Leveraged ETFs After the HIMZ Crash: A Cautionary Tale for Investors

The collapse of the HIMZ ETF—a 2x leveraged fund tied to Hims & Hers Health Inc.—has become a stark reminder of the perils of investing in leveraged exchange-traded funds (ETFs). After Novo Nordisk abruptly terminated its partnership with Hims & Hers on June 23, 2025, the ETF's value plummeted nearly 70% in days, exposing investors to catastrophic losses. This episode underscores the unique risks embedded in leveraged ETFs and the critical need for caution in their use.

The Mechanics of Structural Risk

Leveraged ETFs, such as HIMZ, are designed to amplify daily returns—typically 2x or 3x—of their underlying asset. This amplification relies on derivatives like swaps and futures, which require daily rebalancing to maintain the targeted leverage. However, this process creates a “structural decay” effect: over time, even modest market movements can lead to outsized losses due to compounding.

For instance, a 50% drop in the underlying asset requires a 100% rebound to break even for a 2x leveraged ETF. This mathematical reality means that leveraged ETFs are inherently short-term tools, unsuitable for long-term holding. The HIMZ crash exemplifies this: despite Hims & Hers' stock dropping 35% after the partnership dissolution, the ETF's 70% decline reflected the amplified impact of daily rebalancing.

The Double-Edged Sword of Volatility

The HIMZ collapse contrasts sharply with gains seen in other leveraged ETFs during 2025. For example, the Defiance Daily Target 2X Long ORCL ETF (ORCX) surged over 70% in a month as Oracle's cloud growth outperformed expectations. Similarly, inverse leveraged ETFs like GDXD (3x inverse gold miners) rose 13% in a week as gold prices stagnated. These examples highlight the “double-edged sword” of leveraged ETFs: their ability to amplify both gains and losses makes them speculative instruments requiring constant vigilance.

Investor Implications: Caution and Strategic Hedging

The HIMZ disaster should prompt investors to reevaluate their use of leveraged ETFs. Here's how to navigate this landscape responsibly:

1. Avoid Long-Term Holds: Leveraged ETFs are designed for short-term, tactical trades. Their structural decay ensures that holding them beyond a few days or weeks risks irreversible losses.

2. Understand the Underlying Asset: The HIMZ crash stemmed from a single corporate action—a partnership termination. Investors must scrutinize the fundamentals of the underlying asset and monitor for catalysts that could trigger abrupt shifts in sentiment.

3. Use Hedging Tools: For those exposed to volatile sectors, consider inverse leveraged ETFs or options to mitigate downside risk. For example, pairing a long position in a tech ETF with a short position in an inverse fund could balance exposure.

4. Diversify Aggressively: Over-reliance on a single leveraged ETF creates concentrated risk. Diversify across asset classes and use leveraged products sparingly, as tactical satellites to a core portfolio.

5. Stay Informed, Stay Disciplined: Leverage thrives on volatility, which can be unpredictable. Set strict exit points and avoid emotional decisions driven by short-term price swings.

The Broader Market Lesson

The HIMZ crash is not an isolated incident. In 2024, the ProShares UltraPro S&P 500 ETF (UPRO) lost 30% in a week during a market correction, while the inverse counterpart (SDOW) surged 45%. These examples reveal a pattern: leveraged ETFs amplify volatility, turning routine market fluctuations into high-stakes gambles.

Final Thoughts: Proceed with Eyes Wide Open

Leveraged ETFs are powerful tools—but only for investors who fully grasp their risks. The HIMZ collapse serves as a warning: these products demand active management, disciplined risk controls, and a clear understanding of their structural limitations. For most investors, the prudent path lies in avoiding long-term exposure and reserving leveraged ETFs for nimble, short-term trades executed with strict risk parameters.

In an era of heightened market volatility, the lesson is clear: leverage is a double-edged sword, and only those who wield it with precision and restraint can avoid the pitfalls of its sharp edge.

This article emphasizes the need for caution and strategic hedging in the wake of the HIMZ ETF collapse, providing actionable insights for investors navigating leveraged ETFs' high-risk, high-reward landscape.