Trading leveraged ETF's against unleveraged ones

[Mike Murphy]

I am trying to address the above. If I take say the ETF SLV (Silver) against it's 2 x leveraged ETF AGQ. If I want to create a pair trade which is dollar neutral does that mean the following:

Say we want to buy SLV & Sell AGQ
SLV @ £20
AGQ @ $40
Amount to invest on both sides is $10,000
Number of shares to buy in SLV  =  10000/20  =  500
Number of shares to sell in AGQ  =  5000/40    =  125

I guess it boils down to. If you have a 2 times ETF do you invest only half the amount in that share? i.e. that dollar neutral in this case is £10,000 on one side & £5,000 on the other?

[admin]

You mean dollar-neutral or beta-neutral? I think by definition dollar-neutral means you initially split your capital in half, no matter the leverage.

If you want to mind the volatility, you use the beta-neutral approach (I guess).

Personally I use only dollar-neutral pairs atm...