HEDGEFUNDIE's excellent adventure Part II: The next journey

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columbia
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by columbia » Wed Oct 09, 2019 6:13 pm

NTSX is billed as short term bonds, but I see 10 year holdings on the mix:


https://finance.yahoo.com/quote/NTSX/holdings/

rascott
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by rascott » Wed Oct 09, 2019 6:30 pm

columbia wrote:
Wed Oct 09, 2019 6:13 pm
NTSX is billed as short term bonds, but I see 10 year holdings on the mix:


https://finance.yahoo.com/quote/NTSX/holdings/


It holds equal positions across the yield curve.... including the long bond. Looks like the only one they don't hold is the Ultra 30 year.

https://www.wisdomtree.com/etfs/asset-allocation/ntsx

caklim00
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by caklim00 » Wed Oct 09, 2019 7:41 pm

MotoTrojan wrote:
Wed Oct 09, 2019 6:04 pm
get_g0ing wrote:
Wed Oct 09, 2019 5:34 pm
Question for those doing this in taxable:

Did you analyze/compare NTSX vs UPRO/TMF, in terms of which would be better in taxable?

Thanks.
NTSX is light years better in taxable, but it’s way less leverage.
But, if you are doing NTSX in taxable what are you doing for tax loss harvest? This is one spot where using treasury futures might be much better. You can just TLH whatever equity ETF you are using.

get_g0ing
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by get_g0ing » Wed Oct 09, 2019 8:08 pm

MotoTrojan wrote:
Wed Oct 09, 2019 6:04 pm
get_g0ing wrote:
Wed Oct 09, 2019 5:34 pm
Question for those doing this in taxable:

Did you analyze/compare NTSX vs UPRO/TMF, in terms of which would be better in taxable?

Thanks.
NTSX is light years better in taxable, but it’s way less leverage.
I'm assuming this claim is because of the rebalancing you'd be doing with UPRO/TMF, right?

Otherwise they both appear (to me) to be very tax-efficient:
https://www.direxion.com/products/direx ... ull-3x-etf
https://www.proshares.com/funds/upro_distributions.html
I don't see any STCGs or LTCGs.

MotoTrojan
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by MotoTrojan » Wed Oct 09, 2019 9:23 pm

get_g0ing wrote:
Wed Oct 09, 2019 8:08 pm
MotoTrojan wrote:
Wed Oct 09, 2019 6:04 pm
get_g0ing wrote:
Wed Oct 09, 2019 5:34 pm
Question for those doing this in taxable:

Did you analyze/compare NTSX vs UPRO/TMF, in terms of which would be better in taxable?

Thanks.
NTSX is light years better in taxable, but it’s way less leverage.
I'm assuming this claim is because of the rebalancing you'd be doing with UPRO/TMF, right?

Otherwise they both appear (to me) to be very tax-efficient:
https://www.direxion.com/products/direx ... ull-3x-etf
https://www.proshares.com/funds/upro_distributions.html
I don't see any STCGs or LTCGs.
Yes that is correct.

pepys
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by pepys » Thu Oct 10, 2019 9:46 am

I have very little space in my Roth IRA, so I am doing a mixture of taxable and Roth. I think that's likely to have similar problems to just taxable in the long run, but perhaps to a much lesser extent. SPXL seems like a fine alternative to UPRO, but it would be nice if there were good alternatives to TMF.

DaveG75
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by DaveG75 » Thu Oct 10, 2019 4:59 pm

robertmcd wrote:
Wed Oct 09, 2019 10:44 am
rascott wrote:
Tue Oct 08, 2019 11:54 pm
drock wrote:
Tue Oct 08, 2019 11:30 pm
This article mentions that a lot of times when the yield curve is inverted it is generally followed by the Fed lowering rates and thus not necessarily a bad time to be in leveraged 2 year futures.

https://www.advisorperspectives.com/art ... sury-bonds
I've read that article like 20x. He's one of the few people I've seen write on this subject. I've seen a few articles on SA... but not many.
Yeah I have actually reached out to Kessler companies about having them run my treasury position. They have a very good track record of being at the right place on the curve for long only treasury exposure.
How does one actually find out what sort of returns they are getting? Also, what fees/minimums are they quoting you?

DaveG75
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by DaveG75 » Thu Oct 10, 2019 5:01 pm

pepys wrote:
Thu Oct 10, 2019 9:46 am
I have very little space in my Roth IRA, so I am doing a mixture of taxable and Roth. I think that's likely to have similar problems to just taxable in the long run, but perhaps to a much lesser extent. SPXL seems like a fine alternative to UPRO, but it would be nice if there were good alternatives to TMF.
I truly do not understand the need to have a "good alternative" to TMF. Moreover, I believe part I goes into quite a bit of detail regarding why SPXL is not a fine alternative to UPRO--> SPXL exhibits quite a bit more tracking error/drag.

Lee_WSP
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Lee_WSP » Thu Oct 10, 2019 6:53 pm

pepys wrote:
Thu Oct 10, 2019 9:46 am
I have very little space in my Roth IRA, so I am doing a mixture of taxable and Roth. I think that's likely to have similar problems to just taxable in the long run, but perhaps to a much lesser extent. SPXL seems like a fine alternative to UPRO, but it would be nice if there were good alternatives to TMF.
What about tmf, other than the severe volatility, do you find objectionable?

Hydromod
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod » Thu Oct 10, 2019 7:13 pm

I imagine it's for tax loss harvesting purposes in taxable.

MotoTrojan
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by MotoTrojan » Thu Oct 10, 2019 9:50 pm

Lee_WSP wrote:
Thu Oct 10, 2019 6:53 pm
pepys wrote:
Thu Oct 10, 2019 9:46 am
I have very little space in my Roth IRA, so I am doing a mixture of taxable and Roth. I think that's likely to have similar problems to just taxable in the long run, but perhaps to a much lesser extent. SPXL seems like a fine alternative to UPRO, but it would be nice if there were good alternatives to TMF.
What about tmf, other than the severe volatility, do you find objectionable?
It’s better now but it had some tracking error when starting out. Most Direxion funds do (DZK is atrocious). ProShares is much more solid to the index.

caklim00
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by caklim00 » Thu Oct 10, 2019 10:28 pm

Wouldn't 3x Ultra treasury bond future be equivalent to 1x TMF?

Lee_WSP
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Lee_WSP » Thu Oct 10, 2019 10:58 pm

caklim00 wrote:
Thu Oct 10, 2019 10:28 pm
Wouldn't 3x Ultra treasury bond future be equivalent to 1x TMF?
It'd serve a similar purpose, but do it in a slightly different way and you need to keep rolling them.

muffins14
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by muffins14 » Thu Oct 10, 2019 11:31 pm

Not sure if covered elsewhere, but this strategy should be implementable in Fidelity IRAs now, given that commission fees are zero. I had to click a separate acknowledgement about risk and admit the account is “most aggressive”, but there were no transaction fees to place orders for any of UPRO, TMF, EDV

I had an M1 account but may roll it back to Fidelity (one-click rebalance isn’t interesting enough compared with keeping all my accounts at the same place)

rascott
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by rascott » Fri Oct 11, 2019 7:41 am

caklim00 wrote:
Thu Oct 10, 2019 10:28 pm
Wouldn't 3x Ultra treasury bond future be equivalent to 1x TMF?

Yes...... no vol decay and no expense ratio.... of course the current exposure for one Ultra 30 is $195k... so you'd need a portfolio that is roughly $130k in size ($65k bonds 3x at 50/50 equities/bonds.) Not sure how many here have allocated that kind of size to this.

Then you have issues of keeping the allocation correct. In practice, I believe what one cares about is duration..... so you've got to figure out how much exactly you need and then do some combo of contracts to get the notional exposure/duration combo accurate. For a $100k portfolio = $50k bonds x 3 = $150k desired exposure at 18.5 duration (same as TLT).... roughly one regular 30 year (not Ultra) and one 10 year contract seems to meet the purpose, right now. You've have to recalculate this each qtr and see if what you have still works.

caklim00
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by caklim00 » Fri Oct 11, 2019 10:14 am

Rascott, how hard are purchasing and rolling these futures? Is it similar to putting in a market order for a stick purchase? I see the 10 year has the most volume. Is it more difficult to purchase the others? I'm wondering what ntsx us providing over just doing it yourself other than not having to deal with cash, margins,etc.

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hdas
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by hdas » Fri Oct 11, 2019 10:16 am

rascott wrote:
Fri Oct 11, 2019 7:41 am
of course the current exposure for one Ultra 30 is $195k...
More like 188.5k at this point....the situation is fluid :twisted:
"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

Kbg
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Kbg » Fri Oct 11, 2019 10:24 am

The 30 is more like TLT, the ultra 30 is more like EDV. TMF is the former.

Kbg
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Kbg » Fri Oct 11, 2019 10:27 am

caklim00 wrote:
Fri Oct 11, 2019 10:14 am
Rascott, how hard are purchasing and rolling these futures? Is it similar to putting in a market order for a stick purchase? I see the 10 year has the most volume. Is it more difficult to purchase the others? I'm wondering what ntsx us providing over just doing it yourself other than not having to deal with cash, margins,etc.
It is a near certainty their execution will be/is better than DIY and particularly so over a longer period of time as life happens to most of us and we make mistakes. Of course better execution comes with a mngt fee.

rascott
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by rascott » Fri Oct 11, 2019 10:41 am

Kbg wrote:
Fri Oct 11, 2019 10:24 am
The 30 is more like TLT, the ultra 30 is more like EDV. TMF is the former.

No... duration of TLT is 18.5.... which is basically the same as the Ultra 30. So it would be equivalent to TLT.

The 30 is actually only about 12.5 duration right now.

rascott
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by rascott » Fri Oct 11, 2019 10:43 am

caklim00 wrote:
Fri Oct 11, 2019 10:14 am
Rascott, how hard are purchasing and rolling these futures? Is it similar to putting in a market order for a stick purchase? I see the 10 year has the most volume. Is it more difficult to purchase the others? I'm wondering what ntsx us providing over just doing it yourself other than not having to deal with cash, margins,etc.

It's identical to a stock purchase... you can use market or limit orders. I've been using limit orders only, usually a tick below the last trade and they tend to get filled either immediately or within a few mins. The roll is even simpler.... you literally just push the "roll" button on your broker's platform. During the roll period the ticks are much tighter, they use even more fractional quotations during the roll period.

NTSX is doing something simple in theory... but a little more complex in practice. I think the size of the futures contracts would make it very difficult to totally copy on your own... unless you had a very large portfolio.... multiple millions.

rascott
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by rascott » Fri Oct 11, 2019 10:51 am

hdas wrote:
Fri Oct 11, 2019 10:16 am
rascott wrote:
Fri Oct 11, 2019 7:41 am
of course the current exposure for one Ultra 30 is $195k...
More like 188.5k at this point....the situation is fluid :twisted:
True :sharebeer

Diego_Quant
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Diego_Quant » Fri Oct 11, 2019 11:06 am

Someone has the "CASHZERO" file available, I can't find it. Thank you

Diego_Quant
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Diego_Quant » Fri Oct 11, 2019 11:12 am

ES=SPY
ZN=IEF
GC=GLD
UB=TLT

It is right?
Something to add?

MotoTrojan
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by MotoTrojan » Fri Oct 11, 2019 11:29 am

Diego_Quant wrote:
Fri Oct 11, 2019 11:06 am
Someone has the "CASHZERO" file available, I can't find it. Thank you
Pretty easy to make :).

Lee_WSP
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Lee_WSP » Fri Oct 11, 2019 11:31 am

rascott wrote:
Fri Oct 11, 2019 10:43 am
The roll is even simpler.... you literally just push the "roll" button on your broker's platform. During the roll period the ticks are much tighter, they use even more fractional quotations during the roll period.
What happens if you forget to push the button?

rascott
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by rascott » Fri Oct 11, 2019 11:51 am

Lee_WSP wrote:
Fri Oct 11, 2019 11:31 am
rascott wrote:
Fri Oct 11, 2019 10:43 am
The roll is even simpler.... you literally just push the "roll" button on your broker's platform. During the roll period the ticks are much tighter, they use even more fractional quotations during the roll period.
What happens if you forget to push the button?
Your position would just close out. And you'd have to go reestablish it.

caklim00
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by caklim00 » Fri Oct 11, 2019 12:23 pm

Kbg wrote:
Fri Oct 11, 2019 10:27 am
caklim00 wrote:
Fri Oct 11, 2019 10:14 am
Rascott, how hard are purchasing and rolling these futures? Is it similar to putting in a market order for a stick purchase? I see the 10 year has the most volume. Is it more difficult to purchase the others? I'm wondering what ntsx us providing over just doing it yourself other than not having to deal with cash, margins,etc.
It is a near certainty their execution will be/is better than DIY and particularly so over a longer period of time as life happens to most of us and we make mistakes. Of course better execution comes with a mngt fee.
This is my biggest reservation on trying to attempt something like this using VFMF in taxable along with rolling treasury futures. I could easily see my self screwing something up since I have no experience with futures :oops:

Too bad there isn't an ETF available that just manages Treasury futures. Seems like that would be ideal for many of us. I'm not sure I'm ready to embark on this journey rather than just increases my Intermediate TBM positons in my 401k especially given the negative real yields on Treasuries right now. Will have to ponder this some more...

caklim00
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by caklim00 » Fri Oct 11, 2019 12:25 pm

rascott wrote:
Fri Oct 11, 2019 10:43 am
caklim00 wrote:
Fri Oct 11, 2019 10:14 am
Rascott, how hard are purchasing and rolling these futures? Is it similar to putting in a market order for a stick purchase? I see the 10 year has the most volume. Is it more difficult to purchase the others? I'm wondering what ntsx us providing over just doing it yourself other than not having to deal with cash, margins,etc.

It's identical to a stock purchase... you can use market or limit orders. I've been using limit orders only, usually a tick below the last trade and they tend to get filled either immediately or within a few mins. The roll is even simpler.... you literally just push the "roll" button on your broker's platform. During the roll period the ticks are much tighter, they use even more fractional quotations during the roll period.

NTSX is doing something simple in theory... but a little more complex in practice. I think the size of the futures contracts would make it very difficult to totally copy on your own... unless you had a very large portfolio.... multiple millions.
I think I could probably get close enough. Goal ins't to copy NTSX, but is to copy its Treasury future holdings. Just have to decide if I want to be in the business of buying futures. I'm betting wisdomtree will crush my execution abilities.

pepys
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by pepys » Fri Oct 11, 2019 12:29 pm

DaveG75 wrote:
Thu Oct 10, 2019 5:01 pm
pepys wrote:
Thu Oct 10, 2019 9:46 am
I have very little space in my Roth IRA, so I am doing a mixture of taxable and Roth. I think that's likely to have similar problems to just taxable in the long run, but perhaps to a much lesser extent. SPXL seems like a fine alternative to UPRO, but it would be nice if there were good alternatives to TMF.
I truly do not understand the need to have a "good alternative" to TMF. Moreover, I believe part I goes into quite a bit of detail regarding why SPXL is not a fine alternative to UPRO--> SPXL exhibits quite a bit more tracking error/drag.
There's not a "need", it would just be nice for TLH purposes.

Regarding SPXL, I must have missed that in Part I. Looking at Siamond's data, I'm not sure that's as clear as you're saying though. There seems to be slightly more drag, but it's small enough that the outperformance very early on has actually kept it slightly ahead a decade later. Certainly nothing like the international etfs. viewtopic.php?f=10&t=272640&p=4421481#p4421481

rascott
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by rascott » Fri Oct 11, 2019 12:42 pm

caklim00 wrote:
Fri Oct 11, 2019 12:25 pm
rascott wrote:
Fri Oct 11, 2019 10:43 am
caklim00 wrote:
Fri Oct 11, 2019 10:14 am
Rascott, how hard are purchasing and rolling these futures? Is it similar to putting in a market order for a stick purchase? I see the 10 year has the most volume. Is it more difficult to purchase the others? I'm wondering what ntsx us providing over just doing it yourself other than not having to deal with cash, margins,etc.

It's identical to a stock purchase... you can use market or limit orders. I've been using limit orders only, usually a tick below the last trade and they tend to get filled either immediately or within a few mins. The roll is even simpler.... you literally just push the "roll" button on your broker's platform. During the roll period the ticks are much tighter, they use even more fractional quotations during the roll period.

NTSX is doing something simple in theory... but a little more complex in practice. I think the size of the futures contracts would make it very difficult to totally copy on your own... unless you had a very large portfolio.... multiple millions.
I think I could probably get close enough. Goal ins't to copy NTSX, but is to copy its Treasury future holdings. Just have to decide if I want to be in the business of buying futures. I'm betting wisdomtree will crush my execution abilities.

If you bought one of each contract, that would be $762k in Treasury bond exposure... but because of their price points, it wouldn't be equal at all, like theirs is.... it would be like buying this.

214k - 2yr
118k - 5 yr
129k - 10yr
141k- ULTRA 10y
160k - 30y

muffins14
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by muffins14 » Fri Oct 11, 2019 1:03 pm

For a 2-year or 10-year future, what level of equity/money market would you need to keep in the account to avoid margin calls due to volatility of those two? Surely it’s larger than the ~$640 or ~$1500 maintenance margin number?

For example if a contract is $200k exposure and prices drop 2%, should I assume I need to have $4000 available?

rascott
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by rascott » Fri Oct 11, 2019 1:33 pm

muffins14 wrote:
Fri Oct 11, 2019 1:03 pm
For a 2-year or 10-year future, what level of equity/money market would you need to keep in the account to avoid margin calls due to volatility of those two? Surely it’s larger than the ~$640 or ~$1500 maintenance margin number?

For example if a contract is $200k exposure and prices drop 2%, should I assume I need to have $4000 available?

Pretty much..... one guess would be to plug in the notional value exposure of the corresponding ETFs for these (SHY and IEF) to get an idea how much they might move up and down on you in a given period.... and have that much cash available.

drock
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by drock » Fri Oct 11, 2019 2:19 pm

So if I'm calculating things correctly and you were looking to leverage $120k portfolio value 3x with your risk being about 50/50 s&p 500 and treasuries then you would buy:

1 mini S&P with a value of around 150k and 2 micros with a value of 15k x2 for a total of 180k exposure to S&P
1 ultra 30 year with a nominal exposure of around 180k with the current price and similar duration to TLT

Throw the remaining collateral from the account into money market funds and sell as needed to cover margin.

MotoTrojan
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by MotoTrojan » Fri Oct 11, 2019 2:23 pm

drock wrote:
Fri Oct 11, 2019 2:19 pm
So if I'm calculating things correctly and you were looking to leverage $120k portfolio value 3x with your risk being about 50/50 s&p 500 and treasuries then you would buy:

1 mini S&P with a value of around 150k and 2 micros with a value of 15k x2 for a total of 180k exposure to S&P
1 ultra 30 year with a nominal exposure of around 180k with the current price and similar duration to TLT

Throw the remaining collateral from the account into money market funds and sell as needed to cover margin.
What are you selling to cover margin? Seems a bit too granular to me until you have $1M++. Probably want to delever some and then hold some regular equity/treasury funds to hit your target allocation?

drock
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by drock » Fri Oct 11, 2019 2:33 pm

MotoTrojan wrote:
Fri Oct 11, 2019 2:23 pm
drock wrote:
Fri Oct 11, 2019 2:19 pm
So if I'm calculating things correctly and you were looking to leverage $120k portfolio value 3x with your risk being about 50/50 s&p 500 and treasuries then you would buy:

1 mini S&P with a value of around 150k and 2 micros with a value of 15k x2 for a total of 180k exposure to S&P
1 ultra 30 year with a nominal exposure of around 180k with the current price and similar duration to TLT

Throw the remaining collateral from the account into money market funds and sell as needed to cover margin.
What are you selling to cover margin? Seems a bit too granular to me until you have $1M++. Probably want to delever some and then hold some regular equity/treasury funds to hit your target allocation?
My hypothetical example was having 120k in the account. Of which you'd only have a small amount needed for the initial margin requirements of those contracts. So then if you invested the remainder in a money market account leaving say 10k in cash to cover fluctuations then you could sell some of the money market to cover margin if things were going down.

rascott
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by rascott » Fri Oct 11, 2019 2:57 pm

drock wrote:
Fri Oct 11, 2019 2:19 pm
So if I'm calculating things correctly and you were looking to leverage $120k portfolio value 3x with your risk being about 50/50 s&p 500 and treasuries then you would buy:

1 mini S&P with a value of around 150k and 2 micros with a value of 15k x2 for a total of 180k exposure to S&P
1 ultra 30 year with a nominal exposure of around 180k with the current price and similar duration to TLT

Throw the remaining collateral from the account into money market funds and sell as needed to cover margin.
Yeah you could do that.... but unless this was in an IRA where taxes didn't matter....I think you'd be better off to hold as much as reasonably possible in straight equities..... and then just round it off with a some micro contacts (or even UPRO to really dial it in). That way you aren't rolling your entire position every qtr and could keep most of the gains in LT.

If this is in an IRA, probably matters less and should be fine. Theoretically your money market account should wash the leverage financing cost.

MotoTrojan
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by MotoTrojan » Fri Oct 11, 2019 3:23 pm

drock wrote:
Fri Oct 11, 2019 2:33 pm
MotoTrojan wrote:
Fri Oct 11, 2019 2:23 pm
drock wrote:
Fri Oct 11, 2019 2:19 pm
So if I'm calculating things correctly and you were looking to leverage $120k portfolio value 3x with your risk being about 50/50 s&p 500 and treasuries then you would buy:

1 mini S&P with a value of around 150k and 2 micros with a value of 15k x2 for a total of 180k exposure to S&P
1 ultra 30 year with a nominal exposure of around 180k with the current price and similar duration to TLT

Throw the remaining collateral from the account into money market funds and sell as needed to cover margin.
What are you selling to cover margin? Seems a bit too granular to me until you have $1M++. Probably want to delever some and then hold some regular equity/treasury funds to hit your target allocation?
My hypothetical example was having 120k in the account. Of which you'd only have a small amount needed for the initial margin requirements of those contracts. So then if you invested the remainder in a money market account leaving say 10k in cash to cover fluctuations then you could sell some of the money market to cover margin if things were going down.
I think the money market account is the "cash" for margin, no? The more cash at all that you have the more drag and lower return you're generating, hence why it may be better to hold just enough to cover daily margin and the rest in liquid/divisible equity/treasury assets.

Diego_Quant
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Diego_Quant » Fri Oct 11, 2019 3:42 pm

Diego_Quant wrote:
Fri Oct 11, 2019 11:12 am
ES=SPY
ZN=IEF
GC=GLD
UB=TLT

It is right?
Something to add?
Can anyone confirm if it is correct?

caklim00
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by caklim00 » Fri Oct 11, 2019 3:46 pm

Interesting, you can't even trade Treasury futures at Ally Invest.

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hdas
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by hdas » Fri Oct 11, 2019 3:49 pm

Diego_Quant wrote:
Fri Oct 11, 2019 3:42 pm
Diego_Quant wrote:
Fri Oct 11, 2019 11:12 am
ES=SPY
ZN=IEF
GC=GLD
UB=TLT

It is right?
Something to add?
Can anyone confirm if it is correct?
UB != TLT, ZN != IEF, check the effective durations of the ETF’s and compare it with the respective future CTD. Cheers :greedy

PS. There’s no 1-1 equivalency
"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

rascott
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by rascott » Fri Oct 11, 2019 4:29 pm

MotoTrojan wrote:
Fri Oct 11, 2019 3:23 pm
drock wrote:
Fri Oct 11, 2019 2:33 pm
MotoTrojan wrote:
Fri Oct 11, 2019 2:23 pm
drock wrote:
Fri Oct 11, 2019 2:19 pm
So if I'm calculating things correctly and you were looking to leverage $120k portfolio value 3x with your risk being about 50/50 s&p 500 and treasuries then you would buy:

1 mini S&P with a value of around 150k and 2 micros with a value of 15k x2 for a total of 180k exposure to S&P
1 ultra 30 year with a nominal exposure of around 180k with the current price and similar duration to TLT

Throw the remaining collateral from the account into money market funds and sell as needed to cover margin.
What are you selling to cover margin? Seems a bit too granular to me until you have $1M++. Probably want to delever some and then hold some regular equity/treasury funds to hit your target allocation?
My hypothetical example was having 120k in the account. Of which you'd only have a small amount needed for the initial margin requirements of those contracts. So then if you invested the remainder in a money market account leaving say 10k in cash to cover fluctuations then you could sell some of the money market to cover margin if things were going down.
I think the money market account is the "cash" for margin, no? The more cash at all that you have the more drag and lower return you're generating, hence why it may be better to hold just enough to cover daily margin and the rest in liquid/divisible equity/treasury assets.

Cash for margin means money in the cash sweep account..... which basically pays nothing at most brokers.... much less than a money market. That is the cash drag. He just needs enough in there to cover daily swings on his futures positions that are cash settled daily.

Theoretically a money market account should pay roughly the same as the cost of financing on the futures. So you aren't really getting cash drag from that. Your financing cost is being washed out by your MM earnings.

Kessler had some long- term charts showing that buying a Treasury future and putting all the excess cash in t- bills provides nearly identical long- term returns to just buying the underlying T-bond.

It seems that Treasury futures financing is a bit cheaper than equity futures (SOFR vs 3 month LIBOR). So one that doesn't need the full leverage of both is probably best to leverage the Treasuries and hold equities straight up (or most of them) . The portfolio doesn't care where the leverage comes from.

I see no reason to use full leverage with both e- minis and T- futures and just park 90%+ of the portfolio in a money market. The end result is likely pretty much the same, but there's no advantage to it.

DaveG75
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by DaveG75 » Fri Oct 11, 2019 6:07 pm

pepys wrote:
Fri Oct 11, 2019 12:29 pm
DaveG75 wrote:
Thu Oct 10, 2019 5:01 pm
pepys wrote:
Thu Oct 10, 2019 9:46 am
I have very little space in my Roth IRA, so I am doing a mixture of taxable and Roth. I think that's likely to have similar problems to just taxable in the long run, but perhaps to a much lesser extent. SPXL seems like a fine alternative to UPRO, but it would be nice if there were good alternatives to TMF.
I truly do not understand the need to have a "good alternative" to TMF. Moreover, I believe part I goes into quite a bit of detail regarding why SPXL is not a fine alternative to UPRO--> SPXL exhibits quite a bit more tracking error/drag.
There's not a "need", it would just be nice for TLH purposes.

Regarding SPXL, I must have missed that in Part I. Looking at Siamond's data, I'm not sure that's as clear as you're saying though. There seems to be slightly more drag, but it's small enough that the outperformance very early on has actually kept it slightly ahead a decade later. Certainly nothing like the international etfs. viewtopic.php?f=10&t=272640&p=4421481#p4421481
1. so we agree SPXL has slightly more drag and (at least early on) a tracking problem. You seem to believe that the fact that the tracking error was in the positive direction (higher than the underlying index) is some sort of bonus. I do not think so, and I think the outperformance is just dumb luck. But fair enough, SPXL is "good enough."

2. Regarding TLH purposes: as far as I am aware, moving from one equivalent ETF to a different but essentially identical ETF violates at least the spirit of the wash sale rules and is inherently dangerous. If you got audited, you could end up owing a lot of taxes. Have I missed some IRS ruling or guidance on this?

pepys
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by pepys » Sat Oct 12, 2019 3:22 am

DaveG75 wrote:
Fri Oct 11, 2019 6:07 pm
pepys wrote:
Fri Oct 11, 2019 12:29 pm
DaveG75 wrote:
Thu Oct 10, 2019 5:01 pm
pepys wrote:
Thu Oct 10, 2019 9:46 am
I have very little space in my Roth IRA, so I am doing a mixture of taxable and Roth. I think that's likely to have similar problems to just taxable in the long run, but perhaps to a much lesser extent. SPXL seems like a fine alternative to UPRO, but it would be nice if there were good alternatives to TMF.
I truly do not understand the need to have a "good alternative" to TMF. Moreover, I believe part I goes into quite a bit of detail regarding why SPXL is not a fine alternative to UPRO--> SPXL exhibits quite a bit more tracking error/drag.
There's not a "need", it would just be nice for TLH purposes.

Regarding SPXL, I must have missed that in Part I. Looking at Siamond's data, I'm not sure that's as clear as you're saying though. There seems to be slightly more drag, but it's small enough that the outperformance very early on has actually kept it slightly ahead a decade later. Certainly nothing like the international etfs. viewtopic.php?f=10&t=272640&p=4421481#p4421481
1. so we agree SPXL has slightly more drag and (at least early on) a tracking problem. You seem to believe that the fact that the tracking error was in the positive direction (higher than the underlying index) is some sort of bonus. I do not think so, and I think the outperformance is just dumb luck. But fair enough, SPXL is "good enough."

2. Regarding TLH purposes: as far as I am aware, moving from one equivalent ETF to a different but essentially identical ETF violates at least the spirit of the wash sale rules and is inherently dangerous. If you got audited, you could end up owing a lot of taxes. Have I missed some IRS ruling or guidance on this?
1. I don't think it's some sort of bonus. I was using the small outperformance at first as a reference; the drag in the decade after has been so small as to still not make up for early tracking issues. Not a great example, admittedly. Here's something more substantive now that I've had a chance to take a deeper look: the drag relative to UPRO hasn't existed for quite a while. Going to portfolio visualizer and starting at January 2017, they're basically exactly the same:

UPRO: 29.73% CAGR, 37.90% Stdev, -39.08% max drawdown
SPXL: 29.78% CAGR, 37.57% Stdev, -39.04% max drawdown

Each of the last three years individually are also extremely close.

So I don't think it's accurate to say that it has more drag, just that it did before a few years ago, in addition to the tracking issues very early on.

2. There has been no IRS ruling on this. Considering the prevalence of doing this with what seems to me to be more similar etfs without the IRS ever going after someone for it, I personally find it extraordinarily unlikely. But I was just responding to someone asking if anyone was doing this in taxable with what I was doing (and musing on if a mixture might work well), not recommending it in any way.

get_g0ing
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by get_g0ing » Sat Oct 12, 2019 10:18 am

MotoTrojan wrote:
Wed Oct 09, 2019 9:23 pm
Hi MotoTrojan,

Question about the 43/57 UPRO/EDV allocation:

In Part I, OP had 40/60 UPRO/TMF, but then realized that the UPRO wasn't enough, so gave it a huge bump to 55/45 UPRO/TMF.
In 43/57 UPRO/EDV, isn't the UPRO too low? I'm not saying that it is, I'm just wanting to understand if the expectation is for this AA to return close to 55/45 UPRO?TMF? Since the UPRO %s are significantly different, I'm guessing the expected returns would be quite different too?

Second question, why did you not consider something like 55/45 or even 50/50 UPRO/EDV?

Thanks.

get_g0ing
Posts: 546
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by get_g0ing » Sat Oct 12, 2019 11:05 am

MotoTrojan wrote:
Wed Oct 09, 2019 9:23 pm

Also, I was messing with Portfolio Visualizer and M1. When I create a 50/50 pie in M1, it shows 5Y as 115.12%

Image

If I recreate in PV, it shows CAGR 15.53%
https://www.portfoliovisualizer.com/bac ... 0&total3=0

What's the formula that goes from CAGR 15.53% in PV to 5Y 115.12 in M1?

Thanks.

MotoTrojan
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by MotoTrojan » Sat Oct 12, 2019 12:11 pm

get_g0ing wrote:
Sat Oct 12, 2019 10:18 am
MotoTrojan wrote:
Wed Oct 09, 2019 9:23 pm
Hi MotoTrojan,

Question about the 43/57 UPRO/EDV allocation:

In Part I, OP had 40/60 UPRO/TMF, but then realized that the UPRO wasn't enough, so gave it a huge bump to 55/45 UPRO/TMF.
In 43/57 UPRO/EDV, isn't the UPRO too low? I'm not saying that it is, I'm just wanting to understand if the expectation is for this AA to return close to 55/45 UPRO?TMF? Since the UPRO %s are significantly different, I'm guessing the expected returns would be quite different too?

Second question, why did you not consider something like 55/45 or even 50/50 UPRO/EDV?

Thanks.
It is all about the ratio of volatility of equity to volatility of treasuries. TMF moves more than EDV. The best way to think about it is that 55/45 UPRO/TMF and 43/57 UPRO/EDV are the same portfolio (same ratio of volatility over the long run) but the 55/45 UPRO/TMF one has ~28% more leverage overall. More leverage does not always mean more return, and it does always mean more risk.

40/60 UPRO/TMF was risk-parity (equal volatility in equity and bonds) which both the 55/45 and 43/57 variations are deviating from, with a tilt towards equities.

55/45 beat my approach 1955-2018 by about 1% CAGR, but during the 1982-present period that most people are focusing on they both did great with 17% and 20% CAGR. Nobody knows what the future holds but with rates where they are I feel much better with my allocation; no volatility decay on the bond side either.

One last time; I would not invest in this until you understand these nuances.

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305pelusa
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by 305pelusa » Sat Oct 12, 2019 6:47 pm

I just learned that all risk parity is (with two assets) is running mean-variance analysis assuming returns are equal for both assets and correlation is zero.

That's to say: If you make an efficient frontier assuming the returns of both assets are equal and their correlation zero, the highest Sharpe portfolio is the risk-parity portfolio.

Hydromod
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod » Sat Oct 12, 2019 7:21 pm

For two assets, how does correlation make a difference? My impression is that correlation kicks in with three, but I certainly may be wrong

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305pelusa
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by 305pelusa » Sat Oct 12, 2019 7:33 pm

Hydromod wrote:
Sat Oct 12, 2019 7:21 pm
For two assets, how does correlation make a difference? My impression is that correlation kicks in with three, but I certainly may be wrong
You're asking what difference correlation makes in with mean-variance analysis of two assets? It's one of the inputs 0_o

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