Buying TQQQ vs Shorting SQQQ (for long term)

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calvin111
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Buying TQQQ vs Shorting SQQQ (for long term)

Post by calvin111 »

Hi,

I have been following HFEA thread and there are multiple discussions around this topic. Would like to hear more from folks.

If you have play money and want to take some bullish position and want to invest in TQQQ . But instead of buying TQQQ, what if you short SQQQ ? The volatility decay works with you along with a bullish bet. If you can continue invested in short position and rebalance monthly with cash then returns would be better. The worst and best for S-SQQQ (Short) is better than L-TQQQ (Long)

What could be potential issues with this play :) (not investing but just playing...I have VTI, FSKAX for investing)

Last 10 years - https://www.portfoliovisualizer.com/bac ... tion4_1=40

Since 2018 - https://www.portfoliovisualizer.com/bac ... tion4_1=40

YTD 2020 - https://www.portfoliovisualizer.com/bac ... tion4_1=40

Thanks
000
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Re: Buying TQQQ vs Shorting SQQQ (for long term)

Post by 000 »

Yes, this is a known strategy that has made good money for many traders. I'm not sure if the short interest is still at an acceptable level, or if puts are available on SQQQ?

Anyway, the bigger risk is probably that QQQ stops being so nice to those holding it.
crefwatch
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Re: Buying TQQQ vs Shorting SQQQ (for long term)

Post by crefwatch »

The biggest risk is that Exchange Traded Notes like this specifically warn that they are intended for holding one day or less. They are not designed or engineered to perform in a reliable or predictable way when held more than one day. If you are unable to qualify for Options Trading, then maybe you should not be investing in this fashion? (I can't know the answer, just raising the issue.)

Quote: Due to the compounding of daily returns, holding periods of greater than one day can result in returns that are significantly different than the target return and ProShares' returns over periods other than one day will likely differ in amount and possibly direction from the target return for the same period.
000
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Re: Buying TQQQ vs Shorting SQQQ (for long term)

Post by 000 »

crefwatch wrote: Tue Nov 03, 2020 4:08 pm The biggest risk is that Exchange Traded Notes like this specifically warn that they are intended for holding one day or less. They are not designed or engineered to perform in a reliable or predictable way when held more than one day. If you are unable to qualify for Options Trading, then maybe you should not be investing in this fashion? (I can't know the answer, just raising the issue.)

Quote: Due to the compounding of daily returns, holding periods of greater than one day can result in returns that are significantly different than the target return and ProShares' returns over periods other than one day will likely differ in amount and possibly direction from the target return for the same period.
That's the whole reason why people have been shorting SQQQ. It's a way to try to profit from the volatility decay of LETFs.
stormcrow
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Re: Buying TQQQ vs Shorting SQQQ (for long term)

Post by stormcrow »

calvin111 wrote: Tue Nov 03, 2020 2:01 pm Hi,

I have been following HFEA thread and there are multiple discussions around this topic. Would like to hear more from folks.

If you have play money and want to take some bullish position and want to invest in TQQQ . But instead of buying TQQQ, what if you short SQQQ ? The volatility decay works with you along with a bullish bet. If you can continue invested in short position and rebalance monthly with cash then returns would be better. The worst and best for S-SQQQ (Short) is better than L-TQQQ (Long)

What could be potential issues with this play :) (not investing but just playing...I have VTI, FSKAX for investing)

Last 10 years - https://www.portfoliovisualizer.com/bac ... tion4_1=40

Since 2018 - https://www.portfoliovisualizer.com/bac ... tion4_1=40

YTD 2020 - https://www.portfoliovisualizer.com/bac ... tion4_1=40

Thanks
I think the caution that has been brought out in other threads is that PV is using the monthly data. During the above periods you will have some intra-monthly drops in QQQ that might either trigger a margin call, or at the least, drive up the borrow rate to the sky.
Topic Author
calvin111
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Re: Buying TQQQ vs Shorting SQQQ (for long term)

Post by calvin111 »

stormcrow wrote: Wed Nov 04, 2020 2:15 pm
calvin111 wrote: Tue Nov 03, 2020 2:01 pm Hi,

I have been following HFEA thread and there are multiple discussions around this topic. Would like to hear more from folks.

If you have play money and want to take some bullish position and want to invest in TQQQ . But instead of buying TQQQ, what if you short SQQQ ? The volatility decay works with you along with a bullish bet. If you can continue invested in short position and rebalance monthly with cash then returns would be better. The worst and best for S-SQQQ (Short) is better than L-TQQQ (Long)

What could be potential issues with this play :) (not investing but just playing...I have VTI, FSKAX for investing)

Thanks
I think the caution that has been brought out in other threads is that PV is using the monthly data. During the above periods you will have some intra-monthly drops in QQQ that might either trigger a margin call, or at the least, drive up the borrow rate to the sky.
Even in the current election time and increased volatility, I am getting a note that SQQQ is hard to borrow (HTB) and the interest is 0.5% per annum (which i am willing to accept for the returns that I could get). Have you seen much higher borrow rate ?
Semantics
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Re: Buying TQQQ vs Shorting SQQQ (for long term)

Post by Semantics »

calvin111 wrote: Wed Nov 04, 2020 5:56 pm
stormcrow wrote: Wed Nov 04, 2020 2:15 pm
calvin111 wrote: Tue Nov 03, 2020 2:01 pm Hi,

I have been following HFEA thread and there are multiple discussions around this topic. Would like to hear more from folks.

If you have play money and want to take some bullish position and want to invest in TQQQ . But instead of buying TQQQ, what if you short SQQQ ? The volatility decay works with you along with a bullish bet. If you can continue invested in short position and rebalance monthly with cash then returns would be better. The worst and best for S-SQQQ (Short) is better than L-TQQQ (Long)

What could be potential issues with this play :) (not investing but just playing...I have VTI, FSKAX for investing)

Thanks
I think the caution that has been brought out in other threads is that PV is using the monthly data. During the above periods you will have some intra-monthly drops in QQQ that might either trigger a margin call, or at the least, drive up the borrow rate to the sky.
Even in the current election time and increased volatility, I am getting a note that SQQQ is hard to borrow (HTB) and the interest is 0.5% per annum (which i am willing to accept for the returns that I could get). Have you seen much higher borrow rate ?
It's typically been around 0.5%-1% on both Schwab and IBKR, but during some of the market drops the past couple months it's spiked as high as 1.5%. If tech experiences any sort of prolonged downturn I'd expect the borrowing fees to increase as investors sell off their hedges (long positions) and there's more short interest. The borrowing fees may only be as low as they are because QQQ has done very well

So in the event of a major crash/downturn, being short this ETF will hit you with a quintuple whammy -- margin requirement goes up, available margin goes down, borrowing fees go up, compounding accelerates your losses, and your losses are unbounded.

Now, the increased exposure when the market goes down lets this strategy recover much better than holding TQQQ, in other words as others noted there is anti volatility decay. But you need to be prepared to either 1) withstand "losing" (owing) more than your initial investment for as long as it takes to recover, or 2) have a way to time the market and getting out. Both of which are not something anyone should do with more than play money. There's a pennies in front of steamroller aspect to this.

BTW, I think you can emulate volatility decay working in your favor without shorting SQQQ. Just buy a bit more TQQQ every time it drops (on margin), and sell some every time it goes up, in the appropriate amounts, so that your daily exposure is always the same as it would be shorting SQQQ. I think that's a strategy most investors probably wouldn't be comfortable with, but it's basically a litmus test for whether short-SQQQ makes sense.
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nisiprius
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Re: Buying TQQQ vs Shorting SQQQ (for long term)

Post by nisiprius »

SPY has an expense ratio of 0.09%. VOO has an expense ratio of 0.03%. Why can't you get rich by going long on VOO and shorting SPY? :twisted:
Last edited by nisiprius on Sat Nov 07, 2020 10:03 am, edited 1 time in total.
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Re: Buying TQQQ vs Shorting SQQQ (for long term)

Post by whodidntante »

nisiprius wrote: Thu Nov 05, 2020 9:33 am SPY has an expense ratio of 0.09%. VOO has an expense ratio of 0.03%. Why can't get rich by going long on VOO and shorting SPY? :twisted:
Payment in lieu, taxes, and borrowing costs (which may be zero at some brokers but not reliably).

The opportunity the OP asked about has a much larger spread. It may have been historically profitable. I think it deserves a look for those with the inclination, and I don't think it makes sense to dismiss it.
BlueGator
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Re: Buying TQQQ vs Shorting SQQQ (for long term)

Post by BlueGator »

I think the reason this strategy doesn't get much headway is due to taxes.

Consider that closing a short position incurs short term capital gains/losses, no matter the holding period.

So review the following "equal" strategies, buying TQQQ on Margin vs. Shorting SQQQ.

Day 0 to 1 year
- Costs for Shorting SQQQ = (STCG + Hard to borrow costs)
- Costs for TQQQ on margin = (STCG + Margin borrowing costs)

After Year 1
- Costs for Shorting SQQQ = (STCG + Hard to borrow costs)
- Costs for TQQQ on margin = (LTCG + Margin borrowing costs)

Depending on your personal situation (Short Term Capital Gains) minus (Long Term Capital Gains) ranges from 10% to 20%. Margin rates available today also range from 2% to 7%.

Shorting SQQQ for 1 year may be more cost effective, TQQQ on margin is likely more cost effective for a period of 1 year to 10 years depending on your personal situation and market behavior.

Also consider that the upside to SQQQ is limited to 100% or your initial position, while with TQQQ it's limitless. Buying TQQQ on margin also allows you to liquidate a portion at a later date, cover your margin debit, and still have upside exposure.
Marseille07
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Re: Buying TQQQ vs Shorting SQQQ (for long term)

Post by Marseille07 »

I don't see that shorting SQQQ is worth the hassle. You'd have to do at least 2 things that holding TQQQ doesn't require:

a) rebalancing your short position, otherwise your gains are capped at 100%
b) pay the borrowing fee, whose rate can change daily; or can't borrow at all because of HTB.

In my opinion these two reasons make shorting SQQQ undesirable, at least for boglehead-style investing.
Semantics
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Re: Buying TQQQ vs Shorting SQQQ (for long term)

Post by Semantics »

BlueGator wrote: Sat Nov 07, 2020 9:39 am I think the reason this strategy doesn't get much headway is due to taxes.

Consider that closing a short position incurs short term capital gains/losses, no matter the holding period.

So review the following "equal" strategies, buying TQQQ on Margin vs. Shorting SQQQ.

Day 0 to 1 year
- Costs for Shorting SQQQ = (STCG + Hard to borrow costs)
- Costs for TQQQ on margin = (STCG + Margin borrowing costs)

After Year 1
- Costs for Shorting SQQQ = (STCG + Hard to borrow costs)
- Costs for TQQQ on margin = (LTCG + Margin borrowing costs)

Depending on your personal situation (Short Term Capital Gains) minus (Long Term Capital Gains) ranges from 10% to 20%. Margin rates available today also range from 2% to 7%.

Shorting SQQQ for 1 year may be more cost effective, TQQQ on margin is likely more cost effective for a period of 1 year to 10 years depending on your personal situation and market behavior.

Also consider that the upside to SQQQ is limited to 100% or your initial position, while with TQQQ it's limitless. Buying TQQQ on margin also allows you to liquidate a portion at a later date, cover your margin debit, and still have upside exposure.
In theory you might "never" close a short SQQQ position, though. So although you pay STCG, it's deferred. In the meantime, you can redeploy the gains/proceeds of the short as you wish, say shorting more SQQQ or buying other assets including TQQQ - you don't need to close positions to rebalance your portfolio like you would with holding TQQQ long. The hope would be that after several years of compound growth the additional gains will outweigh the extra tax burden. If you don't want the SQQQ positions any more you could just let them decay to zero over time without shorting more and never close them and take the tax hit. Of course, there's a good chance the fund will close at some point and force liquidation and a tax hit, so in practice you probably can't defer the taxes forever.
Marseille07
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Re: Buying TQQQ vs Shorting SQQQ (for long term)

Post by Marseille07 »

Semantics wrote: Sun Nov 08, 2020 11:00 pm
BlueGator wrote: Sat Nov 07, 2020 9:39 am I think the reason this strategy doesn't get much headway is due to taxes.

Consider that closing a short position incurs short term capital gains/losses, no matter the holding period.

So review the following "equal" strategies, buying TQQQ on Margin vs. Shorting SQQQ.

Day 0 to 1 year
- Costs for Shorting SQQQ = (STCG + Hard to borrow costs)
- Costs for TQQQ on margin = (STCG + Margin borrowing costs)

After Year 1
- Costs for Shorting SQQQ = (STCG + Hard to borrow costs)
- Costs for TQQQ on margin = (LTCG + Margin borrowing costs)

Depending on your personal situation (Short Term Capital Gains) minus (Long Term Capital Gains) ranges from 10% to 20%. Margin rates available today also range from 2% to 7%.

Shorting SQQQ for 1 year may be more cost effective, TQQQ on margin is likely more cost effective for a period of 1 year to 10 years depending on your personal situation and market behavior.

Also consider that the upside to SQQQ is limited to 100% or your initial position, while with TQQQ it's limitless. Buying TQQQ on margin also allows you to liquidate a portion at a later date, cover your margin debit, and still have upside exposure.
In theory you might "never" close a short SQQQ position, though. So although you pay STCG, it's deferred. In the meantime, you can redeploy the gains/proceeds of the short as you wish, say shorting more SQQQ or buying other assets including TQQQ - you don't need to close positions to rebalance your portfolio like you would with holding TQQQ long. The hope would be that after several years of compound growth the additional gains will outweigh the extra tax burden. If you don't want the SQQQ positions any more you could just let them decay to zero over time without shorting more and never close them and take the tax hit. Of course, there's a good chance the fund will close at some point and force liquidation and a tax hit, so in practice you probably can't defer the taxes forever.
Not sure how long you've traded those "decaying" ETFs but they typically reverse-split 4x, 8x or 10x etc etc and their price never hits 0. This doesn't mean the fund stays forever, but the reason for closure isn't because the price got too low.
Thereum
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Re: Buying TQQQ vs Shorting SQQQ (for long term)

Post by Thereum »

I've been shorting SQQQ for a while now. I believe it is one of the best strategies in the world. It is certainly better than going long on 3x leveraged ETFs because you put volatility decay in your favor. If you've done backtests, you'll know that the results speak for themselves.

Some brokers like IBKR don't charge much to short SQQQ. If your broker charges more than the 1-2% that IBKR charges, then just use options to create synthetics or risk reversals.

The only downside of this strategy is that it's essentially ruined investing for me. It used to be fun to research stocks and ETFs when deciding where to allocate capital. Now, I know the answer is to just add to my SQQQ short position :D
keith6014
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Re: Buying TQQQ vs Shorting SQQQ (for long term)

Post by keith6014 »

Thereum wrote: Sat Nov 14, 2020 2:41 am I've been shorting SQQQ for a while now. I believe it is one of the best strategies in the world. It is certainly better than going long on 3x leveraged ETFs because you put volatility decay in your favor. If you've done backtests, you'll know that the results speak for themselves.

Some brokers like IBKR don't charge much to short SQQQ. If your broker charges more than the 1-2% that IBKR charges, then just use options to create synthetics or risk reversals.

The only downside of this strategy is that it's essentially ruined investing for me. It used to be fun to research stocks and ETFs when deciding where to allocate capital. Now, I know the answer is to just add to my SQQQ short position :D
How do you do this with options? I can't open and trade in a margin account because of work restrictions.
cowbman
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Re: Buying TQQQ vs Shorting SQQQ (for long term)

Post by cowbman »

keith6014 wrote: Sat Nov 14, 2020 7:46 am
Thereum wrote: Sat Nov 14, 2020 2:41 am I've been shorting SQQQ for a while now. I believe it is one of the best strategies in the world. It is certainly better than going long on 3x leveraged ETFs because you put volatility decay in your favor. If you've done backtests, you'll know that the results speak for themselves.

Some brokers like IBKR don't charge much to short SQQQ. If your broker charges more than the 1-2% that IBKR charges, then just use options to create synthetics or risk reversals.

The only downside of this strategy is that it's essentially ruined investing for me. It used to be fun to research stocks and ETFs when deciding where to allocate capital. Now, I know the answer is to just add to my SQQQ short position :D
How do you do this with options? I can't open and trade in a margin account because of work restrictions.
Sounds like the idea would be to buy puts.
bikechuck
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Re: Buying TQQQ vs Shorting SQQQ (for long term)

Post by bikechuck »

calvin111 wrote: Tue Nov 03, 2020 2:01 pm Hi,

I have been following HFEA thread and there are multiple discussions around this topic. Would like to hear more from folks.

If you have play money and want to take some bullish position and want to invest in TQQQ . But instead of buying TQQQ, what if you short SQQQ ? The volatility decay works with you along with a bullish bet. If you can continue invested in short position and rebalance monthly with cash then returns would be better. The worst and best for S-SQQQ (Short) is better than L-TQQQ (Long)

What could be potential issues with this play :) (not investing but just playing...I have VTI, FSKAX for investing)

Last 10 years - https://www.portfoliovisualizer.com/bac ... tion4_1=40

Since 2018 - https://www.portfoliovisualizer.com/bac ... tion4_1=40

YTD 2020 - https://www.portfoliovisualizer.com/bac ... tion4_1=40

Thanks
After reading this post I understand none of it because I feel lost in a bowl of alphabet soup. I know that I and other readers like me can look up the meaning of the four acronyms and symbols that it contains but many readers will not do so. It takes a poster a few extra keystrokes to avoid symbols and acronyms but taking that time gives them a bigger audience and cumulatively saves time for the many readers that do choose to look up the acronyms and symbols. It also makes the content of this forum more welcoming and understanding for newer investors.
Thereum
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Re: Buying TQQQ vs Shorting SQQQ (for long term)

Post by Thereum »

keith6014 wrote: Sat Nov 14, 2020 7:46 am
How do you do this with options? I can't open and trade in a margin account because of work restrictions.
Are you able to sell naked calls? To create a synthetic short with options, you sell calls and buy puts with the proceeds. If you can't sell naked calls, then this would be challenging, since you'd have to convert the naked call into a call spread, forcing you to waste money buying expensive call options for protection.
keith6014
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Re: Buying TQQQ vs Shorting SQQQ (for long term)

Post by keith6014 »

Thereum wrote: Sat Nov 14, 2020 5:17 pm
keith6014 wrote: Sat Nov 14, 2020 7:46 am
How do you do this with options? I can't open and trade in a margin account because of work restrictions.
Are you able to sell naked calls? To create a synthetic short with options, you sell calls and buy puts with the proceeds. If you can't sell naked calls, then this would be challenging, since you'd have to convert the naked call into a call spread, forcing you to waste money buying expensive call options for protection.
In an options account, I am not sure if I can sell a naked call but I presume I can. I have been dabbling for HF strategy for 1+ year. I tried it with futures and doing options ATM. I feel I can handle more risk. I am bored. :wink:
Would I need to do it with TQQQ and TMF? Can I do QQQ and TLT instead?
Last edited by keith6014 on Sat Nov 14, 2020 5:27 pm, edited 1 time in total.
Marseille07
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Re: Buying TQQQ vs Shorting SQQQ (for long term)

Post by Marseille07 »

It's a lot of work. You need to rebalance your short position or else you're capped at 100% gain of your original position. If you rebalance and the market crashes immediately after, you'd take a huge hit.

If you know what you're doing, it might be OK - but be sure to backtest your allocation strategies wrt drawdowns and other risk metrics.
Semantics
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Re: Buying TQQQ vs Shorting SQQQ (for long term)

Post by Semantics »

Marseille07 wrote: Sun Nov 08, 2020 11:05 pm
Semantics wrote: Sun Nov 08, 2020 11:00 pm
BlueGator wrote: Sat Nov 07, 2020 9:39 am I think the reason this strategy doesn't get much headway is due to taxes.

Consider that closing a short position incurs short term capital gains/losses, no matter the holding period.

So review the following "equal" strategies, buying TQQQ on Margin vs. Shorting SQQQ.

Day 0 to 1 year
- Costs for Shorting SQQQ = (STCG + Hard to borrow costs)
- Costs for TQQQ on margin = (STCG + Margin borrowing costs)

After Year 1
- Costs for Shorting SQQQ = (STCG + Hard to borrow costs)
- Costs for TQQQ on margin = (LTCG + Margin borrowing costs)

Depending on your personal situation (Short Term Capital Gains) minus (Long Term Capital Gains) ranges from 10% to 20%. Margin rates available today also range from 2% to 7%.

Shorting SQQQ for 1 year may be more cost effective, TQQQ on margin is likely more cost effective for a period of 1 year to 10 years depending on your personal situation and market behavior.

Also consider that the upside to SQQQ is limited to 100% or your initial position, while with TQQQ it's limitless. Buying TQQQ on margin also allows you to liquidate a portion at a later date, cover your margin debit, and still have upside exposure.
In theory you might "never" close a short SQQQ position, though. So although you pay STCG, it's deferred. In the meantime, you can redeploy the gains/proceeds of the short as you wish, say shorting more SQQQ or buying other assets including TQQQ - you don't need to close positions to rebalance your portfolio like you would with holding TQQQ long. The hope would be that after several years of compound growth the additional gains will outweigh the extra tax burden. If you don't want the SQQQ positions any more you could just let them decay to zero over time without shorting more and never close them and take the tax hit. Of course, there's a good chance the fund will close at some point and force liquidation and a tax hit, so in practice you probably can't defer the taxes forever.
Not sure how long you've traded those "decaying" ETFs but they typically reverse-split 4x, 8x or 10x etc etc and their price never hits 0. This doesn't mean the fund stays forever, but the reason for closure isn't because the price got too low.
The reverse splits just means the shares you're borrowing that are now tiny get combined into a smaller number of bigger shares. The dollar value of the position remains unchanged and still approaches zero. So I suppose that in the extreme case, if one never shorts new shares, you could end up with your entire position collapsing into a single share (lol), and then at the next reverse split the broker would close your position. (Although IBKR apparently supports shorting fractional shares now.)

And yeah, when I mention the risk of the fund closing, it would be for extrinsic reasons - regulation changes, ProShares going bankrupt or getting acquired, costing too much money to run, etc. To be fair, this is probably just as likely with TQQQ. Since they are marketed as not to be held long term it would probably be easier to shut them down than a non-leveraged ETF. If this part of my portfolio accumulates enough unrealized gains I plan to start spreading it across a few other 3x funds (SPXL, SPXS, TECL, etc.)
Marseille07
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Re: Buying TQQQ vs Shorting SQQQ (for long term)

Post by Marseille07 »

Semantics wrote: Sun Nov 15, 2020 12:49 pm
Marseille07 wrote: Sun Nov 08, 2020 11:05 pm
Semantics wrote: Sun Nov 08, 2020 11:00 pm
BlueGator wrote: Sat Nov 07, 2020 9:39 am I think the reason this strategy doesn't get much headway is due to taxes.

Consider that closing a short position incurs short term capital gains/losses, no matter the holding period.

So review the following "equal" strategies, buying TQQQ on Margin vs. Shorting SQQQ.

Day 0 to 1 year
- Costs for Shorting SQQQ = (STCG + Hard to borrow costs)
- Costs for TQQQ on margin = (STCG + Margin borrowing costs)

After Year 1
- Costs for Shorting SQQQ = (STCG + Hard to borrow costs)
- Costs for TQQQ on margin = (LTCG + Margin borrowing costs)

Depending on your personal situation (Short Term Capital Gains) minus (Long Term Capital Gains) ranges from 10% to 20%. Margin rates available today also range from 2% to 7%.

Shorting SQQQ for 1 year may be more cost effective, TQQQ on margin is likely more cost effective for a period of 1 year to 10 years depending on your personal situation and market behavior.

Also consider that the upside to SQQQ is limited to 100% or your initial position, while with TQQQ it's limitless. Buying TQQQ on margin also allows you to liquidate a portion at a later date, cover your margin debit, and still have upside exposure.
In theory you might "never" close a short SQQQ position, though. So although you pay STCG, it's deferred. In the meantime, you can redeploy the gains/proceeds of the short as you wish, say shorting more SQQQ or buying other assets including TQQQ - you don't need to close positions to rebalance your portfolio like you would with holding TQQQ long. The hope would be that after several years of compound growth the additional gains will outweigh the extra tax burden. If you don't want the SQQQ positions any more you could just let them decay to zero over time without shorting more and never close them and take the tax hit. Of course, there's a good chance the fund will close at some point and force liquidation and a tax hit, so in practice you probably can't defer the taxes forever.
Not sure how long you've traded those "decaying" ETFs but they typically reverse-split 4x, 8x or 10x etc etc and their price never hits 0. This doesn't mean the fund stays forever, but the reason for closure isn't because the price got too low.
The reverse splits just means the shares you're borrowing that are now tiny get combined into a smaller number of bigger shares. The dollar value of the position remains unchanged and still approaches zero. So I suppose that in the extreme case, if one never shorts new shares, you could end up with your entire position collapsing into a single share (lol), and then at the next reverse split the broker would close your position. (Although IBKR apparently supports shorting fractional shares now.)

And yeah, when I mention the risk of the fund closing, it would be for extrinsic reasons - regulation changes, ProShares going bankrupt or getting acquired, costing too much money to run, etc. To be fair, this is probably just as likely with TQQQ. Since they are marketed as not to be held long term it would probably be easier to shut them down than a non-leveraged ETF. If this part of my portfolio accumulates enough unrealized gains I plan to start spreading it across a few other 3x funds (SPXL, SPXS, TECL, etc.)
Yeah I was just responding to
you could just let them decay to zero over time without shorting more and never close them and take the tax hit. Of course, there's a good chance the fund will close at some point and force liquidation and a tax hit,
as saying decaying to zero would be one of the causes of fund closure. We're on the same page that it is not. RS is necessary to keep the price up though, as some brokers don't allow shorting of stocks under $5.
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whodidntante
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Re: Buying TQQQ vs Shorting SQQQ (for long term)

Post by whodidntante »

bikechuck wrote: Sat Nov 14, 2020 10:36 am
calvin111 wrote: Tue Nov 03, 2020 2:01 pm Hi,

I have been following HFEA thread and there are multiple discussions around this topic. Would like to hear more from folks.

If you have play money and want to take some bullish position and want to invest in TQQQ . But instead of buying TQQQ, what if you short SQQQ ? The volatility decay works with you along with a bullish bet. If you can continue invested in short position and rebalance monthly with cash then returns would be better. The worst and best for S-SQQQ (Short) is better than L-TQQQ (Long)

What could be potential issues with this play :) (not investing but just playing...I have VTI, FSKAX for investing)

Last 10 years - https://www.portfoliovisualizer.com/bac ... tion4_1=40

Since 2018 - https://www.portfoliovisualizer.com/bac ... tion4_1=40

YTD 2020 - https://www.portfoliovisualizer.com/bac ... tion4_1=40

Thanks
After reading this post I understand none of it because I feel lost in a bowl of alphabet soup. I know that I and other readers like me can look up the meaning of the four acronyms and symbols that it contains but many readers will not do so. It takes a poster a few extra keystrokes to avoid symbols and acronyms but taking that time gives them a bigger audience and cumulatively saves time for the many readers that do choose to look up the acronyms and symbols. It also makes the content of this forum more welcoming and understanding for newer investors.
On the other hand, using tickers unambiguously identifies which funds one is talking about and it's extremely space efficient. At most I could argue for a ticker key being part of the post that first uses a ticker in a thread, similar to how in formal writing you are supposed to introduce abbreviations the first time using the term. But I do wonder how much effort a poster who is interested in a subject but not enough to look up a ticker will truly put into thinking and responding, so maybe using tickers boosts the post quality in a thread. :twisted:
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Re: Buying TQQQ vs Shorting SQQQ (for long term)

Post by keith6014 »

Thereum wrote: Sat Nov 14, 2020 2:41 am I've been shorting SQQQ for a while now. I believe it is one of the best strategies in the world. It is certainly better than going long on 3x leveraged ETFs because you put volatility decay in your favor. If you've done backtests, you'll know that the results speak for themselves.

Some brokers like IBKR don't charge much to short SQQQ. If your broker charges more than the 1-2% that IBKR charges, then just use options to create synthetics or risk reversals.

The only downside of this strategy is that it's essentially ruined investing for me. It used to be fun to research stocks and ETFs when deciding where to allocate capital. Now, I know the answer is to just add to my SQQQ short position :D
You pay interest when you borrow. I see some brokers charge 9.00% (https://www.interactivebrokers.com/en/index.php?f=44427) for below $25k. I am thinking you pay even more since its a high risk ETF. How do you deal with that?
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Re: Buying TQQQ vs Shorting SQQQ (for long term)

Post by Semantics »

keith6014 wrote: Sat Nov 21, 2020 2:45 pm
Thereum wrote: Sat Nov 14, 2020 2:41 am I've been shorting SQQQ for a while now. I believe it is one of the best strategies in the world. It is certainly better than going long on 3x leveraged ETFs because you put volatility decay in your favor. If you've done backtests, you'll know that the results speak for themselves.

Some brokers like IBKR don't charge much to short SQQQ. If your broker charges more than the 1-2% that IBKR charges, then just use options to create synthetics or risk reversals.

The only downside of this strategy is that it's essentially ruined investing for me. It used to be fun to research stocks and ETFs when deciding where to allocate capital. Now, I know the answer is to just add to my SQQQ short position :D
You pay interest when you borrow. I see some brokers charge 9.00% (https://www.interactivebrokers.com/en/index.php?f=44427) for below $25k. I am thinking you pay even more since its a high risk ETF. How do you deal with that?
Those are margin rates, which are not related to stock borrowing rates. Stock borrowing rates depend more on how many shares are available to borrow and the short interest. SQQQ costs about 0.5-1.5% (but it's spiked up lately, I think more people are trying this strategy). TMV (inverse TMF) is at 8.4%, so it'd be crazy to short it in a HFEA variant. These rates are variable, so if you have your whole portfolio in a SQQQ short position and the borrow rate goes up to 8% you might have a bad time.

I feel like some of the proponents of this SQQQ short strategy on here are completely ignoring the downsides and risks, and giving out fairly dangerous advice, and perhaps don't fully understand their own strategy. I've mentioned before that unless you rebalance daily, this implicitly increases your leverage when QQQ goes down by borrowing more. So yeah, >3x leverage on QQQ will do better than 3x leverage in a rising market - you don't say! You don't need to short SQQQ to achieve that effect either, you could buy more TQQQ on margin on dips and sell on rips, it's just more work.
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Re: Buying TQQQ vs Shorting SQQQ (for long term)

Post by ChrisBenn »

https://iborrowdesk.com/report/SQQQ

That's historical IB borrow costs.
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Re: Buying TQQQ vs Shorting SQQQ (for long term)

Post by Chicken Little »

There's a pretty broad audience on here, so it might be useful to explain some of this in basic terms.

1. Is the volatility-decay shorting strategy specific to SQQQ, or could you build an "index" by shorting a basket of levered-short-etfs. Not so much "could you?" here, obviously, but why wouldn't you (see 2)?

2. Is focus on NASDAQ because that will outpace broader market?

3. Is shorting volatility viewed as some kind of conditional arbitrage, where you get a free lunch if NASDAQ runs higher? This seems to have been touched on, but if it's free lunch to you, who picks up the tab? Could a bigger player step in and blow it up?

4. What ripcord is available here? If the trade moves against you, how easy is it to get out?

5. If NASDAQ 3X is good, why is that the ceiling? Maybe there isn't a 6X ETF, but why not a home equity loan? If it's just a fractional amount of exposure, then it's just a fractional amount of exposure. Would you run it at 6X if you could? Same money or less?

6. This is one of many recent strategies which rely on increased risk for increased return. Any concern this is signaling a top? Seems like the common thesis is 1X long just isn't sufficient?

7. When was the last "capitulation", 1929? Is that now off the table, from a structural standpoint?
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Re: Buying TQQQ vs Shorting SQQQ (for long term)

Post by Semantics »

Chicken Little wrote: Sun Nov 22, 2020 10:55 am There's a pretty broad audience on here, so it might be useful to explain some of this in basic terms.

1. Is the volatility-decay shorting strategy specific to SQQQ, or could you build an "index" by shorting a basket of levered-short-etfs. Not so much "could you?" here, obviously, but why wouldn't you (see 2)?
The way people are using it you could substitute SPXS or other inverse leveraged ETFs.
2. Is focus on NASDAQ because that will outpace broader market?
I think it's a combination of that and the fact the volatility tends to be larger than the S&P 500. The short-inverse strategy is most beneficial on stocks that have high volatility, because it's effectively automated swing trading (buy low, sell high). That assumes they rise or stay flat over time. In a bear market this is a disaster without a strong hedge, since you'd keep upping your exposure as the market drops and lose more and more.
3. Is shorting volatility viewed as some kind of conditional arbitrage, where you get a free lunch if NASDAQ runs higher? This seems to have been touched on, but if it's free lunch to you, who picks up the tab? Could a bigger player step in and blow it up?
It's not a free lunch -- shorting SQQQ only outperforms TQQQ because you are adding leverage when the market drops. Steve Reading gave a good example in the HFEA thread. If QQQ drops 10% in a day, then your short SQQQ position would amount to 5.57x leverag. With TQQQ you always stay at 3x.
4. What ripcord is available here? If the trade moves against you, how easy is it to get out?
You'll get out when your broker liquidates your account. :) If you held a short SQQQ position through March 2020, you would have been wiped out at the bottom, by which I mean you would owe more than twice the original short position so your collateral would be gone.

My approach using this is to watch my holdings almost daily, close positions if leverage gets too high (and short more when it gets too low), and limit the strategy to a very small fraction of my portfolio (like 2%) so that I effectively have infinite collateral. My goal with this is to offset some of the volatility decay from random daily noise in my long positions, and have a little automatic "buy the dip" effect, it's no substitute for long positions.
5. If NASDAQ 3X is good, why is that the ceiling? Maybe there isn't a 6X ETF, but why not a home equity loan? If it's just a fractional amount of exposure, then it's just a fractional amount of exposure. Would you run it at 6X if you could? Same money or less?
I think it's been shown that optimal leverage historically is somewhere in the 2-3 range for most indices and asset classes. There's been some discussion of this in the HFEA and lifecycle investing threads, I think.
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Re: Buying TQQQ vs Shorting SQQQ (for long term)

Post by keith6014 »

Sorry if this is a novice question. You short SQQQ that gives you 3xQQQ exposure. What about the hedge, should you also short TMV. And the same ratio 55:45 (SQQQ/TMV) ?
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Re: Buying TQQQ vs Shorting SQQQ (for long term)

Post by 000 »

Chicken Little wrote: Sun Nov 22, 2020 10:55 am 3. Is shorting volatility viewed as some kind of conditional arbitrage, where you get a free lunch if NASDAQ runs higher? This seems to have been touched on, but if it's free lunch to you, who picks up the tab? Could a bigger player step in and blow it up?
In addition to increasing leverage during drops as discussed above, you take more risk shorting SQQQ than going long TQQQ because the former can go negative (you can lose more than your principal), while the latter cannot.
keith6014
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Re: Buying TQQQ vs Shorting SQQQ (for long term)

Post by keith6014 »

keith6014 wrote: Sun Nov 22, 2020 2:37 pm Sorry if this is a novice question. You short SQQQ that gives you 3xQQQ exposure. What about the hedge, should you also short TMV. And the same ratio 55:45 (SQQQ/TMV) ?
Anyone?
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Re: Buying TQQQ vs Shorting SQQQ (for long term)

Post by calvin111 »

Hi @keith6014

I have not thought about this hedge approach, but sounds something we should look at it. How would you do it and how will rebalance work with short TMV ?
keith6014 wrote: Sun Nov 22, 2020 2:37 pm Sorry if this is a novice question. You short SQQQ that gives you 3xQQQ exposure. What about the hedge, should you also short TMV. And the same ratio 55:45 (SQQQ/TMV) ?
Topic Author
calvin111
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Re: Buying TQQQ vs Shorting SQQQ (for long term)

Post by calvin111 »

000 wrote: Sun Nov 22, 2020 6:28 pm
In addition to increasing leverage during drops as discussed above, you take more risk shorting SQQQ than going long TQQQ because the former can go negative (you can lose more than your principal), while the latter cannot.
I think that there is still a reasonably defined risk with shorting SQQQ. QQQ can max drop to 0 (so 100% loss of principal) and hence SQQQ can go up by 300%. So your short SQQQ will be in loss for 300%. (Let me know what you think)
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Re: Buying TQQQ vs Shorting SQQQ (for long term)

Post by calvin111 »

Semantics wrote: Sun Nov 22, 2020 1:42 pm 4. What ripcord is available here? If the trade moves against you, how easy is it to get out?

You'll get out when your broker liquidates your account. :) If you held a short SQQQ position through March 2020, you would have been wiped out at the bottom, by which I mean you would owe more than twice the original short position so your collateral would be gone.
-- But i believe this is the max. You will not owe more than 300 % of your original short position. Right ?
Semantics wrote: Sun Nov 22, 2020 1:42 pm My approach using this is to watch my holdings almost daily, close positions if leverage gets too high (and short more when it gets too low), and limit the strategy to a very small fraction of my portfolio (like 2%) so that I effectively have infinite collateral. My goal with this is to offset some of the volatility decay from random daily noise in my long positions, and have a little automatic "buy the dip" effect, it's no substitute for long positions.
-- how do you rebalance daily ? for e.g. If you have $1000 short SQQQ and market goes up then the current value of that Short SQQQ will be $900. So do you sell another $100 worth of Short SQQQ and keep balance of $1000 ? and if it goes in other direction and become $1100, so you will buy back $100 worth of SQQQ to close that much short position ? In this case, it is Buy high and Sell low :D

I have not yet figured out how to rebalance this regularly. So please explain how you are rebalancing. Of course, I am looking to do it in a very small amount. <1% of my portfolio.
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calvin111
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Re: Buying TQQQ vs Shorting SQQQ (for long term)

Post by calvin111 »

ChrisBenn wrote: Sun Nov 22, 2020 8:05 am https://iborrowdesk.com/report/SQQQ

That's historical IB borrow costs.
Yes. It is low rate at 1.5%..much better than margin rates of 3-6% (At Fidelity they are charging 0.5%)
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Re: Buying TQQQ vs Shorting SQQQ (for long term)

Post by 000 »

calvin111 wrote: Sat Nov 28, 2020 4:13 pm
000 wrote: Sun Nov 22, 2020 6:28 pm
In addition to increasing leverage during drops as discussed above, you take more risk shorting SQQQ than going long TQQQ because the former can go negative (you can lose more than your principal), while the latter cannot.
I think that there is still a reasonably defined risk with shorting SQQQ. QQQ can max drop to 0 (so 100% loss of principal) and hence SQQQ can go up by 300%. So your short SQQQ will be in loss for 300%. (Let me know what you think)
That sounds right, but it's still a worse outcome than holding TQQQ if QQQ goes to zero. Also, I think we have to be accept that the exact way these leveraged and inverse funds perform during an extreme situation like QQQ going to zero may be unknown in advance.
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Re: Buying TQQQ vs Shorting SQQQ (for long term)

Post by keith6014 »

calvin111 wrote: Fri Nov 27, 2020 9:23 pm Hi @keith6014

I have not thought about this hedge approach, but sounds something we should look at it. How would you do it and how will rebalance work with short TMV ?
keith6014 wrote: Sun Nov 22, 2020 2:37 pm Sorry if this is a novice question. You short SQQQ that gives you 3xQQQ exposure. What about the hedge, should you also short TMV. And the same ratio 55:45 (SQQQ/TMV) ?
I though about it a bit more. Leave TMF the way it is, 45%. I will give this a try with few hundred :dollar .
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Re: Buying TQQQ vs Shorting SQQQ (for long term)

Post by Semantics »

calvin111 wrote: Sat Nov 28, 2020 4:13 pm
000 wrote: Sun Nov 22, 2020 6:28 pm
In addition to increasing leverage during drops as discussed above, you take more risk shorting SQQQ than going long TQQQ because the former can go negative (you can lose more than your principal), while the latter cannot.
I think that there is still a reasonably defined risk with shorting SQQQ. QQQ can max drop to 0 (so 100% loss of principal) and hence SQQQ can go up by 300%. So your short SQQQ will be in loss for 300%. (Let me know what you think)
That is only true on a single day, but in holding TQQQ/SQQQ position for many days, the returns (and losses) are compounded.

Consider what would happen if QQQ declined by 1% per day for 100 straight days, ending at 0.99^100 = 36% of its original value. SQQQ would gain 3% per day for 100 days, and end at 1.03^100 = 1922%. So you would have lost more than 19x your principal. TQQQ would lose 3% per day, and end at 0.97^100 = 4.8%, so you would still have a little bit of your principal. The risk you take shorting SQQQ is much higher, and that is why the returns are higher than going long TQQQ.
Last edited by Semantics on Sun Nov 29, 2020 10:55 pm, edited 2 times in total.
Semantics
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Re: Buying TQQQ vs Shorting SQQQ (for long term)

Post by Semantics »

calvin111 wrote: Sat Nov 28, 2020 4:20 pm
Semantics wrote: Sun Nov 22, 2020 1:42 pm 4. What ripcord is available here? If the trade moves against you, how easy is it to get out?

You'll get out when your broker liquidates your account. :) If you held a short SQQQ position through March 2020, you would have been wiped out at the bottom, by which I mean you would owe more than twice the original short position so your collateral would be gone.
-- But i believe this is the max. You will not owe more than 300 % of your original short position. Right ?
Semantics wrote: Sun Nov 22, 2020 1:42 pm My approach using this is to watch my holdings almost daily, close positions if leverage gets too high (and short more when it gets too low), and limit the strategy to a very small fraction of my portfolio (like 2%) so that I effectively have infinite collateral. My goal with this is to offset some of the volatility decay from random daily noise in my long positions, and have a little automatic "buy the dip" effect, it's no substitute for long positions.
-- how do you rebalance daily ? for e.g. If you have $1000 short SQQQ and market goes up then the current value of that Short SQQQ will be $900. So do you sell another $100 worth of Short SQQQ and keep balance of $1000 ? and if it goes in other direction and become $1100, so you will buy back $100 worth of SQQQ to close that much short position ? In this case, it is Buy high and Sell low :D
I don't actually rebalance daily. I just watch every few days to make sure things haven't gotten out of whack. I didn't start doing this until June, and so far early Sep (-SQQQ position lost 40% of its value) was the most scary stretch, but since this is a small part of my portfolio I held through it and didn't close any positions. My leverage was up to about 7x at that point, but the overall position was still up something like 50% on the year due to the gains through the summer. If this were a large portion of my portfolio, I would have closed over half of the position during that stretch, and lost out on a lot of the subsequent gains. This is the element that Portfolio Visualizer doesn't capture -- PV assumes you hold all your positions through an event like that.
I have not yet figured out how to rebalance this regularly. So please explain how you are rebalancing. Of course, I am looking to do it in a very small amount. <1% of my portfolio.
I haven't had to do much rebalancing since June because TMF hasn't changed much. Mostly I just short more SQQQ shares. I have a defined range, say 1-2% of my overall portfolio. When my SQQQ position (the value of the borrowed shares) dips below 1%, I short more shares to bring it back up. I typically do this, along with all my other portfolio rebalancing, monthly at the end of the month. Once or twice I've taken some of the profits from the SQQQ position and bought more TMF to achieve the desired allocation based on HEDGEFUNDIE's Excellent Adventure. Noteworthy is the fact you don't actually need to close any SQQQ positions to buy the TMF - the cash just frees up in your account as money that is no longer owed.
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calvin111
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Re: Buying TQQQ vs Shorting SQQQ (for long term)

Post by calvin111 »

Semantics wrote: Sun Nov 29, 2020 10:33 pm
calvin111 wrote: Sat Nov 28, 2020 4:13 pm
000 wrote: Sun Nov 22, 2020 6:28 pm
In addition to increasing leverage during drops as discussed above, you take more risk shorting SQQQ than going long TQQQ because the former can go negative (you can lose more than your principal), while the latter cannot.
I think that there is still a reasonably defined risk with shorting SQQQ. QQQ can max drop to 0 (so 100% loss of principal) and hence SQQQ can go up by 300%. So your short SQQQ will be in loss for 300%. (Let me know what you think)
That is only true on a single day, but in holding TQQQ/SQQQ position for many days, the returns (and losses) are compounded.

Consider what would happen if QQQ declined by 1% per day for 100 straight days, ending at 0.99^100 = 36% of its original value. SQQQ would gain 3% per day for 100 days, and end at 1.03^100 = 1922%. So you would have lost more than 19x your principal. TQQQ would lose 3% per day, and end at 0.97^100 = 4.8%, so you would still have a little bit of your principal. The risk you take shorting SQQQ is much higher, and that is why the returns are higher than going long TQQQ.
-- thank you for explaining this. Can we de-risk by buying a monthly call option (30 days out) for 2x current strike price (so we only are at risk upto 2x spike, beyond that our call option will save infinite of 19x risk). I checked and current strike price for 2x strike price is about $10-20 / month. So on a $2000 of SQQQ short, we will pay 1% (=$20 / monthly) to protect from infinite risk. But now I am thinking this is equal to 12% of return. So we need to make 12% more in returns to be neutral.

So, what do you think ? Is it worth it ? Or is there a better way to have increased returns than Buying TQQQ only.
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calvin111
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Re: Buying TQQQ vs Shorting SQQQ (for long term)

Post by calvin111 »

keith6014 wrote: Sun Nov 29, 2020 5:40 pm
calvin111 wrote: Fri Nov 27, 2020 9:23 pm Hi @keith6014

I have not thought about this hedge approach, but sounds something we should look at it. How would you do it and how will rebalance work with short TMV ?
keith6014 wrote: Sun Nov 22, 2020 2:37 pm Sorry if this is a novice question. You short SQQQ that gives you 3xQQQ exposure. What about the hedge, should you also short TMV. And the same ratio 55:45 (SQQQ/TMV) ?
I though about it a bit more. Leave TMF the way it is, 45%. I will give this a try with few hundred :dollar .
-- Wouldn't the strategy be short 55% of SQQQ and then short 45% of TMV ? and keep balancing the short position between them. How will TMF come into picture here ? Will you short 55% of amount in SQQQ and take proceeds and invest into 45 % into TMF ? and keep 10% of that extra cash for SQQQ short.
keith6014
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Re: Buying TQQQ vs Shorting SQQQ (for long term)

Post by keith6014 »

calvin111 wrote: Mon Nov 30, 2020 12:09 am
keith6014 wrote: Sun Nov 29, 2020 5:40 pm
calvin111 wrote: Fri Nov 27, 2020 9:23 pm Hi @keith6014

I have not thought about this hedge approach, but sounds something we should look at it. How would you do it and how will rebalance work with short TMV ?
keith6014 wrote: Sun Nov 22, 2020 2:37 pm Sorry if this is a novice question. You short SQQQ that gives you 3xQQQ exposure. What about the hedge, should you also short TMV. And the same ratio 55:45 (SQQQ/TMV) ?
I though about it a bit more. Leave TMF the way it is, 45%. I will give this a try with few hundred :dollar .
-- Wouldn't the strategy be short 55% of SQQQ and then short 45% of TMV ? and keep balancing the short position between them. How will TMF come into picture here ? Will you short 55% of amount in SQQQ and take proceeds and invest into 45 % into TMF ? and keep 10% of that extra cash for SQQQ short.
I was thinking to leave TMF allocation alone. Just want to short SQQQ so in case the market goes down a lot I am thinking the recovery will be faster than TQQQ. NQ is close to all time high of Sep 2nd (.29% away). TQQQ is still down 11%.
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calvin111
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Re: Buying TQQQ vs Shorting SQQQ (for long term)

Post by calvin111 »

also to add, Shorting TMV cost is around 6-7%. So it is not that attractive.
Semantics
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Re: Buying TQQQ vs Shorting SQQQ (for long term)

Post by Semantics »

calvin111 wrote: Mon Nov 30, 2020 12:06 am
Semantics wrote: Sun Nov 29, 2020 10:33 pm
calvin111 wrote: Sat Nov 28, 2020 4:13 pm
000 wrote: Sun Nov 22, 2020 6:28 pm
In addition to increasing leverage during drops as discussed above, you take more risk shorting SQQQ than going long TQQQ because the former can go negative (you can lose more than your principal), while the latter cannot.
I think that there is still a reasonably defined risk with shorting SQQQ. QQQ can max drop to 0 (so 100% loss of principal) and hence SQQQ can go up by 300%. So your short SQQQ will be in loss for 300%. (Let me know what you think)
That is only true on a single day, but in holding TQQQ/SQQQ position for many days, the returns (and losses) are compounded.

Consider what would happen if QQQ declined by 1% per day for 100 straight days, ending at 0.99^100 = 36% of its original value. SQQQ would gain 3% per day for 100 days, and end at 1.03^100 = 1922%. So you would have lost more than 19x your principal. TQQQ would lose 3% per day, and end at 0.97^100 = 4.8%, so you would still have a little bit of your principal. The risk you take shorting SQQQ is much higher, and that is why the returns are higher than going long TQQQ.
-- thank you for explaining this. Can we de-risk by buying a monthly call option (30 days out) for 2x current strike price (so we only are at risk upto 2x spike, beyond that our call option will save infinite of 19x risk). I checked and current strike price for 2x strike price is about $10-20 / month. So on a $2000 of SQQQ short, we will pay 1% (=$20 / monthly) to protect from infinite risk. But now I am thinking this is equal to 12% of return. So we need to make 12% more in returns to be neutral.

So, what do you think ? Is it worth it ? Or is there a better way to have increased returns than Buying TQQQ only.
That would protect against sharp crashes, but if SQQQ goes up 99% in a month then you've lost almost all of the principal and the call won't help. With TQQQ you'd probably still have half the original principal. Or if it goes up say 25%, which has happened many times, then your next month's options will be significantly more expensive, assuming you want to maintain the same upper bound (in $ value).

So yeah, you can bound your risk with this, but you're only going to beat the returns of TQQQ by taking more risk, otherwise there'd be a free lunch, and the hedge funds never learned to share their food.
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