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The ProShares Ultra S&P500 is an ETF (exchange-traded fund) designed to deliver twice the daily return of the S&P 500 index. It does this by using financial tools called derivatives to boost exposure to large U.S. companies. It’s engineered for short-term trading, not long-term investing. Because the fund resets every day, its results over several days might not exactly equal 2X the S&P 500’s performance, and the leverage means both profits and losses can be much larger.

The ProShares Ultra S&P500 (SSO) is a fund designed to move twice as much as the S&P 500 on any given day, before taking out fees and costs. To make that happen, the fund resets its exposure after every trading session. It keeps most of its money in cash or very safe short-term investments, and then uses financial tools like total-return swaps and S&P 500 futures contracts to double its exposure to the index’s daily performance.

SSO trades on the NYSE Arca exchange and offers the same transparency, tax reporting, and easy all-day trading that investors usually get with large ETFs.

What Does SSO Offer Investors?

The main attraction of SSO is that it makes your money work harder. As mentioned, for every dollar you put into this ETF, you’re getting about two dollars’ worth of exposure to the S&P 500 that same day. That means you can keep some cash free for other uses or add extra strategies without needing a special derivatives account. It’s also easy to trade through a standard brokerage account. Prices generally stay close to market value throughout the day, and listed options are available for investors who want greater control over their entry and exit points.

All the costs are built in, since they show up in the fund’s expense ratio and the financing costs inside its derivatives. You don’t have to deal with things like borrowing rates, margin calls, or rolling over futures contracts yourself. For investors who want to quickly adjust their portfolio, for example, increasing stock market exposure before a major event, matching a short-term market view, or replacing a more complicated setup, SSO offers a simple, easy-to-use option that works through a single trade.

Who Might Consider SSO?

The ProShares Ultra S&P500 is designed for hands-on investors who trade with short-term goals and actively manage how much risk they take. It’s a good fit for people who make time-limited bets on U.S. large-cap stocks, watch their positions throughout the day, and follow a clear, rules-based plan for when to get out, instead of just waiting to see how things turn out.

It can also work well for portfolio managers who want to use their capital efficiently, keeping some cash available (“dry powder”) while temporarily boosting their stock market exposure. By contrast, hands-off savers building a long-term core around unlevered index funds are unlikely to get what they want from a product designed for precision and speed.

What’s Inside SSO? A Closer Look At Its Top Holdings

Behind the scenes, the ProShares Ultra S&P500 doesn’t actually own all 500 companies in the S&P 500. Instead, it uses a mix of financial contracts to get the same kind of performance. Think of it as running on an “engine” made up of total return swaps tied to the S&P 500 and S&P 500 E-mini futures, backed by a cash reserve that’s mainly held in U.S. Treasury bills and other safe, cash-like investments.

ProShares SSO Ultra S&P500 (ProShares)

In SSO’s portfolio, the biggest positions are usually several S&P 500 index swap agreements with major banks and a short-term E-mini futures contract.

ProShares SSO Ultra S&P500’s Quarter Report (ProShares)

For instance, the fund’s published holdings include Treasury bill positions (see above) worth hundreds of millions of dollars.

The swaps do most of the work. In a typical S&P 500 total-return swap, SSO gets the full return of the S&P 500 index on a set dollar amount and, in exchange, pays a short-term interest rate plus an agreed-upon fee. Since the size of the swap can be larger than the cash the fund sets aside as collateral, the fund can increase its market exposure to about twice its total assets without having to borrow money through a margin account.

These agreements are usually settled by paying only the difference between gains and losses, so money doesn’t have to move back and forth unnecessarily. This makes the fund’s cash use more efficient.

Overall, total-return swaps are said to substitute index ownership, settle on net differences, and rely on strong counterparties and collateral conditions for risk management, according to the Statement of Additional Information provided by ProShares.

SSO Performance Overview

The SSO fund’s momentum report card lays out how a 2× daily S&P 500 fund performs when the market is rising. It earned an overall A+ Momentum Grade, with A to A+ ratings across all time periods.

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Over the past month, SSO gained 3.66% compared to a 0.15% median gain for all ETFs.

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Over six months, it rose 42.04% versus 11.49%, and over one year, it gained 33.38% compared to 11.50% for the typical ETF.

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The power of compounding becomes clear over longer periods. Above, you can see that over three years, SSO delivered a total return of 182.74%, that’s compared to a 45.88% median for all ETFs, and over five years, it gained 226.52% versus 59.53%.

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Looking at price performance alone, the results are similar: SSO rose 41.50% over six months versus 10.34%, 32.27% over one year versus 8.96%, 176.94% over three years versus 37.41%, and 218.65% over five years compared to 42.40% for the typical ETF.

SSO Dividend Scorecard

The dividend line items require a different lens, as you can see that its yield earns a D- grade, with a trailing yield of 0.69% compared to the 2.66% median for all ETFs.

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That’s typical for a derivatives-based fund. In essence, SSO pays dividends from the cash it earns through income on its structured positions and interest, rather than from direct stock dividends. And as a result, the yield tends to be low, but the growth rate can swing sharply with market conditions and financing rates.

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That noted, the more interesting part is its dividend growth under this structure. The dividend growth rate over the past year (TTM) is 21.38% versus 5.53%, which earns a B+ grade.

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Looking over longer periods, SSO shines with a 3-year CAGR of 105.59%, 5-year at 47.12%, and 10-year at 25.82%, all A+ grades and several times higher than the average ETF.

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Meanwhile, the fund has increased its dividends for three consecutive years, compared with a one-year median, and has paid them for 17 straight years, versus four for the typical ETF, a record that shows notable consistency, even though income’s typically not the main reason investors choose SSO.

Expenses For SSO

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The fund’s expense ratio is 0.87%, which is higher than the typical (median) 0.50%. That’s considered below average, a “D” rating, and reflects the extra costs of using leverage and derivatives.

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Even so, in terms of trading costs, the bid/ask spread (the gap between the buying and selling prices) is just 0.01%, compared with a 0.14% median. That’s an excellent “A+” rating and shows that the fund trades very smoothly, making it easy and inexpensive to buy or sell without losing much to price differences.

SSO Risks

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By contrast, the fund’s risk numbers show it’s much more volatile than average. It earns a “D” Risk Grade because its standard deviation is 25.63 compared to a typical 12.45, and its annualized volatility is 37.36% versus 16.99%, about twice as high as the median ETF, which makes sense since it uses 2X leverage on stocks.

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Naturally, due to its setup, it also doesn’t track its benchmark as closely as most ETFs. The tracking error, a measure of how much its returns differ from its benchmark, is 13.06% vs. 7.82% over 1 year, 13.15% vs. 7.91% over 3 years, and 15.93% vs. 8.80% over 5 years, which puts it in the D to D+ range. That’s the trade-off that comes with aiming for 2X daily returns and covering the financing and trading costs needed to keep that exposure.

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On the positive side, the fund’s structure is quite efficient. Its portfolio turnover is only 4% compared to a 29% median, which earns an “A” grade, reflecting that most of the activity occurs in swaps, futures, and collateral rather than churning a basket of stocks.

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In this case, the usual portfolio concentration numbers don’t mean as much as they would for a regular stock-based ETF, but they still give some insight. The top ten holdings make up 32.04% of assets, compared with a median of 42.40%, which earns a “B” rating. This particular angle simply illustrates that the fund’s exposure is spread across several counterparties and collateral positions, rather than being focused in just a few stocks.

Should You Invest In SSO?

If you want to make a short-term, confident bet on big U.S. companies, and you’re careful about how much you invest, setting stop-losses, and knowing when to sell, then SSO can be a handy option. On the other hand, the fund is not an appropriate option for those who are looking for a long-term investment or a consistent income. Because SSO resets daily, it’s more volatile and can lose accuracy over time, especially if the market moves up and down a lot or your strategy takes too long to play out.

This article answers these three main questions about SSO:

• Is SSO meant for short-term trading or long-term investing?
• What type of investor is SSO best suited for?
• Is SSO more volatile than the average ETF?

Editor’s note:* This article is intended to provide a general overview of the ETF for educational purposes only and, unlike other articles on Seeking Alpha, does not offer an investment opinion about the ETF.*