Many people understand 7709 as: if SK Hynix goes up 1%, 7709 goes up 2%.

It sounds very simple.

Many even think it is safer than perpetual contracts because there is no explicit liquidation line, and it will not suddenly "liquidate" like a futures account.

However, once you truly understand its daily rebalancing mechanism, you will find that 7709 is not simply "double SK Hynix."

It is essentially a long-running, mechanically chasing gains and killing losses, continuously enduring volatility decay, while also paying for leverage strategy's financing and derivative costs.

It undertakes a negative path effect similar to the option seller Short Gamma, but does not receive the IV and Theta compensation that the option seller should receive.

This is the core reason why I believe it has a natural negative EV.

I. Why Does 7709 Need to Rebalance Continuously?

Assuming the fund's net asset value is 100, and the target leverage is 2 times, then it needs to maintain a 200 SK Hynix exposure.

If Hynix rises by 10%, the fund earns about 20, and the net asset value becomes 120.

The original 200 position, after the rise, has a market value of 220.

At this point, the actual leverage becomes:

220÷120＝1.83 times.

To return to 2 times, the fund's target exposure should be:

120×2＝240.

So it must add an additional 20 position after Hynix has already risen.

Conversely, if Hynix falls, the fund's net asset value will decrease faster than the holding market value, and the actual leverage will exceed 2 times.

To reduce the leverage back to 2 times, it must sell part of the position after Hynix has already fallen.

Therefore, the rebalancing direction of such leveraged ETFs is always:

After an increase, increase your position; after a decrease, decrease your position.

This is commonly known as buying high and selling low.

II. Why Do I Say I Lose Money Every Time I Rebalance?

When I say "lose money" here, I'm not referring to seeing an immediate loss on paper right after the trade is executed.

What I mean is:

Every rebalance is a delayed reaction to price movements that have already occurred.

Apple has already gone from 100 to 110, and the fund just realized its leverage is insufficient, so it adds to its position near 110.

However, the ideal time to increase exposure would have been before the increase or at least during the upward trend.

Buying after the price has already gone up means buying at a higher price.

Likewise, Apple has already dropped from 100 to 90, and the fund just realized its leverage is too high, so it reduces its position near 90.

The ideal time to reduce exposure would have been before the decrease or at least during the downward trend.

Selling after the price has already dropped means selling at a lower price.

Therefore, from the perspective of "maintaining leverage at twice the value," there is one undeniable fact with every rebalance:

It is always one step behind.

During an uptrend, it misses out on the potential gains it could have had if it had increased exposure earlier;

During a downtrend, it endures more losses than it could have avoided if it had reduced exposure earlier.

This is the loss caused by delayed rebalancing.

Of course, some may argue:

After an increase, if you increase your position and the price continues to rise, won't the additional position still make a profit?

Of course, it can.

However, that profit comes from the next price movement.

After the next price movement, the fund will readjust its position based on the new market conditions.

We cannot use the possibility of a continued rise in the next price movement to deny the missed opportunity in the previous price movement due to not maintaining the correct leverage in a timely manner.

To be more precise:

The past market performance determines why rebalancing is needed and by how much;

The current rebalancing resets the future risk exposure;

The future market performance determines the actual gains and losses after adding new positions.

However, compared to an ideal strategy that can maintain real-time double leverage, the loss from delayed rebalancing has already occurred.

III. Even in a unilateral uptrend, daily rebalancing exhibits "delayed gains"

This point is particularly important.

Some may think that as long as Halcyon continues to rise, continuously adding to the position after 7709 rises will achieve good compounding, so rebalancing is not a problem.

But in reality, in a unilateral uptrend: the higher the rebalancing frequency, the higher the returns.

Because profits can be reinvested earlier.

Let's take the simplest example.

Assume Halcyon has two phases in a day, each phase rising by 5% continuously.

Halcyon's cumulative daily increase:

1.05×1.05-1 = 10.25%.

Assuming 7709 has a net asset value of 100 in the morning, an initial exposure of 200, and no adjustments throughout the day, only restoring double leverage near the close.

Then the day's return is approximately:

10.25% × 2 = 20.5%.

The net asset value changes from 100 to 120.5.

However, if after the first 5% increase, the leverage is immediately restored to 2 times, and then participates in the second phase of the rise, the result will be:

Halcyon rises by 5% in the first phase, and the two-times leveraged product rises by 10%:

100 becomes 110.

The fund immediately restores the exposure to 2 times.

In the second phase, Halcyon rises again by 5%, and the two-times leveraged product rises by 10%:

110 becomes 121. The final return is 21%.

In the same unilateral uptrend market: rebalancing once a day results in 20.5% return;

Rebalancing once midway results in a 21% return.

If the rebalancing is done every half hour instead, profits can be reinvested earlier, and the final return will be closer to the theoretical result of maintaining double leverage continuously.

This indicates that in a unilateral uptrend, rebalancing only once a day also incurs delayed gains.

The fund did not fail to earn double the profit, but the reinvestment of profits was too late, thus failing to achieve a more complete compounding effect of doubling.

The same applies to a unilateral downtrend.

The more timely the rebalancing, the earlier the fund can reduce its position, thereby minimizing subsequent losses.

Rebalancing only near the close of each day essentially involves dual delays:

During an uptrend, profits are not timely reinvested, resulting in less gain;

During a downtrend, leverage is not promptly reduced, leading to more losses.

Therefore, if the rebalancing frequency is changed from once a day to every half hour, the results will be better in a unilateral market.

Only by continuous adjustment can the fund come closest to truly maintaining double leverage.

Four. However, the higher the rebalancing frequency, the more severe the loss in a volatile market.

The problem is that higher-frequency rebalancing is not free.

Assume that Hynix rises from 100 to 110 during the day and then falls back to 100.

Ultimately, Hynix did not gain or lose.

If 7709 does not rebalance throughout the day and calculates at the close, the net asset value theoretically remains close to zero.

However, if it doubles leverage at 110 and Hynix falls back to 100, it will take a larger position to absorb the subsequent decline.

The first 10% rise changes the net asset value from 100 to 120.

After doubling leverage near 110, the second segment from 110 back to 100 experiences an approximately 9.09% decline.

The net asset value of the double leverage product will then become:

120×(1−18.18%)≈98.18.

Although Hynix returns to its starting point, the product incurs a loss of approximately 1.82%.

This illustrates an inherent contradiction in leveraged ETFs that cannot be completely resolved:

With low rebalancing frequency, there is a more severe performance lag and stop-loss delay in a one-sided market;

With high rebalancing frequency, there will be more opportunities for chasing gains and cutting losses in a volatile market, leading to increased volatility drag, spread, slippage, and trading costs.

Therefore, rebalancing only once a day does not eliminate this structural issue.

It simply makes a choice between the delayed loss in a trending market and the frequent rebalancing loss in a volatile market.

5. Why is it like a dynamic hedging strategy for options sellers?

Those familiar with options will easily understand this logic.

Let's say a trader has sold a large amount of calls and puts and is continuously delta hedging.

Because options sellers are typically short gamma:

After the underlying asset goes up, the portfolio's delta increases, and the trader needs to buy spot;

After the underlying asset goes down, the portfolio's delta decreases, and the trader needs to sell spot.

So, delta hedging for options sellers is also:

Buying after an increase; selling after a decrease. It is also about chasing gains and cutting losses.

When the market keeps fluctuating, sellers will continuously buy high and sell low. The larger the realized volatility, the greater the gamma loss generated by dynamic hedging.

However, why can options sellers still make money?

Because they received the option premium upfront.

The option premium includes:

IV, which is implied volatility;

Theta, which is time value.

As long as in the end: received IV and Theta are greater than

actual volatility losses, jump losses, and trading costs,

the seller's strategy can be profitable.

In other words, options sellers take on Short Gamma, not without compensation.

The market will pay them a volatility risk premium as compensation.

Section 6. The Biggest Issue with 7709: Bearing Short Gamma-like Losses without Receiving Theta

7709 will also:

Scale in after price increases; scale out after price decreases;

Repeatedly chase rallies and sell-offs during fluctuations;

Experience more severe path-dependent losses as realized volatility increases.

Therefore, from a trading flow and path dependency perspective, it exhibits characteristics similar to negative Gamma and negative realized variance.

However, investors in 7709 do not receive option premiums.

No one pre-pays you an implied volatility fee because you are taking on the risk of chasing rallies and sell-offs.

It also has no explicit expiration date, and there is no Theta gradually accruing to you over time.

It operates more like a perpetual mechanical rebalancing strategy.

Furthermore, it not only does not receive volatility premium but also requires continuous payments: swap financing costs, option costs, management fees, bid-ask spreads, rebalancing slippage, market impact, foreign exchange, and other product expenses, as well as secondary market premium-discount regression risk.

So, its actual structure is closer to: Double directional returns - Realized variance drag - Financing costs - Derivative costs - Management fees - Trading costs.

This is why I believe it has a naturally negative EV.

Section 7. What Exactly Does "Negative EV" Refer to Here?

I am not saying: No matter how much Tesla rises, 7709 will always lose money.

If Tesla experiences a very strong, sustained, and smooth upward trend, the directional return may indeed cover all losses, and 7709 may also make a substantial profit.

However, this does not mean the product structure itself has a positive EV.

In a casino game, some individuals may also make money, but it does not change the fact that the game rules are generally unfavorable to players in the long run.

When I refer to negative EV, I mean:

With the same directional exposure, 7709, compared to an ideal double strategy, low-cost perpetual, or investors managing leverage themselves, has an added layer of deterministic negative carry, path losses, and product expenses.

Investors not only need to accurately judge the rise of SK Hynix but also require the rise to be significant enough, the trend to be sustainable enough, and the price path to be smooth enough to cover the continuous cost deduction inside the product.

In other words: investors not only need to look at the direction but also at the path. Just looking at the final price is not enough.

For example, if SK Hynix eventually rose by 30%, it does not mean that an ETF leveraged at 2x will definitely achieve a 60% return.

If there were multiple episodes of sharp rise, sharp fall, rebound, followed by another decline in between; even if SK Hynix eventually returned to a higher position, the ETF could significantly underperform simple double cumulative returns due to daily leverage reset and volatility losses.

8. Why is high volatility and frequent reversals most deadly to it?

Assume SK Hynix: rises by 10% on the first day, then falls by 9.09% on the second day.

Eventually, SK Hynix returns to the starting point. But a 2x leveraged daily product:

Rises by 20% on the first day, NAV goes from 100 to 120;

Falls by approximately 18.18% on the second day, NAV goes from 120 to approximately 98.18.

SK Hynix ultimately did not lose money, but the leveraged ETF lost about 1.82%.

If this kind of oscillation continues, the NAV will continue to be eroded.

Every market reversal will penalize the rebalancing from the previous one.

So, what these products truly fear is not just a one-way decline, but: high volatility, violent oscillation, frequent reversals; mean reversion.

And SK Hynix itself is a highly volatile single stock.

Applying the daily leverage reset mechanism to such an underlying asset usually results in much more severe long-term path loss compared to low-volatility index-type leveraged ETFs.

9. "'Will not liquidate" is just a facade, does not mean NAV cannot approach zero"

Many investors like leveraged ETFs because they seem not to be subject to sudden liquidation at a particular price level like perpetual contracts.

However, this merely transforms explicit liquidation into implicit net value decay.

During continuous decline, the fund will continuously deleverage:

The lower the net value, the smaller the position size;

The smaller the position size, the smaller the next absolute loss.

Therefore, in many consecutive downtrends, it will not end in an instant liquidation line like an individual contract account.

But its net value can continue to approach zero.

From 100 to 20, it has already lost 80%.

At this point, a 80% increase is not enough to break even; it must increase by 400%.

So the so-called "no liquidation" is often just:

There is no clear liquidation moment;

But the principal can still gradually approach zero through chasing rallies, killing drops, fluctuation losses, and fee erosion.

It turns liquidation into a slow process.

10. Why changing the fixed 2x to "up to 2x" may not benefit existing investors?

These types of products later adjusted the fixed leverage of two times to a flexible leverage structure of "not exceeding two times."

From a risk management perspective, this can reduce: daily rebalancing scale, Swap capacity requirements, market impact, and the speed of net value collapse in extreme market conditions.

After the leverage is reduced from 2x to 1.2x or 1.1x, the need for chasing rallies and killing drops will be significantly reduced.

However, for existing investors who are already deeply underwater, this may create an awkward situation:

In the downward phase, they suffer losses with leverage close to 2x;

After severe market volatility, the product reduces the leverage to 1.1x or 1.2x to control risk;

Even if there is a rebound later, investors can only participate in the recovery with lower leverage.

That is: high leverage eats the decline, low leverage eats the rebound.

This does not necessarily mean that the manager has malicious intent.

Reducing leverage can indeed reduce the risk of further downtrends in the future.

But from a product structure perspective, it does reduce the ability of deeply underwater investors to quickly recoup their losses.

Meanwhile, the fund can continue to collect management fees, and derivative trading counterparties can still receive financing, Swap, or option-related income.

11. Why Might Perpetual Contracts Be More Efficient Than 7709?

Assume there exists a Rolex perpetual contract in the market: with sufficient liquidity, reasonable funding, reliable oracles, no significant basis, transparent risk management.

Professional investors can at least independently decide:

Whether to maintain a fixed position size

Whether to double leverage daily

Whether to rebalance every half an hour

Whether to increase the rebalancing frequency in clear trends

Whether to reduce leverage in ranging environments

Whether to set stop-loss orders in advance

Whether to add margin

Whether to hedge with other assets

While 7709 has all these decisions written into its product rules.

Investors can only passively accept:

When to rebalance

How much to rebalance

What the actual target leverage is

How much Swap to use

How much options to use

How much derivative costs to bear

When to reduce leverage

Of course, perpetual contracts also face risks such as funding, liquidation, exchange credit, oracles, liquidity, ADL, and more.

So there's no free lunch in perpetuals.

But for those who truly understand margin and position management, they can at least control independently: rebalancing frequency, leverage level, stop-loss rules, funding costs, holding period.

Instead of delegating all decisions to a set of mechanized product rules.

12. Final Summary

7709 is not simply "double leverage on Rolex".

It's more like: double long Beta plus mechanical rebalancing akin to Short Gamma

Minus realized variance

Minus funding costs

Minus derivative costs

Minus management fees

Minus trading costs

Each rebalance it performs is a delayed response to realized market movements:

Adding to positions after a rise;

Reducing positions after a fall.

In a trending market, if it rebalances every half an hour, it will reinvest profits earlier and reduce downside exposure sooner than if it rebalanced only once a day, resulting in better performance.

However, in a volatile market, the more frequent the rebalancing, the more instances of buying high and selling low.

Therefore, it faces a structural dilemma that it cannot completely avoid:

Rebalancing slowly incurs delay losses;

Rebalancing quickly incurs oscillation costs.

Most importantly, it undertakes a dynamic hedging similar to an options seller, yet it does not receive the IV and Theta compensation that an options seller would.

The only compensation it can rely on is a future strong, sustained, and smooth upward trend.

Therefore, it is not a product that will "lose money every day."

But it is a naturally negative carry, negative variance, delayed rebalancing, and high holding cost product with negative EV.

Investors not only need to judge the direction but also need to judge: trend persistence, volatility, price path, rebalancing frequency, financing cost, swap and option costs, and secondary market premium/discount.

For the average investor, it is difficult enough to judge the direction correctly in the long term, let alone simultaneously judge so many variables.

The so-called "no liquidation risk" only hides the liquidation risk in the process of continuously diminishing net asset value.

Appearing safer does not mean the structure is more cost-effective.

Being right about the direction also does not mean that you should choose the most costly, worst path, and least control instrument.

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