If you’ve ever compared a long-term chart of MSOS versus MSOX, you’ve probably noticed something strange, even when cannabis stocks rally hard like today, with MSOS touching its August 28th high MSOX still sits far below its old levels. The difference has nothing to do with the underlying cannabis stocks themselves. It’s baked into how leveraged ETFs work.
MSOX is a 2x leveraged ETF, meaning it aims to deliver twice the daily performance of MSOS. The keyword here is daily. It doesn’t track 2x the long-term performance it tracks 2x of the day-to-day moves. This distinction is what causes the decay over time.
Leveraged ETFs experience something called volatility decay or compounding drag. When the underlying index (in this case MSOS) chops around, even if it ends flat over a long period, the leveraged ETF often ends up lower. That’s because each percentage move occurs on a constantly changing base. For example, a 10% drop requires an 11.1% gain to recover. When you magnify those moves with leverage, the “climb back” becomes even harder.
In high-volatility sectors like cannabis, this effect is amplified. MSOX gets hit harder on down days, and on up days it has to work overtime just to catch back up. When the price action zig-zags which cannabis stocks are notorious for, MSOX bleeds value even while MSOS eventually stabilizes or recovers.
This is why today’s charts look so different. MSOS has rallied all the way back to its late August levels, but MSOX is nowhere close. The leveraged decay accumulated over weeks of volatility, making MSOX structurally unable to track the same long-term recovery.
The takeaway is simple: MSOS is built for holding. MSOX is built for short-term trading. Over time, the math always wins and leveraged ETFs almost always lose value relative to the underlying.
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