Leveraged strategies for ex-USA investors using options on Interactive Brokers

For investors outside the US. Personal investments, personal finance, investing news and theory.
Sister forums: Canada, Spain (en español)
---------------
User avatar
Topic Author
danyboy7
Posts: 198
Joined: Tue Jul 14, 2020 11:35 am

Leveraged strategies for ex-USA investors using options on Interactive Brokers

Post by danyboy7 »

Hi, I was just wondering if anyone of ex-us investing was considering of doing Hedgefundie portfolio or any leveraged strategies (All weather leveraged ecc) using IB's options
This is the only way because those US based ETFs without KIID are not allowed to be purchased by european retails
HF: 60% UPRO 40% TMF
ALL WEATHER x3: 30% UPRO,15% TYD,7.5% UGL,7.5 % UTSL, 40% TMF
Rebalancing: quarterly
Backtests: see my previous threads,anyway they are excellent
Last edited by danyboy7 on Fri Sep 04, 2020 12:04 pm, edited 1 time in total.
I have seen the light
User avatar
Topic Author
danyboy7
Posts: 198
Joined: Tue Jul 14, 2020 11:35 am

Re: How to set leveraged strategies using options on Interactive Brokers

Post by danyboy7 »

Other options that I'm considering:
Permanent portfolio x3 leveraged
Golden Butterfly x3 version
I have seen the light
000
Posts: 2680
Joined: Thu Jul 23, 2020 12:04 am

Re: How to set leveraged strategies using options on Interactive Brokers

Post by 000 »

At a high level, the implied leverage of an option is positively related with how deep out of the money (OTM) it is.

To see this, work through an exercise comparing price appreciation as a percent of premium paid of an at the money (ATM) and an OTM option.

Note that most options are likely to go to zero. Maybe you want futures instead?
refinedchain
Posts: 27
Joined: Tue Feb 17, 2015 10:32 am

Re: How to set leveraged strategies using options on Interactive Brokers

Post by refinedchain »

Here is what is in UPRO:

https://www.proshares.com/funds/upro_da ... dings.html

They hold the emini futures, custom swaps we don't have the details on, treasuries, and a dash of the actual stock. So in theory if you wanted to replicate them, getting the right amount of futures would get you close.

If you are outside the US, I think you can buy a Contract for Difference from IB in any size you want. Otherwise you have to really go all in to afford the futures.
User avatar
whodidntante
Posts: 9087
Joined: Thu Jan 21, 2016 11:11 pm
Location: outside the echo chamber

Re: How to set leveraged strategies using options on Interactive Brokers

Post by whodidntante »

You can trade Eurex futures on IB. I think those contracts will offer sufficient fun.
User avatar
Topic Author
danyboy7
Posts: 198
Joined: Tue Jul 14, 2020 11:35 am

Re: How to set leveraged strategies using options on Interactive Brokers

Post by danyboy7 »

000 wrote: Fri Sep 04, 2020 8:13 am At a high level, the implied leverage of an option is positively related with how deep out of the money (OTM) it is.

To see this, work through an exercise comparing price appreciation as a percent of premium paid of an at the money (ATM) and an OTM option.

Note that most options are likely to go to zero. Maybe you want futures instead?
Isn't much riskier to use futures in this case ?
And are there futures for all the 6 etfs ?
I have seen the light
User avatar
Topic Author
danyboy7
Posts: 198
Joined: Tue Jul 14, 2020 11:35 am

Re: How to set leveraged strategies using options on Interactive Brokers

Post by danyboy7 »

refinedchain wrote: Fri Sep 04, 2020 8:43 am Here is what is in UPRO:

https://www.proshares.com/funds/upro_da ... dings.html

They hold the emini futures, custom swaps we don't have the details on, treasuries, and a dash of the actual stock. So in theory if you wanted to replicate them, getting the right amount of futures would get you close.

If you are outside the US, I think you can buy a Contract for Difference from IB in any size you want. Otherwise you have to really go all in to afford the futures.
CDFs are too risky and have too little guarantees for my personal taste.
I have seen the light
000
Posts: 2680
Joined: Thu Jul 23, 2020 12:04 am

Re: How to set leveraged strategies using options on Interactive Brokers

Post by 000 »

danyboy7 wrote: Fri Sep 04, 2020 11:33 am
000 wrote: Fri Sep 04, 2020 8:13 am At a high level, the implied leverage of an option is positively related with how deep out of the money (OTM) it is.

To see this, work through an exercise comparing price appreciation as a percent of premium paid of an at the money (ATM) and an OTM option.

Note that most options are likely to go to zero. Maybe you want futures instead?
Isn't much riskier to use futures in this case ?
And are there futures for all the 6 etfs ?
I'm not too familiar with futures, but I think (as someone posted upthread), the LETFs are mostly composed of futures.

So I think trying to use options for this will require a very close study.
refinedchain
Posts: 27
Joined: Tue Feb 17, 2015 10:32 am

Re: How to set leveraged strategies using options on Interactive Brokers

Post by refinedchain »

000 wrote: Fri Sep 04, 2020 12:01 pm I'm not too familiar with futures, but I think (as someone posted upthread), the LETFs are mostly composed of futures.

So I think trying to use options for this will require a very close study.
I seem to recall back in 2008, the inverse bank ETF named SKF used monthly put options to achieve 2x inverse leverage. It was very problematic in my experience:
  1. Banks crashed during earnings month, SKF doubled in value.
  2. SKF's puts expired at a profit. SKF purchased the next month's ATM puts, but at a steep premium because... the banks crashed and the world was ending.
  3. Banks slowly rose again on no news.
  4. SKF's puts expired worthless, losing tons of money.
  5. SKF bought next month's still-expensive ATM puts.
  6. Banks stayed flat the month before earnings, losing SKF even more money.
I think futures also have some drag, but not to this extent because you aren't paying the option's insurance premium.

OP: if you want to try using options, I think near-term SPY calls that are 33% in the money cost right about 33% of the cost of the stock. That is probably the closest you can get to 3x leverage with options. But in practice the insurance premium will be too expensive.
000
Posts: 2680
Joined: Thu Jul 23, 2020 12:04 am

Re: How to set leveraged strategies using options on Interactive Brokers

Post by 000 »

refinedchain wrote: Fri Sep 04, 2020 1:49 pm
000 wrote: Fri Sep 04, 2020 12:01 pm I'm not too familiar with futures, but I think (as someone posted upthread), the LETFs are mostly composed of futures.

So I think trying to use options for this will require a very close study.
I seem to recall back in 2008, the inverse bank ETF named SKF used monthly put options to achieve 2x inverse leverage. It was very problematic in my experience:
  1. Banks crashed during earnings month, SKF doubled in value.
  2. SKF's puts expired at a profit. SKF purchased the next month's ATM puts, but at a steep premium because... the banks crashed and the world was ending.
  3. Banks slowly rose again on no news.
  4. SKF's puts expired worthless, losing tons of money.
  5. SKF bought next month's still-expensive ATM puts.
  6. Banks stayed flat the month before earnings, losing SKF even more money.
I think futures also have some drag, but not to this extent because you aren't paying the option's insurance premium.

OP: if you want to try using options, I think near-term SPY calls that are 33% in the money cost right about 33% of the cost of the stock. That is probably the closest you can get to 3x leverage with options. But in practice the insurance premium will be too expensive.
Only other thing to add is it may be possible to pursue a strategy with multiple options, like buying an option and then selling an option on the same underlying at a different strike price, reducing the insurance cost (and maximum gain).
User avatar
Topic Author
danyboy7
Posts: 198
Joined: Tue Jul 14, 2020 11:35 am

Re: How to set leveraged strategies using options on Interactive Brokers

Post by danyboy7 »

refinedchain wrote: Fri Sep 04, 2020 1:49 pm
000 wrote: Fri Sep 04, 2020 12:01 pm I'm not too familiar with futures, but I think (as someone posted upthread), the LETFs are mostly composed of futures.

So I think trying to use options for this will require a very close study.
I seem to recall back in 2008, the inverse bank ETF named SKF used monthly put options to achieve 2x inverse leverage. It was very problematic in my experience:
  1. Banks crashed during earnings month, SKF doubled in value.
  2. SKF's puts expired at a profit. SKF purchased the next month's ATM puts, but at a steep premium because... the banks crashed and the world was ending.
  3. Banks slowly rose again on no news.
  4. SKF's puts expired worthless, losing tons of money.
  5. SKF bought next month's still-expensive ATM puts.
  6. Banks stayed flat the month before earnings, losing SKF even more money.
I think futures also have some drag, but not to this extent because you aren't paying the option's insurance premium.

OP: if you want to try using options, I think near-term SPY calls that are 33% in the money cost right about 33% of the cost of the stock. That is probably the closest you can get to 3x leverage with options. But in practice the insurance premium will be too expensive.
So in your opinion portfolios like HF aren't viable using options ?
I have seen the light
User avatar
Topic Author
danyboy7
Posts: 198
Joined: Tue Jul 14, 2020 11:35 am

Re: How to set leveraged strategies using options on Interactive Brokers

Post by danyboy7 »

000 wrote: Fri Sep 04, 2020 1:56 pm
refinedchain wrote: Fri Sep 04, 2020 1:49 pm
000 wrote: Fri Sep 04, 2020 12:01 pm I'm not too familiar with futures, but I think (as someone posted upthread), the LETFs are mostly composed of futures.

So I think trying to use options for this will require a very close study.
I seem to recall back in 2008, the inverse bank ETF named SKF used monthly put options to achieve 2x inverse leverage. It was very problematic in my experience:
  1. Banks crashed during earnings month, SKF doubled in value.
  2. SKF's puts expired at a profit. SKF purchased the next month's ATM puts, but at a steep premium because... the banks crashed and the world was ending.
  3. Banks slowly rose again on no news.
  4. SKF's puts expired worthless, losing tons of money.
  5. SKF bought next month's still-expensive ATM puts.
  6. Banks stayed flat the month before earnings, losing SKF even more money.
I think futures also have some drag, but not to this extent because you aren't paying the option's insurance premium.

OP: if you want to try using options, I think near-term SPY calls that are 33% in the money cost right about 33% of the cost of the stock. That is probably the closest you can get to 3x leverage with options. But in practice the insurance premium will be too expensive.
Only other thing to add is it may be possible to pursue a strategy with multiple options, like buying an option and then selling an option on the same underlying at a different strike price, reducing the insurance cost (and maximum gain).
Yes,what about this ?
I have seen the light
000
Posts: 2680
Joined: Thu Jul 23, 2020 12:04 am

Re: How to set leveraged strategies using options on Interactive Brokers

Post by 000 »

danyboy7 wrote: Fri Sep 04, 2020 4:03 pm Yes,what about this ?
I am not an expert, only sharing what I know. YOU need to be responsible with this information.

Here is a video I found informative. That channel has several others too.

WSB post with some basics

It's possible to use some kind of spread on fixed income options to borrow near the "risk-free" rate.

These links are US oriented, I'm not sure about EU specifics.
User avatar
Topic Author
danyboy7
Posts: 198
Joined: Tue Jul 14, 2020 11:35 am

Re: How to set leveraged strategies using options on Interactive Brokers

Post by danyboy7 »

000 wrote: Fri Sep 04, 2020 4:08 pm
danyboy7 wrote: Fri Sep 04, 2020 4:03 pm Yes,what about this ?
I am not an expert, only sharing what I know. YOU need to be responsible with this information.

Here is a video I found informative. That channel has several others too.

WSB post with some basics

It's possible to use some kind of spread on fixed income options to borrow near the "risk-free" rate.

These links are US oriented, I'm not sure about EU specifics.
Thanks 000,really appreciate your help
I have seen the light
User avatar
Topic Author
danyboy7
Posts: 198
Joined: Tue Jul 14, 2020 11:35 am

Re: Leveraged strategies for ex-USA investors using options on Interactive Brokers

Post by danyboy7 »

If someone is willing to set leveraged portfolios through options,feel free to pm me :beer
I have seen the light
glorat
Posts: 677
Joined: Thu Apr 18, 2019 2:17 am

Re: Leveraged strategies for ex-USA investors using options on Interactive Brokers

Post by glorat »

danyboy7 wrote: Fri Sep 04, 2020 5:29 am Hi, I was just wondering if anyone of ex-us investing was considering of doing Hedgefundie portfolio or any leveraged strategies (All weather leveraged ecc) using IB's options
I think you're in the wrong community to be asking these questions. It goes against bogleheads philosophy.

That being said, one can use a simple synthetic long strategy on the thing you want to leverage. Not a bad way to get into options tradings as it is one of the simplest strageties and there are plenty of articles, videos and forums that discuss how to do this (but not in bogleheads)

I'd say the main risk of doing this vs your etf approach is you need to aggressively and frequently rebalance to avoid margin calls
User avatar
Topic Author
danyboy7
Posts: 198
Joined: Tue Jul 14, 2020 11:35 am

Re: Leveraged strategies for ex-USA investors using options on Interactive Brokers

Post by danyboy7 »

glorat wrote: Sat Sep 05, 2020 6:38 am
danyboy7 wrote: Fri Sep 04, 2020 5:29 am Hi, I was just wondering if anyone of ex-us investing was considering of doing Hedgefundie portfolio or any leveraged strategies (All weather leveraged ecc) using IB's options
I think you're in the wrong community to be asking these questions. It goes against bogleheads philosophy.

That being said, one can use a simple synthetic long strategy on the thing you want to leverage. Not a bad way to get into options tradings as it is one of the simplest strageties and there are plenty of articles, videos and forums that discuss how to do this (but not in bogleheads)

I'd say the main risk of doing this vs your etf approach is you need to aggressively and frequently rebalance to avoid margin calls
Are you sure about that ? Funnily one of the most famous thread here involves a leveraged portfolio (Hedgefundie's experience) 8-)
I have seen the light
User avatar
Topic Author
danyboy7
Posts: 198
Joined: Tue Jul 14, 2020 11:35 am

Need advice between leveraged Permanent Portfolio,Golden Butterfly and Obsidian

Post by danyboy7 »

[Thread merged into here, see below (next page). --admin LadyGeek]

Here is the PV comparison between those 3: https://www.portfoliovisualizer.com/bac ... ymbol9=TYD
PPx3 composition: 25% cash, 25% Gold x3 leveraged, 25% TYD , 25% UPRO
OBSIDIAN: 70% Upro,30% Gold x3
Golden Butterfly x3: 40% upro,20% gold,40% tyd
PS: I don't have access to TMF.So I decide to use TYD and I'm using a proxy ETF replicating a leveraged x3 10 year American Treasury that works decently
Which one would you chose ? I know many here don't like LEVportfolios but I'm not asking if you would use them but which one would you chose if you have to. Considering also the very low interest rates and the FED policy regarding AIT (average inflation targeting)
I have seen the light
User avatar
Topic Author
danyboy7
Posts: 198
Joined: Tue Jul 14, 2020 11:35 am

Re: Need advice between leveraged Permanent Portfolio,Golden Butterfly and Obsidian

Post by danyboy7 »

Also HFx3 version with TYD proxy instead of TMF could be a forth option
HFx3: 60% upro,40% TYD https://www.portfoliovisualizer.com/bac ... ymbol9=TYD
Still pretty undecided :| :|
I have seen the light
Chip
Posts: 3077
Joined: Wed Feb 21, 2007 4:57 am

Re: Need advice between leveraged Permanent Portfolio,Golden Butterfly and Obsidian

Post by Chip »

How much money will you put in the strategy you choose?
User avatar
Topic Author
danyboy7
Posts: 198
Joined: Tue Jul 14, 2020 11:35 am

Re: Need advice between leveraged Permanent Portfolio,Golden Butterfly and Obsidian

Post by danyboy7 »

Between 10-20% of my total capital.I'm pretty aware of the risks :wink:
I have seen the light
Chip
Posts: 3077
Joined: Wed Feb 21, 2007 4:57 am

Re: Need advice between leveraged Permanent Portfolio,Golden Butterfly and Obsidian

Post by Chip »

I would suggest Golden Butterfly. That will allow you to flit amongst all the other wildly leveraged strategies.
User avatar
Topic Author
danyboy7
Posts: 198
Joined: Tue Jul 14, 2020 11:35 am

Re: Need advice between leveraged Permanent Portfolio,Golden Butterfly and Obsidian

Post by danyboy7 »

Chip wrote: Sat Sep 05, 2020 10:07 am I would suggest Golden Butterfly. That will allow you to flit amongst all the other wildly leveraged strategies.
It's the one that has overall the best sharpe and sortino ratio.However,leaving away the leverage, allocating a 40% of bonds doesn't make me feel super comfortable.
The permanent x3 is the most conservative and safe one due to cash position to offset future drops and lower % of treasuries,stock and gold.But I still feel the expected CAGR is a little bit too low if compared to the expected standard deviation.
Obsidian has potentially a savage volatility but might be safer in a rising interest scenario (which seems pretty unlikely according to FED's policy). Does anyone know which one has the most negative correlation with stocks,bonds or gold :?:
HFx3 has potentially the same problems of GBx3
I have seen the light
User avatar
Topic Author
danyboy7
Posts: 198
Joined: Tue Jul 14, 2020 11:35 am

Re: Need advice between leveraged Permanent Portfolio,Golden Butterfly and Obsidian

Post by danyboy7 »

So a big question here is which one has the best anti-correlation,stocks or gold
I have seen the light
User avatar
Topic Author
danyboy7
Posts: 198
Joined: Tue Jul 14, 2020 11:35 am

Re: Need advice between leveraged Permanent Portfolio,Golden Butterfly and Obsidian

Post by danyboy7 »

danyboy7 wrote: Sat Sep 05, 2020 10:42 am So a big question here is which one has the best anti-correlation,stocks or gold
I didn't find much about this topic https://www.valuewalk.com/2020/02/gold-vs-treasuries/
I have seen the light
glorat
Posts: 677
Joined: Thu Apr 18, 2019 2:17 am

Re: Leveraged strategies for ex-USA investors using options on Interactive Brokers

Post by glorat »

danyboy7 wrote: Sat Sep 05, 2020 9:02 am
glorat wrote: Sat Sep 05, 2020 6:38 am
danyboy7 wrote: Fri Sep 04, 2020 5:29 am Hi, I was just wondering if anyone of ex-us investing was considering of doing Hedgefundie portfolio or any leveraged strategies (All weather leveraged ecc) using IB's options
I think you're in the wrong community to be asking these questions. It goes against bogleheads philosophy.

That being said, one can use a simple synthetic long strategy on the thing you want to leverage. Not a bad way to get into options tradings as it is one of the simplest strageties and there are plenty of articles, videos and forums that discuss how to do this (but not in bogleheads)

I'd say the main risk of doing this vs your etf approach is you need to aggressively and frequently rebalance to avoid margin calls
Are you sure about that ? Funnily one of the most famous thread here involves a leveraged portfolio (Hedgefundie's experience) 8-)
For the benefit of the community, I think it is worthwhile to share my opinion on the differences between Hedgefundie and danyboy.
  • An investment strategy described as an "adventure"
  • Is NOT recommended by the author as something others should use
  • Is NOT used by the author with the aim to make himself wealthy (a small proportion of his networth is deployed on the adventure. The majority is in usual boglehead methods, to my recollection)
  • The author knows how to implement it and is not asking for help
vs
  • An investment strategy described as "excellent"
  • Arguing repeatedly in the face of opposition that it is a great idea and a real gem
  • Author wants to make above average market returns because he is not satisfied with market returns is offering.
  • Author lacks experience in the investment methods and is seeking help
As to whether danyboy's thread fits with bogleheads. I refer to the wiki and I think it is exercise for the readers to make their own mind up.

I hope folks find my thoughts valuable on this topic.
000
Posts: 2680
Joined: Thu Jul 23, 2020 12:04 am

Re: Leveraged strategies for ex-USA investors using options on Interactive Brokers

Post by 000 »

glorat wrote: Sat Sep 05, 2020 9:40 pm For the benefit of the community, I think it is worthwhile to share my opinion on the differences between Hedgefundie and danyboy.
  • An investment strategy described as an "adventure"
  • Is NOT recommended by the author as something others should use
  • Is NOT used by the author with the aim to make himself wealthy (a small proportion of his networth is deployed on the adventure. The majority is in usual boglehead methods, to my recollection)
  • The author knows how to implement it and is not asking for help
vs
  • An investment strategy described as "excellent"
  • Arguing repeatedly in the face of opposition that it is a great idea and a real gem
  • Author wants to make above average market returns because he is not satisfied with market returns is offering.
  • Author lacks experience in the investment methods and is seeking help
As to whether danyboy's thread fits with bogleheads. I refer to the wiki and I think it is exercise for the readers to make their own mind up.

I hope folks find my thoughts valuable on this topic.
I somewhat agree, but I think the HEDGEFUNDIE Excellent Adventure has been more harmful to investing novices than danyboy7's threads.

I think most people should not use leverage and I have told danyboy7 this in his other threads, but he clearly wishes to do so.

Ultimately he will need to decide for himself what is best for him and it's better for him to keep asking here than probably anywhere else online.

Perhaps the only way for him to quench his leverage thirst is to try (and possibly fail) on his own. There is no replacement for experience. :twisted:
000
Posts: 2680
Joined: Thu Jul 23, 2020 12:04 am

Re: Need advice between leveraged Permanent Portfolio,Golden Butterfly and Obsidian

Post by 000 »

Why would you leverage a portfolio holding cash? :oops:

Leverage is a negative allocation to cash.
User avatar
Topic Author
danyboy7
Posts: 198
Joined: Tue Jul 14, 2020 11:35 am

Re: Need advice between leveraged Permanent Portfolio,Golden Butterfly and Obsidian

Post by danyboy7 »

000 wrote: Sat Sep 05, 2020 10:02 pm Why would you leverage a portfolio holding cash? :oops:

Leverage is a negative allocation to cash.
I've counted cash as positive and leverage as negative in the allocation of CashX.What's the problem ? The leveraged PP has LETFs instead of the original ones and the standard cash
I have seen the light
typical.investor
Posts: 2288
Joined: Mon Jun 11, 2018 3:17 am

Re: Need advice between leveraged Permanent Portfolio,Golden Butterfly and Obsidian

Post by typical.investor »

danyboy7 wrote: Sat Sep 05, 2020 10:01 am Between 10-20% of my total capital.I'm pretty aware of the risks :wink:
Just to check, what's your view on the currency risk you are taking?

US stocks are pretty pricey. So is the USD.
User avatar
Topic Author
danyboy7
Posts: 198
Joined: Tue Jul 14, 2020 11:35 am

Re: Need advice between leveraged Permanent Portfolio,Golden Butterfly and Obsidian

Post by danyboy7 »

typical.investor wrote: Sun Sep 06, 2020 2:23 am
danyboy7 wrote: Sat Sep 05, 2020 10:01 am Between 10-20% of my total capital.I'm pretty aware of the risks :wink:
Just to check, what's your view on the currency risk you are taking?

US stocks are pretty pricey. So is the USD.
I'm buying in Euros so the more usd drops,the better is for me.
I have seen the light
typical.investor
Posts: 2288
Joined: Mon Jun 11, 2018 3:17 am

Re: Need advice between leveraged Permanent Portfolio,Golden Butterfly and Obsidian

Post by typical.investor »

danyboy7 wrote: Sun Sep 06, 2020 3:06 am
typical.investor wrote: Sun Sep 06, 2020 2:23 am
danyboy7 wrote: Sat Sep 05, 2020 10:01 am Between 10-20% of my total capital.I'm pretty aware of the risks :wink:
Just to check, what's your view on the currency risk you are taking?

US stocks are pretty pricey. So is the USD.
I'm buying in Euros so the more usd drops,the better is for me.
Ok I guess if your accumulation corresponds with a low USD.

I doubt you’d feel that way after accumulating for some years at high ERs and a high USD, only to see those reverse trend.

Anyway, it’s only a part of your portfolio I guess.

I guess I am one of the only who leverages global equities. I don’t want to be so US heavy if I have to spend overseas.
User avatar
Topic Author
danyboy7
Posts: 198
Joined: Tue Jul 14, 2020 11:35 am

Re: Need advice between leveraged Permanent Portfolio,Golden Butterfly and Obsidian

Post by danyboy7 »

typical.investor wrote: Sun Sep 06, 2020 3:36 am
danyboy7 wrote: Sun Sep 06, 2020 3:06 am
typical.investor wrote: Sun Sep 06, 2020 2:23 am
danyboy7 wrote: Sat Sep 05, 2020 10:01 am Between 10-20% of my total capital.I'm pretty aware of the risks :wink:
Just to check, what's your view on the currency risk you are taking?

US stocks are pretty pricey. So is the USD.
I'm buying in Euros so the more usd drops,the better is for me.
Ok I guess if your accumulation corresponds with a low USD.

I doubt you’d feel that way after accumulating for some years at high ERs and a high USD, only to see those reverse trend.

Anyway, it’s only a part of your portfolio I guess.

I guess I am one of the only who leverages global equities. I don’t want to be so US heavy if I have to spend overseas.
Yes,around 10-20% of total portfolio.Which one of those would you use if you had to ?
I have seen the light
User avatar
Topic Author
danyboy7
Posts: 198
Joined: Tue Jul 14, 2020 11:35 am

Re: Leveraged strategies for ex-USA investors using options on Interactive Brokers

Post by danyboy7 »

glorat wrote: Sat Sep 05, 2020 9:40 pm
danyboy7 wrote: Sat Sep 05, 2020 9:02 am
glorat wrote: Sat Sep 05, 2020 6:38 am
danyboy7 wrote: Fri Sep 04, 2020 5:29 am Hi, I was just wondering if anyone of ex-us investing was considering of doing Hedgefundie portfolio or any leveraged strategies (All weather leveraged ecc) using IB's options
I think you're in the wrong community to be asking these questions. It goes against bogleheads philosophy.

That being said, one can use a simple synthetic long strategy on the thing you want to leverage. Not a bad way to get into options tradings as it is one of the simplest strageties and there are plenty of articles, videos and forums that discuss how to do this (but not in bogleheads)

I'd say the main risk of doing this vs your etf approach is you need to aggressively and frequently rebalance to avoid margin calls
Are you sure about that ? Funnily one of the most famous thread here involves a leveraged portfolio (Hedgefundie's experience) 8-)
For the benefit of the community, I think it is worthwhile to share my opinion on the differences between Hedgefundie and danyboy.
  • An investment strategy described as an "adventure"
  • Is NOT recommended by the author as something others should use
  • Is NOT used by the author with the aim to make himself wealthy (a small proportion of his networth is deployed on the adventure. The majority is in usual boglehead methods, to my recollection)
  • The author knows how to implement it and is not asking for help
vs
  • An investment strategy described as "excellent"
  • Arguing repeatedly in the face of opposition that it is a great idea and a real gem
  • Author wants to make above average market returns because he is not satisfied with market returns is offering.
  • Author lacks experience in the investment methods and is seeking help
As to whether danyboy's thread fits with bogleheads. I refer to the wiki and I think it is exercise for the readers to make their own mind up.

I hope folks find my thoughts valuable on this topic.
Oh gosh,I hope you're not serious :oops:
Both me and HF are using leveraged portfolios.HF is using a leveraged 60/40 portfolio,I'm skewed to leveraging other traditional portfolios
Never said I want it to make me rich and always said I'm willing to use only a small portion of my capital.
I have seen the light
typical.investor
Posts: 2288
Joined: Mon Jun 11, 2018 3:17 am

Re: Need advice between leveraged Permanent Portfolio,Golden Butterfly and Obsidian

Post by typical.investor »

danyboy7 wrote: Sun Sep 06, 2020 3:53 am
typical.investor wrote: Sun Sep 06, 2020 3:36 am
danyboy7 wrote: Sun Sep 06, 2020 3:06 am
typical.investor wrote: Sun Sep 06, 2020 2:23 am
danyboy7 wrote: Sat Sep 05, 2020 10:01 am Between 10-20% of my total capital.I'm pretty aware of the risks :wink:
Just to check, what's your view on the currency risk you are taking?

US stocks are pretty pricey. So is the USD.
I'm buying in Euros so the more usd drops,the better is for me.
Ok I guess if your accumulation corresponds with a low USD.

I doubt you’d feel that way after accumulating for some years at high ERs and a high USD, only to see those reverse trend.

Anyway, it’s only a part of your portfolio I guess.

I guess I am one of the only who leverages global equities. I don’t want to be so US heavy if I have to spend overseas.
Yes,around 10-20% of total portfolio.Which one of those would you use if you had to ?
Me? Well I use TMF with leveraged global equities and then have a large dose of value funds (which have lower duration and form a third tier inflation hedge along with emerging markets). It wasn’t your question.

For you? I am not comfortable with gold (and have no idea where it’s at price wise other than it’s jumped recently), but again who cares about me.

If gold moves counter to the USD (I believe it generally does), then I think I’d prefer it to intermediate treasuries that don’t counteract equities the way long duration does. And I don’t think that treasuries are going continue to get the NAV boost they have from falling rates.

So if I were you, and clearly I am not, I’d prefer less treasuries and more gold (to counteract USD and inflation risks).

But Obsidian is obscene volatility. It’s extreme beyond what I think anyone can really endure.

In the end, I would choose Obsidian and make it 5% or 7.5% of my portfolio instead of 10%.

Or maybe I’d choose permanent and make it 10%.

But all of them are good if you can really stick with them. And in that sense, permanent x3 might be the only realistic choice.

Yeah, I don’t know what is right for you.
User avatar
Topic Author
danyboy7
Posts: 198
Joined: Tue Jul 14, 2020 11:35 am

Re: Need advice between leveraged Permanent Portfolio,Golden Butterfly and Obsidian

Post by danyboy7 »

typical.investor wrote: Sun Sep 06, 2020 4:27 am
danyboy7 wrote: Sun Sep 06, 2020 3:53 am
typical.investor wrote: Sun Sep 06, 2020 3:36 am
danyboy7 wrote: Sun Sep 06, 2020 3:06 am
typical.investor wrote: Sun Sep 06, 2020 2:23 am

Just to check, what's your view on the currency risk you are taking?

US stocks are pretty pricey. So is the USD.
I'm buying in Euros so the more usd drops,the better is for me.
Ok I guess if your accumulation corresponds with a low USD.

I doubt you’d feel that way after accumulating for some years at high ERs and a high USD, only to see those reverse trend.

Anyway, it’s only a part of your portfolio I guess.

I guess I am one of the only who leverages global equities. I don’t want to be so US heavy if I have to spend overseas.
Yes,around 10-20% of total portfolio.Which one of those would you use if you had to ?
Me? Well I use TMF with leveraged global equities and then have a large dose of value funds (which have lower duration and form a third tier inflation hedge along with emerging markets). It wasn’t your question.

For you? I am not comfortable with gold (and have no idea where it’s at price wise other than it’s jumped recently), but again who cares about me.

If gold moves counter to the USD (I believe it generally does), then I think I’d prefer it to intermediate treasuries that don’t counteract equities the way long duration does. And I don’t think that treasuries are going continue to get the NAV boost they have from falling rates.

So if I were you, and clearly I am not, I’d prefer less treasuries and more gold (to counteract USD and inflation risks).

But Obsidian is obscene volatility. It’s extreme beyond what I think anyone can really endure.

In the end, I would choose Obsidian and make it 5% or 7.5% of my portfolio instead of 10%.

Or maybe I’d choose permanent and make it 10%.

But all of them are good if you can really stick with them. And in that sense, permanent x3 might be the only realistic choice.

Yeah, I don’t know what is right for you.
Thanks a lot for your precious thoughts.Mind if I ask what leveraged global equities ETF are you using in combo with TMF ? I do own emerging markets too in my core portfolio. Obsidian/PP/GBx3 would cover only a relative small portion of my total capital.
I have seen the light
typical.investor
Posts: 2288
Joined: Mon Jun 11, 2018 3:17 am

Re: Need advice between leveraged Permanent Portfolio,Golden Butterfly and Obsidian

Post by typical.investor »

danyboy7 wrote: Sun Sep 06, 2020 4:37 am
typical.investor wrote: Sun Sep 06, 2020 4:27 am
danyboy7 wrote: Sun Sep 06, 2020 3:53 am
typical.investor wrote: Sun Sep 06, 2020 3:36 am
danyboy7 wrote: Sun Sep 06, 2020 3:06 am

I'm buying in Euros so the more usd drops,the better is for me.
Ok I guess if your accumulation corresponds with a low USD.

I doubt you’d feel that way after accumulating for some years at high ERs and a high USD, only to see those reverse trend.

Anyway, it’s only a part of your portfolio I guess.

I guess I am one of the only who leverages global equities. I don’t want to be so US heavy if I have to spend overseas.
Yes,around 10-20% of total portfolio.Which one of those would you use if you had to ?
Me? Well I use TMF with leveraged global equities and then have a large dose of value funds (which have lower duration and form a third tier inflation hedge along with emerging markets). It wasn’t your question.

For you? I am not comfortable with gold (and have no idea where it’s at price wise other than it’s jumped recently), but again who cares about me.

If gold moves counter to the USD (I believe it generally does), then I think I’d prefer it to intermediate treasuries that don’t counteract equities the way long duration does. And I don’t think that treasuries are going continue to get the NAV boost they have from falling rates.

So if I were you, and clearly I am not, I’d prefer less treasuries and more gold (to counteract USD and inflation risks).

But Obsidian is obscene volatility. It’s extreme beyond what I think anyone can really endure.

In the end, I would choose Obsidian and make it 5% or 7.5% of my portfolio instead of 10%.

Or maybe I’d choose permanent and make it 10%.

But all of them are good if you can really stick with them. And in that sense, permanent x3 might be the only realistic choice.

Yeah, I don’t know what is right for you.
Thanks a lot for your precious thoughts.Mind if I ask what leveraged global equities ETF are you using in combo with TMF ? I do own emerging markets too in my core portfolio. Obsidian/PP/GBx3 would cover only a relative small portion of my total capital.
Yeah and since it's only a relatively small part, maybe USD exposure isn't very important especially if the rest of your portfolio isn't in USD.

I use EDC (3X EM) and DZK (3X DEV). In March TFT was showing me 90% gains and EDC had tanked horrifically so I over-rebalanced and now EDC is showing 80% gains.

Anyway, I am not suggesting anyone use them. They certainly don't backtest like UPRO does. I choose by target allocation more than recent performance.
User avatar
Topic Author
danyboy7
Posts: 198
Joined: Tue Jul 14, 2020 11:35 am

Re: Need advice between leveraged Permanent Portfolio,Golden Butterfly and Obsidian

Post by danyboy7 »

typical.investor wrote: Sun Sep 06, 2020 5:13 am
danyboy7 wrote: Sun Sep 06, 2020 4:37 am
typical.investor wrote: Sun Sep 06, 2020 4:27 am
danyboy7 wrote: Sun Sep 06, 2020 3:53 am
typical.investor wrote: Sun Sep 06, 2020 3:36 am

Ok I guess if your accumulation corresponds with a low USD.

I doubt you’d feel that way after accumulating for some years at high ERs and a high USD, only to see those reverse trend.

Anyway, it’s only a part of your portfolio I guess.

I guess I am one of the only who leverages global equities. I don’t want to be so US heavy if I have to spend overseas.
Yes,around 10-20% of total portfolio.Which one of those would you use if you had to ?
Me? Well I use TMF with leveraged global equities and then have a large dose of value funds (which have lower duration and form a third tier inflation hedge along with emerging markets). It wasn’t your question.

For you? I am not comfortable with gold (and have no idea where it’s at price wise other than it’s jumped recently), but again who cares about me.

If gold moves counter to the USD (I believe it generally does), then I think I’d prefer it to intermediate treasuries that don’t counteract equities the way long duration does. And I don’t think that treasuries are going continue to get the NAV boost they have from falling rates.

So if I were you, and clearly I am not, I’d prefer less treasuries and more gold (to counteract USD and inflation risks).

But Obsidian is obscene volatility. It’s extreme beyond what I think anyone can really endure.

In the end, I would choose Obsidian and make it 5% or 7.5% of my portfolio instead of 10%.

Or maybe I’d choose permanent and make it 10%.

But all of them are good if you can really stick with them. And in that sense, permanent x3 might be the only realistic choice.

Yeah, I don’t know what is right for you.
Thanks a lot for your precious thoughts.Mind if I ask what leveraged global equities ETF are you using in combo with TMF ? I do own emerging markets too in my core portfolio. Obsidian/PP/GBx3 would cover only a relative small portion of my total capital.
Yeah and since it's only a relatively small part, maybe USD exposure isn't very important especially if the rest of your portfolio isn't in USD.

I use EDC (3X EM) and DZK (3X DEV). In March TFT was showing me 90% gains and EDC had tanked horrifically so I over-rebalanced and now EDC is showing 80% gains.

Anyway, I am not suggesting anyone use them. They certainly don't backtest like UPRO does. I choose by target allocation more than recent performance.
What is TFT ?
I have seen the light
typical.investor
Posts: 2288
Joined: Mon Jun 11, 2018 3:17 am

Re: Leveraged strategies for ex-USA investors using options on Interactive Brokers

Post by typical.investor »

danyboy7 wrote: Sun Sep 06, 2020 4:13 am
glorat wrote: Sat Sep 05, 2020 9:40 pm
danyboy7 wrote: Sat Sep 05, 2020 9:02 am
glorat wrote: Sat Sep 05, 2020 6:38 am
danyboy7 wrote: Fri Sep 04, 2020 5:29 am Hi, I was just wondering if anyone of ex-us investing was considering of doing Hedgefundie portfolio or any leveraged strategies (All weather leveraged ecc) using IB's options
I think you're in the wrong community to be asking these questions. It goes against bogleheads philosophy.

That being said, one can use a simple synthetic long strategy on the thing you want to leverage. Not a bad way to get into options tradings as it is one of the simplest strageties and there are plenty of articles, videos and forums that discuss how to do this (but not in bogleheads)

I'd say the main risk of doing this vs your etf approach is you need to aggressively and frequently rebalance to avoid margin calls
Are you sure about that ? Funnily one of the most famous thread here involves a leveraged portfolio (Hedgefundie's experience) 8-)
For the benefit of the community, I think it is worthwhile to share my opinion on the differences between Hedgefundie and danyboy.
  • An investment strategy described as an "adventure"
  • Is NOT recommended by the author as something others should use
  • Is NOT used by the author with the aim to make himself wealthy (a small proportion of his networth is deployed on the adventure. The majority is in usual boglehead methods, to my recollection)
  • The author knows how to implement it and is not asking for help
vs
  • An investment strategy described as "excellent"
  • Arguing repeatedly in the face of opposition that it is a great idea and a real gem
  • Author wants to make above average market returns because he is not satisfied with market returns is offering.
  • Author lacks experience in the investment methods and is seeking help
As to whether danyboy's thread fits with bogleheads. I refer to the wiki and I think it is exercise for the readers to make their own mind up.

I hope folks find my thoughts valuable on this topic.
Oh gosh,I hope you're not serious :oops:
Both me and HF are using leveraged portfolios.HF is using a leveraged 60/40 portfolio,I'm skewed to leveraging other traditional portfolios
Never said I want it to make me rich and always said I'm willing to use only a small portion of my capital.
I do agree with Glorat that caution here is warranted. Like I could lose my hand or finger or something if not careful. Especially if there is any chance of facing margin calls. So take advice for caution to be appropriate and well intended (and perhaps as intended for people who may not be so familiar with investing and think wow, this looks so great - easy peazy. More risk often though means tougher times to endure and that should never be ignored nor the angst that accompanies it as you doubt your strategy even with a small part of your overall portfolio)
typical.investor
Posts: 2288
Joined: Mon Jun 11, 2018 3:17 am

Re: Need advice between leveraged Permanent Portfolio,Golden Butterfly and Obsidian

Post by typical.investor »

danyboy7 wrote: Sun Sep 06, 2020 5:25 am
typical.investor wrote: Sun Sep 06, 2020 5:13 am
danyboy7 wrote: Sun Sep 06, 2020 4:37 am
typical.investor wrote: Sun Sep 06, 2020 4:27 am
danyboy7 wrote: Sun Sep 06, 2020 3:53 am

Yes,around 10-20% of total portfolio.Which one of those would you use if you had to ?
Me? Well I use TMF with leveraged global equities and then have a large dose of value funds (which have lower duration and form a third tier inflation hedge along with emerging markets). It wasn’t your question.

For you? I am not comfortable with gold (and have no idea where it’s at price wise other than it’s jumped recently), but again who cares about me.

If gold moves counter to the USD (I believe it generally does), then I think I’d prefer it to intermediate treasuries that don’t counteract equities the way long duration does. And I don’t think that treasuries are going continue to get the NAV boost they have from falling rates.

So if I were you, and clearly I am not, I’d prefer less treasuries and more gold (to counteract USD and inflation risks).

But Obsidian is obscene volatility. It’s extreme beyond what I think anyone can really endure.

In the end, I would choose Obsidian and make it 5% or 7.5% of my portfolio instead of 10%.

Or maybe I’d choose permanent and make it 10%.

But all of them are good if you can really stick with them. And in that sense, permanent x3 might be the only realistic choice.

Yeah, I don’t know what is right for you.
Thanks a lot for your precious thoughts.Mind if I ask what leveraged global equities ETF are you using in combo with TMF ? I do own emerging markets too in my core portfolio. Obsidian/PP/GBx3 would cover only a relative small portion of my total capital.
Yeah and since it's only a relatively small part, maybe USD exposure isn't very important especially if the rest of your portfolio isn't in USD.

I use EDC (3X EM) and DZK (3X DEV). In March TFT was showing me 90% gains and EDC had tanked horrifically so I over-rebalanced and now EDC is showing 80% gains.

Anyway, I am not suggesting anyone use them. They certainly don't backtest like UPRO does. I choose by target allocation more than recent performance.
What is TFT ?
It was meant to be TMF.
User avatar
Topic Author
danyboy7
Posts: 198
Joined: Tue Jul 14, 2020 11:35 am

Re: Need advice between leveraged Permanent Portfolio,Golden Butterfly and Obsidian

Post by danyboy7 »

typical.investor wrote: Sun Sep 06, 2020 5:40 am
danyboy7 wrote: Sun Sep 06, 2020 5:25 am
typical.investor wrote: Sun Sep 06, 2020 5:13 am
danyboy7 wrote: Sun Sep 06, 2020 4:37 am
typical.investor wrote: Sun Sep 06, 2020 4:27 am

Me? Well I use TMF with leveraged global equities and then have a large dose of value funds (which have lower duration and form a third tier inflation hedge along with emerging markets). It wasn’t your question.

For you? I am not comfortable with gold (and have no idea where it’s at price wise other than it’s jumped recently), but again who cares about me.

If gold moves counter to the USD (I believe it generally does), then I think I’d prefer it to intermediate treasuries that don’t counteract equities the way long duration does. And I don’t think that treasuries are going continue to get the NAV boost they have from falling rates.

So if I were you, and clearly I am not, I’d prefer less treasuries and more gold (to counteract USD and inflation risks).

But Obsidian is obscene volatility. It’s extreme beyond what I think anyone can really endure.

In the end, I would choose Obsidian and make it 5% or 7.5% of my portfolio instead of 10%.

Or maybe I’d choose permanent and make it 10%.

But all of them are good if you can really stick with them. And in that sense, permanent x3 might be the only realistic choice.

Yeah, I don’t know what is right for you.
Thanks a lot for your precious thoughts.Mind if I ask what leveraged global equities ETF are you using in combo with TMF ? I do own emerging markets too in my core portfolio. Obsidian/PP/GBx3 would cover only a relative small portion of my total capital.
Yeah and since it's only a relatively small part, maybe USD exposure isn't very important especially if the rest of your portfolio isn't in USD.

I use EDC (3X EM) and DZK (3X DEV). In March TFT was showing me 90% gains and EDC had tanked horrifically so I over-rebalanced and now EDC is showing 80% gains.

Anyway, I am not suggesting anyone use them. They certainly don't backtest like UPRO does. I choose by target allocation more than recent performance.
What is TFT ?
It was meant to be TMF.
Did you use PV to simulate your main portfolio and leveraged one or did you just used intuition ?
I have seen the light
User avatar
Topic Author
danyboy7
Posts: 198
Joined: Tue Jul 14, 2020 11:35 am

Re: Leveraged strategies for ex-USA investors using options on Interactive Brokers

Post by danyboy7 »

typical.investor wrote: Sun Sep 06, 2020 5:26 am
danyboy7 wrote: Sun Sep 06, 2020 4:13 am
glorat wrote: Sat Sep 05, 2020 9:40 pm
danyboy7 wrote: Sat Sep 05, 2020 9:02 am
glorat wrote: Sat Sep 05, 2020 6:38 am
I think you're in the wrong community to be asking these questions. It goes against bogleheads philosophy.

That being said, one can use a simple synthetic long strategy on the thing you want to leverage. Not a bad way to get into options tradings as it is one of the simplest strageties and there are plenty of articles, videos and forums that discuss how to do this (but not in bogleheads)

I'd say the main risk of doing this vs your etf approach is you need to aggressively and frequently rebalance to avoid margin calls
Are you sure about that ? Funnily one of the most famous thread here involves a leveraged portfolio (Hedgefundie's experience) 8-)
For the benefit of the community, I think it is worthwhile to share my opinion on the differences between Hedgefundie and danyboy.
  • An investment strategy described as an "adventure"
  • Is NOT recommended by the author as something others should use
  • Is NOT used by the author with the aim to make himself wealthy (a small proportion of his networth is deployed on the adventure. The majority is in usual boglehead methods, to my recollection)
  • The author knows how to implement it and is not asking for help
vs
  • An investment strategy described as "excellent"
  • Arguing repeatedly in the face of opposition that it is a great idea and a real gem
  • Author wants to make above average market returns because he is not satisfied with market returns is offering.
  • Author lacks experience in the investment methods and is seeking help
As to whether danyboy's thread fits with bogleheads. I refer to the wiki and I think it is exercise for the readers to make their own mind up.

I hope folks find my thoughts valuable on this topic.
Oh gosh,I hope you're not serious :oops:
Both me and HF are using leveraged portfolios.HF is using a leveraged 60/40 portfolio,I'm skewed to leveraging other traditional portfolios
Never said I want it to make me rich and always said I'm willing to use only a small portion of my capital.
I do agree with Glorat that caution here is warranted. Like I could lose my hand or finger or something if not careful. Especially if there is any chance of facing margin calls. So take advice for caution to be appropriate and well intended (and perhaps as intended for people who may not be so familiar with investing and think wow, this looks so great - easy peazy. More risk often though means tougher times to endure and that should never be ignored nor the angst that accompanies it as you doubt your strategy even with a small part of your overall portfolio)
Sure,risk management is essential.I'm trying to figure out a way to set long vertical spread options,not willing to use naked options for sure.
I have seen the light
glorat
Posts: 677
Joined: Thu Apr 18, 2019 2:17 am

Re: Leveraged strategies for ex-USA investors using options on Interactive Brokers

Post by glorat »

danyboy7 wrote: Sun Sep 06, 2020 6:41 am Sure,risk management is essential.I'm trying to figure out a way to set long vertical spread options,not willing to use naked options for sure.
But then you are veering into real options strategy and trading, not replicating the 3X ETF exposure you're looking for. Here's the logic that you'll need to reconcile
- The 3X ETF is (I assume) giving you a triple long exposure to the underlying (S&P for example). If it goes up 1%, you win 3%, if it goes down 1% it goes down 3%
- The ONLY way to my knowledge to replicate this with options is a synthetic long. E.g a long ATM call option and a short ATM put option
- That put option is very much a short, it seems naked to me and subject to margin calls
If this is correct, an options strategy necessitates a naked short put.

If you are not leveraged and you had the same capital as if you were buying the ETF, then this is not scary at all because your cash fully covers your losses. It is a synthetic 1x long after all.

But if you are 3X leveraged, you need to make sure you can rebalance out of the non-correlated portion, which you hope went up in value, before the margin call happens.

At the end of the day, whether it is options or the ETF, I think all of us in this thread understand that if the market goes down 33% and correlation behaves unexpectedly just once, you're wiped out.

My 2c on the broader theme... I think it is absolutely fine to put like <5% of your investment portfolio into trying something like this. The direct learning experience will be immense and you can report back. Just like HF. And we won't be worrying about you sinking yourself. We all mean well here.
typical.investor
Posts: 2288
Joined: Mon Jun 11, 2018 3:17 am

Re: Need advice between leveraged Permanent Portfolio,Golden Butterfly and Obsidian

Post by typical.investor »

danyboy7 wrote: Sun Sep 06, 2020 6:25 am
Did you use PV to simulate your main portfolio and leveraged one or did you just used intuition ?
I used Siamond's Simba work viewtopic.php?p=4427163#p4427163

What I concluded is this:

3X leveraged S&P500 is too volatile in crashes.
3X leveraged long treasuries offset the equity risk nicely
3X leveraged intermediates don't offset the equity risk enough
3X long treasuries are horribly awful in rising inflation

There is no data on international funds, so there I looked at PV. Results are not great but in recent years US equities have done well as inflation and rates have been low which favors growth, the US was set to have better growth (especially in IT) but also due to some tax reasons, and the USD was appreciating due to inflows. And it has just kinda snowballed with momentum. I don't see those trends and continuing indefinitely so want international exposure too.

I really don't see what backtesting can tell us, we are in low growth, low inflation, low rates and have high US valuations. And we are globalized now. And coming out of a pandemic with a lot of stimulus and the Fed seems ready to let inflation run a little... I am not sure that history will repeat itself though perhaps it offers lessons.

Anyway, my leverage is a whopping 1.15X which is probably less than many bogleheads who invests while carrying a mortgage. But I'm older so that's not an insignificant amount.
User avatar
Topic Author
danyboy7
Posts: 198
Joined: Tue Jul 14, 2020 11:35 am

Re: Leveraged strategies for ex-USA investors using options on Interactive Brokers

Post by danyboy7 »

glorat wrote: Sun Sep 06, 2020 7:01 am
danyboy7 wrote: Sun Sep 06, 2020 6:41 am Sure,risk management is essential.I'm trying to figure out a way to set long vertical spread options,not willing to use naked options for sure.
But then you are veering into real options strategy and trading, not replicating the 3X ETF exposure you're looking for. Here's the logic that you'll need to reconcile
- The 3X ETF is (I assume) giving you a triple long exposure to the underlying (S&P for example). If it goes up 1%, you win 3%, if it goes down 1% it goes down 3%
- The ONLY way to my knowledge to replicate this with options is a synthetic long. E.g a long ATM call option and a short ATM put option
- That put option is very much a short, it seems naked to me and subject to margin calls
If this is correct, an options strategy necessitates a naked short put.

If you are not leveraged and you had the same capital as if you were buying the ETF, then this is not scary at all because your cash fully covers your losses. It is a synthetic 1x long after all.

But if you are 3X leveraged, you need to make sure you can rebalance out of the non-correlated portion, which you hope went up in value, before the margin call happens.

At the end of the day, whether it is options or the ETF, I think all of us in this thread understand that if the market goes down 33% and correlation behaves unexpectedly just once, you're wiped out.

My 2c on the broader theme... I think it is absolutely fine to put like <5% of your investment portfolio into trying something like this. The direct learning experience will be immense and you can report back. Just like HF. And we won't be worrying about you sinking yourself. We all mean well here.
Dear Glorat,again the market can't go down 33% on a single day,see the circuit breakers.The maximul daily loss on sp500 is -20%
And yes, I need to go long in order to have a x3 exposure.I was trying to see how I can mitigate the risks of using options.
I have seen the light
User avatar
Topic Author
danyboy7
Posts: 198
Joined: Tue Jul 14, 2020 11:35 am

Re: Need advice between leveraged Permanent Portfolio,Golden Butterfly and Obsidian

Post by danyboy7 »

typical.investor wrote: Sun Sep 06, 2020 7:04 am
danyboy7 wrote: Sun Sep 06, 2020 6:25 am
Did you use PV to simulate your main portfolio and leveraged one or did you just used intuition ?
I used Siamond's Simba work viewtopic.php?p=4427163#p4427163

There is no data on international funds, so there I looked at PV. Results are not great but in recent years US equities have done well as inflation and rates have been low which favors growth, the US was set to have better growth (especially in IT) but also due to some tax reasons, and the USD was appreciating due to inflows. And it has just kinda snowballed with momentum. I don't see those trends and continuing indefinitely so want international exposure too.

I really don't see what backtesting can tell us, we are in low growth, low inflation, low rates and have high US valuations. And we are globalized now. And coming out of a pandemic with a lot of stimulus and the Fed seems ready to let inflation run a little... I am not sure that history will repeat itself though perhaps it offers lessons.

Anyway, my leverage is a whopping 1.15X which is probably less than many bogleheads who invests while carrying a mortgage. But I'm older so that's not an insignificant amount.
A reasonable choice.Agree with this "Results are not great but in recent years US equities have done well as inflation and rates have been low which favors growth, the US was set to have better growth (especially in IT) but also due to some tax reasons, and the USD was appreciating due to inflows. And it has just kinda snowballed with momentum. I don't see those trends and continuing indefinitely so want international exposure too."
I have seen the light
glorat
Posts: 677
Joined: Thu Apr 18, 2019 2:17 am

Re: Leveraged strategies for ex-USA investors using options on Interactive Brokers

Post by glorat »

danyboy7 wrote: Sun Sep 06, 2020 7:09 am
glorat wrote: Sun Sep 06, 2020 7:01 am I think all of us in this thread understand that if the market goes down 33% and correlation behaves unexpectedly just once, you're wiped out.
Dear Glorat,again the market can't go down 33% on a single day,see the circuit breakers.The maximul daily loss on sp500 is -20%
And yes, I need to go long in order to have a x3 exposure.I was trying to see how I can mitigate the risks of using options.
Dear Glorat,again the market can't go down 33% on a single day,see the circuit breakers.The maximul daily loss on sp500 is -20%
And yes, I need to go long in order to have a x3 exposure.I was trying to see how I can mitigate the risks of using options
Good thing I didn't claim the market could go down 33% on a single day. The point is that if it goes down 33% *before you have had a chance to rebalance* you are in trouble. You'll need to check the markets reasonably frequently for news (which most options traders seem to do). Obviously, this is opposite of what bogleheads are recommended (who are recommended to ignore daily news)

Aside from that, what risk are you looking to mitigate? You mentioned the risk of being naked or the risk of margin calls but I think that's in itself unavoidable (but mitigated by checking the market often). Is there something else?
User avatar
nisiprius
Advisory Board
Posts: 41942
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Need advice between leveraged Permanent Portfolio,Golden Butterfly and Obsidian

Post by nisiprius »

What are you actually trying to do, danyboy7? Are you planning to devote 20% of your portfolio, 5% each to each of four different risky but high potential "fun money" strategies? You've been asking about the RPAR risk parity ETF; implementing HEDGEFUNDIE's leveraged ETF strategy but not doing it in the simple way HEDGEFUNDIE did it; following the advice of a $921/year newsletter which provides signals for an "impressive" strategy based on an inverse VIX ETF; and, in this thread, taking intentionally conservative, ostensibly low-risk portfolios and leveraging up to turn them into aggressive, high-risk portfolios.

What is your actual goal?
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
User avatar
Topic Author
danyboy7
Posts: 198
Joined: Tue Jul 14, 2020 11:35 am

Re: Need advice between leveraged Permanent Portfolio,Golden Butterfly and Obsidian

Post by danyboy7 »

nisiprius wrote: Sun Sep 06, 2020 7:43 am What are you actually trying to do, danyboy7? Are you planning to devote 20% of your portfolio, 5% each to each of four different risky but high potential "fun money" strategies? You've been asking about the RPAR risk parity ETF; implementing HEDGEFUNDIE's leveraged ETF strategy but not doing it in the simple way HEDGEFUNDIE did it; following the advice of a $921/year newsletter which provides signals for an "impressive" strategy based on an inverse VIX ETF; and, in this thread, taking intentionally conservative, ostensibly low-risk portfolios and leveraging up to turn them into aggressive, high-risk portfolios.

What is your actual goal?
Nisiprius,I will answer on each question:
-I'm not allowed to trade directly TMF etf so the only way to implement HF would be through options on TMF and UPRO.I'm still figure out how to do it without risking margin calls or stressful active managing.So it's still a "working in progress" and I won't put in a single penny until I will get satisfied with the risk-reward ratio and the daily time consuming evaluation of the strategy.Leave it alone for a while until I'll have some updates
-Regarding RPAR,I was investigating about some good choices when I will need to retire(approxiamtely within 35-40 years from now,I'm very young) and this Etf may be a viable one so I will keep monitoring it.
According to my timeframe,I have an 80% unleveraged well diversified and balanced portfolio.So I'm willing to allocate 20% on a high growing strategy involving leverage.Therefore I modelled 3 possible portfolios and trying to decide which one to embrace
-Osachoff's strategies are also on the table but I would like to study more his own blog and eventually I'm not willing to buy the whole package (921 per year) but 2 specific strategies.
I have seen the light
User avatar
galawdawg
Posts: 1238
Joined: Thu Dec 14, 2017 12:59 pm
Location: Georgia

Re: Need advice between leveraged Permanent Portfolio,Golden Butterfly and Obsidian

Post by galawdawg »

Here's my advice:

1. Develop a workable plan
2. Invest early and often
3. Never bear too much or too little risk
4. Diversify
5. Never try to time the market
6. Use index funds when possible
7. Keep costs low
8. Minimize taxes
9. Invest with simplicity
10. Stay the course

http://www.bogleheads.org/wiki/Boglehea ... philosophy

If your scheme plan doesn't fit, it probably isn't a very wise investment plan. You do realize this is the Bogleheads forum, right? :wink: :happy
Locked