eased
With monthly and quarterly resets, investors gain more control over the timing of their leveraged trade. The uncertainty introduced by daily price volatility and compounding within the period can be reduced, and a longer position can be used to express a high-conviction view. Keep in mind, the trade-off is symmetry: 200% leverage applies to the full period’s move in either direction, and all of the risks of leveraged investing remain.
What Are the Key Risks?
1
Same risks as any leveraged funds.
Monthly and quarterly funds carry the leverage, volatility, compounding, derivatives and counterparty risks described in What Is a Leveraged ETF?
2
Full-period leverage in both directions.
The 2X multiplier applies to the whole month or quarter. A decline in the reference security of more than 50% over the period could result in the loss of the full principal value of an investment.
3
Mid-period entry.
An investor who purchases shares at a time other than the close of the last business day of a month or quarter will generally receive more, or less, than the stated leveraged exposure from that point until the end of the period.
4
Holding across periods.
Held for other than a full calendar month or quarter — or across multiple periods — a fund’s performance is likely to deviate from the stated multiple of the reference security’s performance for the period held, and an investment can lose its full value whether shares are held for a single reset period or across multiple reset periods.
These risks are described in full in the relevant fund’s prospectus. Read the prospectus carefully before investing.
Smart Questions to Ask
Leveraged ETFs that reset their performance target for periods other than a day are considered “calendar reset” ETFs because they define their period based on a calendar period. In the case of Tradr, our Monthly & Quarterly Reset Leveraged ETFs seek 2X of the performance of its reference security for a full calendar month or a full calendar quarter, rather than for a single trading day. Tradr launched the industry’s first calendar reset leveraged ETFs in 2024.
Tradr’s Leveraged ETFs provide a return based on the performance of the underlying reference security for one of the following specified reset periods:
Daily — defined as the close of trading on the last business day to the close of trading on the next business day.
Monthly — a full calendar month is defined as the close of trading on the last business day of one calendar month to the close of trading on the last business day of the following calendar month.
Quarterly — a full calendar quarter is defined as the close of trading on the last business day of one calendar quarter to the close of trading on the last business day of the following calendar quarter.
Let’s use a monthly reset period as an example. The only way to precisely seek the intended leverage is to buy the ETF at the market close on the last day of the previous month and sell it at the market close on the last day of the following month. Of course, you can hold the ETF for longer than a month, but remember that it will only seek to deliver the intended performance for one calendar month exactly, and then the performance period will be reset. Also the targeted exposure does not account for fees and expenses and there is no guarantee that the fund will achieve 200% leverage.
If you purchase shares at a time other than the close of the last business day of a calendar month or quarter, you will generally receive more, or less, than the intended leverage (such as 200% for a 2X long fund) exposure to the underlying reference security from that point until the end of the period.
Investors who invest for periods longer than the period specified by the fund (whether daily or for a full calendar month or quarter) should not expect to achieve the intended leverage (e.g., 200%) of the performance of the underlying security. The return will be the compounded return over the holding period, which will very likely differ from 200% of the return of the underlying security over that same time. The impact of compounding can be more pronounced the longer the shareholder holds the ETF. Additionally, higher price volatility for the reference security will increase the impact of compounding on an investor’s returns. The Fund can lose money if the security’s performance is flat and, in some cases, even when the performance is positive.
Within the reset period, the 2X objective applies to the full month’s or quarter’s move rather than compounding a leveraged result every trading day. That means the uncertainty introduced by daily price volatility and compounding within the period can be reduced. Across periods, however, compounding still applies: returns over multiple months or quarters are the compounded result of each period’s leveraged return, and can differ significantly from 2X of the reference security’s return over the same time. Monthly and quarterly resets do not eliminate volatility drag, compounding, or any of the risks of leveraged investing.
A key advantage of all Exchange Traded Funds, including Tradr’s ETFs, is that you can purchase and sell ETF shares during the U.S. market trading session, similar to stocks. Keep in mind that you are not required to stay in your position for the specified reset period. For example, you may exit a quarterly leveraged ETF at any time, even if you did not hold it for a full calendar quarter.
Tradr’s monthly and quarterly reset ETFs attempt to maintain the fund’s exposure to 200% of the monthly or quarterly return of the reference asset, respectively. As a defensive measure, if abnormal market conditions or other circumstances cause a change in the value of the reference asset intra-period (i.e., other than at or near the close of the market of a calendar month or quarter) and the change exceeds a level determined to represent a “dramatic move” in the price of the reference asset (the “performance trigger”), we will seek to reset the performance leverage of the Fund by rebalancing the portfolio.
As an example, the performance trigger for SPYQ is -35%, which resets performance quarterly. If in the first quarter of the year, the price of SPDR® S&P 500® ETF Trust drops by 35% by February 14th, the Fund will rebalance its portfolio that day by resetting the swaps to the 200% leverage and delivering the performance through the end of that quarter. In essence, the stub period between the triggered reset date and the end of the period is treated like a brand new period, which would have the effect of reducing the leverage return for that calendar period. For more details, please refer to the prospectus.
