SWAN ETF - 10% Leaps / 90% Treasuries

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guyinlaw
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by guyinlaw » Wed Dec 11, 2019 9:43 pm

garlandwhizzer wrote:
Wed Dec 11, 2019 8:51 pm

I personally do not believe that this Swan ETF will do what it sets out to do any better than a simple quality bond dominated portfolio with widely diversified index equity not using options or Leaps. Like many offerings from the fund industry it's a solution in search of a problem IMO.

Garland Whizzer
Please look at NTSX - WisdomTree 90/60 U.S. Balanced Fund. This will likely beat S&P 500 over a period of time.

viewtopic.php?f=10&t=256020

Sim NTSX vs 90/10, 80/20 and 100% PV Link Backtesting to 1991 - See it has higher Sharpe ratio (0.76 vs 0.56) and CAGR (11.63% vs 9.79%)

Sim NTSX vs actual since inception

Seems like a better mouse trap.
"Equity markets could get worse if the slowdown extends further, but also realize that the markets will rebound far before economic data improve."

HEDGEFUNDIE
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by HEDGEFUNDIE » Wed Dec 11, 2019 9:45 pm

garlandwhizzer wrote:
Wed Dec 11, 2019 8:51 pm
I personally do not believe that this Swan ETF will do what it sets out to do any better than a simple quality bond dominated portfolio with widely diversified index equity not using options or Leaps. Like many offerings from the fund industry it's a solution in search of a problem IMO.
Really?

Then how do you explain this?

https://www.portfoliovisualizer.com/fun ... chmark=VOO

Identical performance to the S&P at half the volatility

rascott
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Joined: Wed Apr 15, 2015 10:53 am

Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by rascott » Wed Dec 11, 2019 10:05 pm

Interesting fund.... I'd prefer NTSX over this however.... the price of the leverage should be lower on Treasury futures vs equity LEAPS.

rascott
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Joined: Wed Apr 15, 2015 10:53 am

Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by rascott » Wed Dec 11, 2019 10:43 pm

HEDGEFUNDIE wrote:
Wed Dec 11, 2019 9:45 pm
garlandwhizzer wrote:
Wed Dec 11, 2019 8:51 pm
I personally do not believe that this Swan ETF will do what it sets out to do any better than a simple quality bond dominated portfolio with widely diversified index equity not using options or Leaps. Like many offerings from the fund industry it's a solution in search of a problem IMO.
Really?

Then how do you explain this?

https://www.portfoliovisualizer.com/fun ... chmark=VOO

Identical performance to the S&P at half the volatility

Well it was a year when everything rallied hard (LTTs + equities).... but you already know that. There would be plenty of market scenarios where this thing wouldn't look so hot....

HEDGEFUNDIE
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by HEDGEFUNDIE » Wed Dec 11, 2019 11:07 pm

rascott wrote:
Wed Dec 11, 2019 10:43 pm
HEDGEFUNDIE wrote:
Wed Dec 11, 2019 9:45 pm
garlandwhizzer wrote:
Wed Dec 11, 2019 8:51 pm
I personally do not believe that this Swan ETF will do what it sets out to do any better than a simple quality bond dominated portfolio with widely diversified index equity not using options or Leaps. Like many offerings from the fund industry it's a solution in search of a problem IMO.
Really?

Then how do you explain this?

https://www.portfoliovisualizer.com/fun ... chmark=VOO

Identical performance to the S&P at half the volatility

Well it was a year when everything rallied hard (LTTs + equities).... but you already know that. There would be plenty of market scenarios where this thing wouldn't look so hot....
Garland’s claim was that SWAN was only good for black swan scenarios, and that there is a “huge opportunity cost” to holding such a fund during normal times.

Clearly that has been proven false.

klaus14
Posts: 459
Joined: Sun Nov 25, 2018 7:43 pm

Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by klaus14 » Thu Dec 12, 2019 12:46 am

HEDGEFUNDIE wrote:
Wed Dec 11, 2019 11:07 pm
rascott wrote:
Wed Dec 11, 2019 10:43 pm
HEDGEFUNDIE wrote:
Wed Dec 11, 2019 9:45 pm
garlandwhizzer wrote:
Wed Dec 11, 2019 8:51 pm
I personally do not believe that this Swan ETF will do what it sets out to do any better than a simple quality bond dominated portfolio with widely diversified index equity not using options or Leaps. Like many offerings from the fund industry it's a solution in search of a problem IMO.
Really?

Then how do you explain this?

https://www.portfoliovisualizer.com/fun ... chmark=VOO

Identical performance to the S&P at half the volatility

Well it was a year when everything rallied hard (LTTs + equities).... but you already know that. There would be plenty of market scenarios where this thing wouldn't look so hot....
Garland’s claim was that SWAN was only good for black swan scenarios, and that there is a “huge opportunity cost” to holding such a fund during normal times.

Clearly that has been proven false.
That period was abnormally good time for SWAN though. If you have flat or rising rates, it would be bad for SWAN. Similarly if stocks are flat or slightly down, it's also bad.
35% US, 20 ExUS Dev, 10% EM, 10% EM Bonds, 10% Gold, 10% EDV, 5% I/EE Bonds.

klaus14
Posts: 459
Joined: Sun Nov 25, 2018 7:43 pm

Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by klaus14 » Thu Dec 12, 2019 4:14 am

ThrustVectoring wrote:
Sun Nov 11, 2018 2:20 pm
acanthurus wrote:
Sun Nov 11, 2018 1:41 pm
Are there any tax benefits to a strategy like this in an ETF wrapper vs. doing it myself? If I have to roll LEAP contracts myself that's quite the tax drag.
Yeah, the tax drag definitely makes the fund the wrong way to go. If you have the cash on hand required to not need the leverage of the call options, you can use put-call parity and buy the S&P 500 + put options at the same strike. This lets you defer realization of the long-term capital gains of the S&P 500. You still need leverage to get the benefits of the bond allocation, and this you can get efficiently via treasury futures. With the current yield curve, short-term treasury futures make the most sense to me, but targeting a DV01 equivalent to the funds should work out great regardless of which contract you pick. The bonus is that the ordinary income of physical treasuries gets replaced with the 60% long term / 40% short-term capital gains treatment of the futures market.

For the put options, you'd buy them at least 13 months out and sell them after holding them a year and a day. Not sure where the best strike to purchase them is, but the timing is important because selling them with at least a month left means that there's still quite a lot of time value left in the option that you can salvage. You definitely want them out of the money, though, only question is how much.

So, the tl;dr of how to best DIY this fund: put 70% of your money into the S&P 500, buy long-dated out-of-the-money put options to protect the downside, open up treasury futures contracts to target making your overall portfolio as sensitive to interest rates as SWAN is, and stuff the rest of the money in cash to back the futures positions and buy more put options later. You wind up being able to defer capital gains on the S&P 500, get long-term capital gains on the put options, and convert some of the treasury income into long-term capital gains.

I think there's restrictions on mutual funds and ETFs using futures contracts, which is why the fund is structured like it is. You don't have those restrictions, so you can use the futures market.
How about a semi-DIY: NTSX + OTM Put Options?

NTSX is just 20 bps and handles the SP500 + Cash + Treasury Futures part.

But these put options seems very expensive. For example, last price for:

SPX Dec 18 2020 @ 2275 is $31.50

So, I buy this today and wait 1 year and than sell. Most likely for couple cents (if no black swan)

Or

SPX Dec 18 2020 @ 2900 is $132.00
vs
SPX Dec 18 2019 @ 2900 is $1.20

With this, if S&P stays same, one loses 4% in a year for protection.
35% US, 20 ExUS Dev, 10% EM, 10% EM Bonds, 10% Gold, 10% EDV, 5% I/EE Bonds.

HEDGEFUNDIE
Posts: 4793
Joined: Sun Oct 22, 2017 2:06 pm

Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by HEDGEFUNDIE » Thu Dec 12, 2019 7:27 am

klaus14 wrote:
Thu Dec 12, 2019 12:46 am
HEDGEFUNDIE wrote:
Wed Dec 11, 2019 11:07 pm
rascott wrote:
Wed Dec 11, 2019 10:43 pm
HEDGEFUNDIE wrote:
Wed Dec 11, 2019 9:45 pm
garlandwhizzer wrote:
Wed Dec 11, 2019 8:51 pm
I personally do not believe that this Swan ETF will do what it sets out to do any better than a simple quality bond dominated portfolio with widely diversified index equity not using options or Leaps. Like many offerings from the fund industry it's a solution in search of a problem IMO.
Really?

Then how do you explain this?

https://www.portfoliovisualizer.com/fun ... chmark=VOO

Identical performance to the S&P at half the volatility

Well it was a year when everything rallied hard (LTTs + equities).... but you already know that. There would be plenty of market scenarios where this thing wouldn't look so hot....
Garland’s claim was that SWAN was only good for black swan scenarios, and that there is a “huge opportunity cost” to holding such a fund during normal times.

Clearly that has been proven false.
That period was abnormally good time for SWAN though. If you have flat or rising rates, it would be bad for SWAN. Similarly if stocks are flat or slightly down, it's also bad.
Neither of those scenarios can be definitively good or bad for SWAN. It all depends on how the other asset responds.

sfmurph
Posts: 69
Joined: Mon Aug 12, 2019 8:15 pm

Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by sfmurph » Thu Dec 12, 2019 2:39 pm

garlandwhizzer wrote:
Wed Dec 11, 2019 8:51 pm
... Today your initial $10 K investment 90 years later would be worth $410,000,000.
...
Like many offerings from the fund industry it's a solution in search of a problem IMO.
There's one problem and one (potential) opportunity that folks are looking to solve. The problem is that, while over 90 years, the stock market should average 10%, no one here is investing for 90 years. Someone who's 22 or 62 is investing for 40 or 4 years. People are looking for a way to avoid large drawdowns when getting close to retirement and they're willing to give up some of that average return. How? Well, the classic way is to buy some stocks and some bonds, but with the long Treasury bull market seeming to be at an end, folks are looking for another solution.

The potential opportunity is leverage. It seems that a little bit of leverage (20-ish%) can really improve returns, and there are a variety of ETFs that make it easier to get leverage without getting into margin loans or derivatives.

As for SWAN, it seems that (unlike NTSX) it wouldn't be very tax efficient. It keeps all the interest from Treasuries as ordinary income, and turns some qualified dividends and LTCG into ordinary income. I don't see this one being good in taxable.

schismal
Posts: 192
Joined: Sat Apr 13, 2019 8:53 pm

Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by schismal » Fri Dec 13, 2019 5:55 am

Since it's come up, 2019 distribution info is here: LINK

SWAN distributed 2.61% of NAV as short-term cap gains. No long-term gains.

guyinlaw
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Joined: Wed Jul 03, 2019 9:54 am

Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by guyinlaw » Fri Dec 13, 2019 9:55 am

As a comparison 2019 cap gains distribution for NTSX: LINK

0.39% of NAV (~28% short-term and ~72% long term)
"Equity markets could get worse if the slowdown extends further, but also realize that the markets will rebound far before economic data improve."

nullisland
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Joined: Fri Dec 06, 2019 12:20 pm

Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by nullisland » Mon Mar 09, 2020 9:03 am

This fund hasn't gotten the same attention as NTSX, but so far it's doing exactly what it's supposed to. Down less than 2% right now, when the S&P is down over 7%, and still close to an all-time high. Looks like it bottomed at about 6% off the peak last week, and has since recovered. In 2019 it had 70% of the gain of the S&P 500 at half the volatility, pretty much as advertised.

NotoriousBIG1234
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by NotoriousBIG1234 » Mon Mar 09, 2020 7:42 pm

Absolutely happy with this etf. Leveraged exposure and safety with uncorrelated assets.

ChrisBenn
Posts: 267
Joined: Mon Aug 05, 2019 7:56 pm

Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by ChrisBenn » Mon Mar 09, 2020 7:45 pm

Did great today as well - only down 1.38% (s&p down 7.6%)

marshall
Posts: 62
Joined: Fri Apr 13, 2007 9:06 pm

Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by marshall » Mon Mar 09, 2020 9:03 pm

I’m a fan of this ETF as well. I agree it is working exactly as designed. My only concern is when the market turns to the positive with potential interest rate increases (considering where the 10 year Treasury yield is at right now). You also need to be aware this ETF may not perform as well in a flat stock market.

Here is a good podcast to listen to ...

https://exponentialetfsexceptionalpodca ... index-ep58

MotoTrojan
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by MotoTrojan » Mon Mar 09, 2020 9:06 pm

guyinlaw wrote:
Wed Dec 11, 2019 9:43 pm


Please look at NTSX - WisdomTree 90/60 U.S. Balanced Fund. This will likely beat S&P 500 over a period of time.

While NTSX can beat the S&P500 over a period of time (just as BND can), I do not agree with this statement of "likely". Using any reasonable means of calculating expected return, NTSX is categorically lower than 100% S&P500 and the further down yields go, the more true this is. Some would argue it has higher risk-adjusted return, but expected return it most definitely does not.

rascott
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by rascott » Thu Mar 12, 2020 10:07 pm

Wish I would have bought a lot of this rather than all the NTSX I bought!!

User avatar
randyharris
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by randyharris » Wed Mar 18, 2020 7:50 pm

SWAN certainly seems to be what it was designed to do during this damaging time in the markets.

http://schrts.co/UXsveXWC

Image

dru808
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Location: mid pac

Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by dru808 » Wed Mar 18, 2020 8:59 pm

randyharris wrote:
Wed Mar 18, 2020 7:50 pm
SWAN certainly seems to be what it was designed to do during this damaging time in the markets.

http://schrts.co/UXsveXWC

Image
JC, that seems to good to be true! Stocks are beaten down, bonds are taking a beating, why is this fund doing so well?
60% US equity | 25% International equity | 15% US Treasury bonds

DesertMan
Posts: 205
Joined: Tue Dec 07, 2010 12:54 pm

Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by DesertMan » Tue Mar 24, 2020 1:32 pm

dru808 wrote:
Wed Mar 18, 2020 8:59 pm
randyharris wrote:
Wed Mar 18, 2020 7:50 pm
SWAN certainly seems to be what it was designed to do during this damaging time in the markets.

http://schrts.co/UXsveXWC

Image
JC, that seems to good to be true! Stocks are beaten down, bonds are taking a beating, why is this fund doing so well?
It DOES seem too good to be true. Today, the Dow is up 7% and SWAN is *down* half a percent.

When I went to buy SWAN at Broker X, it told me that it is considered in the same "bad bunch" along with leveraged and inverse ETFs that you have to sign a waiver before buying. One of the more notorious characteristics of leveraged/inverse ETFs is that (due to various issues like volatility decay) they often do the exact opposite of what they are supposed to do. If SWAN is subject to the same issues, that begs the question of whether the recent outperformance is due to psychological factors (look, a black swan, let's all go buy SWAN), and not the intrinsic value of the Treasuries and LEAPs.

I'm beginning to wonder if I should make dinner out of this SWAN before much longer.

ChrisBenn
Posts: 267
Joined: Mon Aug 05, 2019 7:56 pm

Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by ChrisBenn » Tue Mar 24, 2020 1:56 pm

I put a portion of my emergency fund in this back in february last year, and I have been very happy with it

https://stockcharts.com/h-perf/ui?s=SWA ... 5549425620
Image

(not sure if that chart is total return or not - but with yields being so low not sure if that matters much for this comparison (vs dividends))

I'm still up 15% from feb, and it seems to have held up very well in this crash.
Complaining that it doesn't have the same upside as 100% equities seems a bit ridiculous.

Observations that the strategy could be trivially replicated to save on the 0.5% expense would be better criticisms - but since I was using it as a bucket for shorter term "emergencies", and not a scaling portion of my aa the expense was never going to be that big - so the convenience was worth it to me.

It's obviously a bit of a niche product - not suggesting it to everyone, but it does seem to be working as expected -- and this has, so far, been a pretty good trial by fire.

nullisland
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Joined: Fri Dec 06, 2019 12:20 pm

Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by nullisland » Tue Mar 24, 2020 2:25 pm

One thing to note, for people who may be considering this fund, is that the holdings vary depending on when you buy it. They rebalance half of their options exposure each June and December but otherwise let it ride. If you buy the fund right now, for example, you're buying nearly 99% Treasuries and a little over 1% out-of-the-money call options. You're getting very little equity exposure (for better or worse) if you purchase now.

Current holdings: https://www.amplifyetfs.com/swan-holdings.html

rascott
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Joined: Wed Apr 15, 2015 10:53 am

Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by rascott » Tue Mar 24, 2020 2:41 pm

DesertMan wrote:
Tue Mar 24, 2020 1:32 pm
dru808 wrote:
Wed Mar 18, 2020 8:59 pm
randyharris wrote:
Wed Mar 18, 2020 7:50 pm
SWAN certainly seems to be what it was designed to do during this damaging time in the markets.

http://schrts.co/UXsveXWC

Image
JC, that seems to good to be true! Stocks are beaten down, bonds are taking a beating, why is this fund doing so well?
It DOES seem too good to be true. Today, the Dow is up 7% and SWAN is *down* half a percent.

When I went to buy SWAN at Broker X, it told me that it is considered in the same "bad bunch" along with leveraged and inverse ETFs that you have to sign a waiver before buying. One of the more notorious characteristics of leveraged/inverse ETFs is that (due to various issues like volatility decay) they often do the exact opposite of what they are supposed to do. If SWAN is subject to the same issues, that begs the question of whether the recent outperformance is due to psychological factors (look, a black swan, let's all go buy SWAN), and not the intrinsic value of the Treasuries and LEAPs.

I'm beginning to wonder if I should make dinner out of this SWAN before much longer.

No offense, but what you wrote is ridiculous and not the way ETFs work.

guyinlaw
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Joined: Wed Jul 03, 2019 9:54 am

Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by guyinlaw » Tue Mar 24, 2020 3:05 pm

I did tax loss harvesting of NTSX and replaced with ITOT and SWAN. (Around 50-50 ratio) this is just temporary for after a month I plan to rotate back to NTSX.

SWAN does provide additional downside protection that NTSX but is very tax inefficient. It also has less upside that NTSX (or SP 500).

SWAN includes LEAPs 6months and 1 year away and replaces them within a year. So it will always have STCG.

It would have been better if they held SPY leaps 2-3 years away.
"Equity markets could get worse if the slowdown extends further, but also realize that the markets will rebound far before economic data improve."

DesertMan
Posts: 205
Joined: Tue Dec 07, 2010 12:54 pm

Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by DesertMan » Tue Mar 24, 2020 3:18 pm

rascott wrote:
Tue Mar 24, 2020 2:41 pm
DesertMan wrote:
Tue Mar 24, 2020 1:32 pm
dru808 wrote:
Wed Mar 18, 2020 8:59 pm
randyharris wrote:
Wed Mar 18, 2020 7:50 pm
SWAN certainly seems to be what it was designed to do during this damaging time in the markets.

http://schrts.co/UXsveXWC

Image
JC, that seems to good to be true! Stocks are beaten down, bonds are taking a beating, why is this fund doing so well?
It DOES seem too good to be true. Today, the Dow is up 7% and SWAN is *down* half a percent.

When I went to buy SWAN at Broker X, it told me that it is considered in the same "bad bunch" along with leveraged and inverse ETFs that you have to sign a waiver before buying. One of the more notorious characteristics of leveraged/inverse ETFs is that (due to various issues like volatility decay) they often do the exact opposite of what they are supposed to do. If SWAN is subject to the same issues, that begs the question of whether the recent outperformance is due to psychological factors (look, a black swan, let's all go buy SWAN), and not the intrinsic value of the Treasuries and LEAPs.

I'm beginning to wonder if I should make dinner out of this SWAN before much longer.

No offense, but what you wrote is ridiculous and not the way ETFs work.
It doesn't have the same direction as ANY% equities, yet is supposed to be a balanced fund in favor of equities ala NTSX. That IS ridiculous.

rascott
Posts: 2028
Joined: Wed Apr 15, 2015 10:53 am

Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by rascott » Tue Mar 24, 2020 3:20 pm

DesertMan wrote:
Tue Mar 24, 2020 3:18 pm
rascott wrote:
Tue Mar 24, 2020 2:41 pm
DesertMan wrote:
Tue Mar 24, 2020 1:32 pm
dru808 wrote:
Wed Mar 18, 2020 8:59 pm
randyharris wrote:
Wed Mar 18, 2020 7:50 pm
SWAN certainly seems to be what it was designed to do during this damaging time in the markets.

http://schrts.co/UXsveXWC

Image
JC, that seems to good to be true! Stocks are beaten down, bonds are taking a beating, why is this fund doing so well?
It DOES seem too good to be true. Today, the Dow is up 7% and SWAN is *down* half a percent.

When I went to buy SWAN at Broker X, it told me that it is considered in the same "bad bunch" along with leveraged and inverse ETFs that you have to sign a waiver before buying. One of the more notorious characteristics of leveraged/inverse ETFs is that (due to various issues like volatility decay) they often do the exact opposite of what they are supposed to do. If SWAN is subject to the same issues, that begs the question of whether the recent outperformance is due to psychological factors (look, a black swan, let's all go buy SWAN), and not the intrinsic value of the Treasuries and LEAPs.

I'm beginning to wonder if I should make dinner out of this SWAN before much longer.

No offense, but what you wrote is ridiculous and not the way ETFs work.
It doesn't have the same direction as ANY% equities. That IS ridiculous.

As noted above.... they only rebalance the equity leaps twice per year..... they've gone down so much that they are currently only 1% of the fund. That's perhaps an issue with how they balance the fund. It did its job for the SWAN event, IMO.

ChrisBenn
Posts: 267
Joined: Mon Aug 05, 2019 7:56 pm

Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by ChrisBenn » Tue Mar 24, 2020 3:24 pm

DesertMan wrote:
Tue Mar 24, 2020 3:18 pm
rascott wrote:
Tue Mar 24, 2020 2:41 pm
DesertMan wrote:
Tue Mar 24, 2020 1:32 pm
dru808 wrote:
Wed Mar 18, 2020 8:59 pm
randyharris wrote:
Wed Mar 18, 2020 7:50 pm
SWAN certainly seems to be what it was designed to do during this damaging time in the markets.

http://schrts.co/UXsveXWC

Image
JC, that seems to good to be true! Stocks are beaten down, bonds are taking a beating, why is this fund doing so well?
It DOES seem too good to be true. Today, the Dow is up 7% and SWAN is *down* half a percent.

When I went to buy SWAN at Broker X, it told me that it is considered in the same "bad bunch" along with leveraged and inverse ETFs that you have to sign a waiver before buying. One of the more notorious characteristics of leveraged/inverse ETFs is that (due to various issues like volatility decay) they often do the exact opposite of what they are supposed to do. If SWAN is subject to the same issues, that begs the question of whether the recent outperformance is due to psychological factors (look, a black swan, let's all go buy SWAN), and not the intrinsic value of the Treasuries and LEAPs.

I'm beginning to wonder if I should make dinner out of this SWAN before much longer.

No offense, but what you wrote is ridiculous and not the way ETFs work.
It doesn't have the same direction as ANY% equities. That IS ridiculous.
It has a .82 correlation to VOO - thats pretty much the opposite of your claim?
https://www.portfoliovisualizer.com/ass ... &months=12

Unless I am misunderstanding you?

DesertMan
Posts: 205
Joined: Tue Dec 07, 2010 12:54 pm

Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by DesertMan » Tue Mar 24, 2020 3:45 pm

ChrisBenn wrote:
Tue Mar 24, 2020 3:24 pm

It has a .82 correlation to VOO - thats pretty much the opposite of your claim?
https://www.portfoliovisualizer.com/ass ... &months=12

Unless I am misunderstanding you?
Not today, March 24, 2020.
S&P 500 closed up 9.38%
SWAN is down 0.68%
Nobody seems to know why. I doubt it's the age of the LEAPs because it outperformed during the downs this month. I'm worried that it might be related to the same issues that plague leveraged ETFs in general.

guyinlaw
Posts: 597
Joined: Wed Jul 03, 2019 9:54 am

Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by guyinlaw » Tue Mar 24, 2020 4:03 pm

SWAN is definitely not behaving day to day as it was designed.

Two reasons

1. Stocks have fallen so much it's LEAPS are too much Out of the money.. As SPY went from 233 to 243 today, it's leaps were for 245 and 283.. too high..
2. Also because of the high volatility of LTT and fluctuations in interest rates is causing this.

SPDR S&P CLL OPT 6/20 245
SPDR S&P CLL OPT 12/20 283
23% holding is LTT.

https://amplifyetfs.com/swan-holdings.html
"Equity markets could get worse if the slowdown extends further, but also realize that the markets will rebound far before economic data improve."

nullisland
Posts: 43
Joined: Fri Dec 06, 2019 12:20 pm

Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by nullisland » Tue Mar 24, 2020 4:15 pm

DesertMan wrote:
Tue Mar 24, 2020 3:45 pm
S&P 500 closed up 9.38%
SWAN is down 0.68%
Nobody seems to know why.
guyinlaw wrote:
Tue Mar 24, 2020 4:03 pm
SWAN is definitely not behaving day to day as it was designed.

Two reasons

1. Stocks have fallen so much it's LEAPS are too much Out of the money.. As SPY went from 233 to 243 today, it's leaps were for 245 and 283.. too high..
2. Also because of the high volatility of LTT and fluctuations in interest rates is causing this.

SPDR S&P CLL OPT 6/20 245
SPDR S&P CLL OPT 12/20 283
23% holding is LTT.
I don't think there's any mystery here, SWAN is doing exactly what they promised. From their FAQ (emphasis added):
As the S&P 500 moves up over the course of the year, the call option weighting grows within the portfolio, and BlackSwan acts more
like direct, long S&P 500 exposure. As markets move downward over the course of a year, the call option weighting shrinks as part of the portfolio, and BlackSwan acts more like a U.S. Treasury bond ladder with a 10-year duration. It’s important to note BlackSwan does rebalance its portfolio twice a year.

In other words, the worse the S&P 500 does over the course of a year, the more the strategy becomes hedged. The better the S&P 500 does during the year; the more BlackSwan becomes sensitive to the S&P 500’s returns.
https://www.amplifyetfs.com/Data/Sites/ ... N_faqs.pdf

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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by ChrisBenn » Tue Mar 24, 2020 4:24 pm

DesertMan wrote:
Tue Mar 24, 2020 3:45 pm
ChrisBenn wrote:
Tue Mar 24, 2020 3:24 pm

It has a .82 correlation to VOO - thats pretty much the opposite of your claim?
https://www.portfoliovisualizer.com/ass ... &months=12

Unless I am misunderstanding you?
Not today, March 24, 2020.
S&P 500 closed up 9.38%
SWAN is down 0.68%
Nobody seems to know why. I doubt it's the age of the LEAPs because it outperformed during the downs this month. I'm worried that it might be related to the same issues that plague leveraged ETFs in general.
Sure - rascott explained that above though -- because of devaluation of the equity portion it's basically treasuries (~99%), so it's acting like treasuries.

Guyinlaw linked the holdings - s&p is/was under the strike price of the options; if we continue to recover the gains will pick up - it's just a function of how options work. If the fund were holding the etf equivalent, or a swap, then you would have seen a proportional gain today -- but would have also been starting from a much lower value.


The worst case for swan is really a sideways market; in that case you are just burning theta on your options with no gain. It still seems to me like it's working as intended here - just your expectations were maybe off. You can't have the upside of, say, 70% spy without the downside - and this fund is structured in such a way that the downside is limited - so, naturally, is the upside. (note it's not actually 70% exposure, just used a number for exemplar purposes)

edit: The last line of the prospectus/faq quote nullisland linked in the post above sums it up perfectly.

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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by DesertMan » Tue Mar 24, 2020 4:36 pm

ChrisBenn wrote:
Tue Mar 24, 2020 4:24 pm
Sure - rascott explained that above though -- because of devaluation of the equity portion it's basically treasuries (~99%), so it's acting like treasuries.
So then it does NOT have a .80 correlation to VOO, unless the moon is full and the stars are aligned. It's just a mystery box, not unlike the leveraged ETFs of doom.

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Steve Reading
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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by Steve Reading » Tue Mar 24, 2020 4:58 pm

A lot of the additional performance boost for SWAN comes from the increased volatility, which increases call prices despite equities dropping.

To all of those amazed by SWAN’sperformance: fear not, it will spit out a lot of its gains once volatility goes back to a more normal level.

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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by ChrisBenn » Tue Mar 24, 2020 5:05 pm

DesertMan wrote:
Tue Mar 24, 2020 4:36 pm
ChrisBenn wrote:
Tue Mar 24, 2020 4:24 pm
Sure - rascott explained that above though -- because of devaluation of the equity portion it's basically treasuries (~99%), so it's acting like treasuries.
So then it does NOT have a .80 correlation to VOO, unless the moon is full and the stars are aligned. It's just a mystery box, not unlike the leveraged ETFs of doom.
Over it's lifetime it has a .82 correlation. It's close to .18 on daily returns since march
https://www.portfoliovisualizer.com/ass ... &months=36

Nullislands quote from the prospectus pretty much explains everything though:
nullisland wrote:
Tue Mar 24, 2020 4:15 pm

I don't think there's any mystery here, SWAN is doing exactly what they promised. From their FAQ (emphasis added):
As the S&P 500 moves up over the course of the year, the call option weighting grows within the portfolio, and BlackSwan acts more
like direct, long S&P 500 exposure. As markets move downward over the course of a year, the call option weighting shrinks as part of the portfolio, and BlackSwan acts more like a U.S. Treasury bond ladder with a 10-year duration. It’s important to note BlackSwan does rebalance its portfolio twice a year.

In other words, the worse the S&P 500 does over the course of a year, the more the strategy becomes hedged. The better the S&P 500 does during the year; the more BlackSwan becomes sensitive to the S&P 500’s returns.
https://www.amplifyetfs.com/Data/Sites/ ... N_faqs.pdf

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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by ChrisBenn » Tue Mar 24, 2020 5:10 pm

305pelusa wrote:
Tue Mar 24, 2020 4:58 pm
A lot of the additional performance boost for SWAN comes from the increased volatility, which increases call prices despite equities dropping.

To all of those amazed by SWAN’sperformance: fear not, it will spit out a lot of its gains once volatility goes back to a more normal level.
I do find the volatility factor exposure interesting - but I don't think it's super material to current fund valuations since the call options only account for ~1.3% of nav https://amplifyetfs.com/swan-holdings.html -- so not that much profit left to give up. It's just basically an expensive treasury ladder now with an ~atm and otm call option.

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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by Steve Reading » Tue Mar 24, 2020 5:25 pm

ChrisBenn wrote:
Tue Mar 24, 2020 5:10 pm
305pelusa wrote:
Tue Mar 24, 2020 4:58 pm
A lot of the additional performance boost for SWAN comes from the increased volatility, which increases call prices despite equities dropping.

To all of those amazed by SWAN’sperformance: fear not, it will spit out a lot of its gains once volatility goes back to a more normal level.
I do find the volatility factor exposure interesting - but I don't think it's super material to current fund valuations since the call options only account for ~1.3% of nav https://amplifyetfs.com/swan-holdings.html -- so not that much profit left to give up. It's just basically an expensive treasury ladder now with an ~atm and otm call option.
But how much of the NAV did they account for 2-3 weeks ago when all of this started to happen? An increase in volatility of roughly 5 times increases the price of LEAPs by like 5 times as much with such low interest rates. If they were only 5% of NAV, were talking about roughly a 20% additional total return on the ETF from volatility alone.

Of course, by letting the calls decrease as % of NAV (not rebalancing), then you won’t actually give those gains back once volatility calms down, which is kind of interesting. Idk when this fund rebalances but hopefully not too soon haha.

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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by nullisland » Tue Mar 24, 2020 5:33 pm

DesertMan wrote:
Tue Mar 24, 2020 4:36 pm
ChrisBenn wrote:
Tue Mar 24, 2020 4:24 pm
Sure - rascott explained that above though -- because of devaluation of the equity portion it's basically treasuries (~99%), so it's acting like treasuries.
So then it does NOT have a .80 correlation to VOO, unless the moon is full and the stars are aligned. It's just a mystery box, not unlike the leveraged ETFs of doom.
I wouldn't say it's a mystery box -- they publish a daily report of their holdings just like any other ETF. It also has nowhere near the risk of a leveraged ETF.

However you are correct that, unlike many other funds, the relative value of the holdings can vary significantly depending on when you purchase it and what's happened in the markets recently. Someone purchasing it today is getting a dramatically different product than someone who purchased at the beginning of January shortly after their last rebalance, for example. This isn't something you need to worry about with NTSX.

Anyone considering this fund should look carefully at the current holdings before purchasing, and regularly review their position after purchasing, to make sure it's aligned with their overall investment goals. This is a more complicated investment product than it might appear at first glance.

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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by Steve Reading » Tue Mar 24, 2020 5:38 pm

nullisland wrote:
Tue Mar 24, 2020 5:33 pm
Someone purchasing it today is getting a dramatically different product than someone who purchased at the beginning of January shortly after their last rebalance, for example. This isn't something you need to worry about with NTSX.
How often does NTSX rebalance? Thanks.

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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by nullisland » Tue Mar 24, 2020 5:46 pm

305pelusa wrote:
Tue Mar 24, 2020 5:38 pm
nullisland wrote:
Tue Mar 24, 2020 5:33 pm
Someone purchasing it today is getting a dramatically different product than someone who purchased at the beginning of January shortly after their last rebalance, for example. This isn't something you need to worry about with NTSX.
How often does NTSX rebalance? Thanks.
Quarterly, or when it deviates +/-5% from the target 90/60 allocation. Similar to a normal Boglehead rebalancing policy.

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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by glorat » Tue Mar 24, 2020 6:18 pm

305pelusa wrote:
Tue Mar 24, 2020 4:58 pm
A lot of the additional performance boost for SWAN comes from the increased volatility, which increases call prices despite equities dropping.

To all of those amazed by SWAN’sperformance: fear not, it will spit out a lot of its gains once volatility goes back to a more normal level.
This is the answer. Long options means long volatility. I.e,higher vol gives higher mark to market value. Outright stock owner value is neutral to volatility.

VIX turns this concept into a strategy unto itself

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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by DesertMan » Wed Mar 25, 2020 11:57 am

nullisland wrote:
Tue Mar 24, 2020 2:25 pm
One thing to note, for people who may be considering this fund, is that the holdings vary depending on when you buy it. They rebalance half of their options exposure each June and December but otherwise let it ride. If you buy the fund right now, for example, you're buying nearly 99% Treasuries and a little over 1% out-of-the-money call options. You're getting very little equity exposure (for better or worse) if you purchase now.

Current holdings: https://www.amplifyetfs.com/swan-holdings.html
March 25, 2020, 12:55 PM ET intraday:
S&P 500 up 2.72%
SWAN up 2.57%

Now it is NOT acting like Treasuries. It's acting like ~80% of the S&P 500 despite containing only the equivalent of 1% of the S&P. :confused:

See what I mean about this fund being driven by psychology rather than the value of the holdings?

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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by ChrisBenn » Wed Mar 25, 2020 12:11 pm

DesertMan wrote:
Wed Mar 25, 2020 11:57 am
nullisland wrote:
Tue Mar 24, 2020 2:25 pm
One thing to note, for people who may be considering this fund, is that the holdings vary depending on when you buy it. They rebalance half of their options exposure each June and December but otherwise let it ride. If you buy the fund right now, for example, you're buying nearly 99% Treasuries and a little over 1% out-of-the-money call options. You're getting very little equity exposure (for better or worse) if you purchase now.

Current holdings: https://www.amplifyetfs.com/swan-holdings.html
March 25, 2020, 12:55 PM ET intraday:
S&P 500 up 2.72%
SWAN up 2.57%

Now it is NOT acting like Treasuries. It's acting like ~80% of the S&P 500 despite containing only the equivalent of 1% of the S&P. :confused:

See what I mean about this fund being driven by psychology rather than the value of the holdings?
I think your confusion is just not understanding options -- that 1% it had yesterday was not of SPY, but of option contracts (each one getting exposure to 100 shares of spy). These are leveraged, and it's expected they would go up more than the S&P.

Also treasuries are going up today as well, so your 80% estimate would be off.

Your takeaways should probably be that this is *not* going to behave like X percentage S&P / Y percentage Treasury Ladder going forward, and you will have these mental incongruities if you expect it to.

All the answers you need as to the value are on that holdings page you quoted; you can go directly and look up the market value of each.

If it's value was driven by people buying it for psychological reasons (i.e. it was trading at a premium to nav), then market makers/authorized participants would create more shares from the underlying and sell those, netting the difference. You can view that (premium/discount) data here - https://amplifyetfs.com/swan-premiumdiscount.html. Yesterday it looks like it was actually trading a bit cheaper than it's actual value (on average).

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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by DesertMan » Wed Mar 25, 2020 12:18 pm

ChrisBenn wrote:
Wed Mar 25, 2020 12:11 pm
I think your confusion is just not understanding options -- that 1% it had yesterday was not of SPY, but of option contracts (each one getting exposure to 100 shares of spy). These are leveraged, and it's expected they would go up more than the S&P.
But I thought you (or someone) said that the options were OUT of the money. The only way someone would pay a premium for out of the money options is if they think the options will become in the money before they expire, i.e., that the S&P 500 will go down between now and then, and that the decrease will be equal to or greater than the present difference between the options and the market. The leverage explains the *amount* of the gain but not the fact that it's gaining. It's only gaining because of psychology, i.e., someone thinks the options will be worth more in the future.

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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by nullisland » Wed Mar 25, 2020 12:47 pm

DesertMan wrote:
Wed Mar 25, 2020 12:18 pm
ChrisBenn wrote:
Wed Mar 25, 2020 12:11 pm
I think your confusion is just not understanding options -- that 1% it had yesterday was not of SPY, but of option contracts (each one getting exposure to 100 shares of spy). These are leveraged, and it's expected they would go up more than the S&P.
But I thought you (or someone) said that the options were OUT of the money. The only way someone would pay a premium for out of the money options is if they think the options will become in the money before they expire, i.e., that the S&P 500 will go down between now and then, and that the decrease will be equal to or greater than the present difference between the options and the market. The leverage explains the *amount* of the gain but not the fact that it's gaining. It's only gaining because of psychology, i.e., someone thinks the options will be worth more in the future.
The June option is now in the money, it has a strike of 245. It was out of the money yesterday but today's gain pushed it over (SPY is trading at 253 as I write this). The option's delta is around .6, which means the 10 point increase in SPY translated into a gain of 6 points for the option. Out of the money call options are highly leveraged, though, so SPY is up 4% but the June option is up 35%. The December option has a strike of 283 and is still out of the money, which means it's even more leveraged, so it's up something like 65% today.

Long-term treasuries are about a quarter of their holdings and are up 2% right now, intermediate-term treasuries are up modestly, and the options are up around 50% between them, so today's performance looks about right to me.

Options don't behave like a normal long equity position, they were hard for me to wrap my head around at first. That's what I meant when I said this is a complicated product. It's not going to look like a regular stock/bond mix, but it's fairly priced.

EDIT:
Sorry, just read your comment again, this might be a point of confusion:
The only way someone would pay a premium for out of the money options is if they think the options will become in the money before they expire, i.e., that the S&P 500 will go down between now and then
These are call options, which go up in value when the underlying security goes up. Put options are the ones that increase in value when the underlying decreases. "Out of the money" for a call option means the strike price is above the current market price. For a put option it's the reverse.

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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by DesertMan » Wed Mar 25, 2020 1:04 pm

nullisland wrote:
Wed Mar 25, 2020 12:47 pm
EDIT:
Sorry, just read your comment again, this might be a point of confusion:
The only way someone would pay a premium for out of the money options is if they think the options will become in the money before they expire, i.e., that the S&P 500 will go down between now and then
These are call options, which go up in value when the underlying security goes up. Put options are the ones that increase in value when the underlying decreases. "Out of the money" for a call option means the strike price is above the current market price. For a put option it's the reverse.
Aha. But that still doesn't explain why yesterday (March 24, 2020), there was a monster 7% S&P rally and SWAN went down

Maybe it's like the Swan Princess. Sometimes she's a bird and sometimes she's not...

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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by long_gamma » Wed Mar 25, 2020 1:54 pm

These are long term LEAP's. They are not very liquid and are not marked properly at the end of day.

Not sure about the ETF protocol to calculate NAV for these illiquid options. Trading desks used to mark these options to model and book p/l.

Other possible explanation is, Call options do loose money (or doesn't gain as much compared to delta equivalent) because when stock rallies, volatility drops. Since call options are long volatility, drop in volatility hurts them. Not gaining any value is kind of perplexing
"Everyone has a plan 'till they get punched in the mouth." --Mike Tyson

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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by nullisland » Wed Mar 25, 2020 2:49 pm

DesertMan wrote:
Wed Mar 25, 2020 1:04 pm
nullisland wrote:
Wed Mar 25, 2020 12:47 pm
EDIT:
Sorry, just read your comment again, this might be a point of confusion:
The only way someone would pay a premium for out of the money options is if they think the options will become in the money before they expire, i.e., that the S&P 500 will go down between now and then
These are call options, which go up in value when the underlying security goes up. Put options are the ones that increase in value when the underlying decreases. "Out of the money" for a call option means the strike price is above the current market price. For a put option it's the reverse.
Aha. But that still doesn't explain why yesterday (March 24, 2020), there was a monster 7% S&P rally and SWAN went down

Maybe it's like the Swan Princess. Sometimes she's a bird and sometimes she's not...
99% of the funds assets are in Treasuries, and Treasuries went down yesterday. Long-term treasuries dropped almost 2%. In percentage terms the options did increase quite dramatically in value, but if .6% of your portfolio doubles in value (which is approximately what happened) that's only a .6% gain for the fund overall. That roughly cancelled out the losses from the long-term treasury holdings, so you were left with the return of the intermediate term treasuries. Intermediate term treasuries and SWAN both went down about .7% yesterday, just as expected.

I feel like I may be getting trolled (if so, well played), but if you're serious then I guess I'm not sure why you think there's something suspicious happening here. I don't think a portfolio of call options and treasuries is necessarily appropriate for most people, but it is behaving exactly like that combination of assets is supposed to. I'd encourage you to read the prospectus.

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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by nullisland » Wed Mar 25, 2020 4:14 pm

long_gamma wrote:
Wed Mar 25, 2020 1:54 pm
These are long term LEAP's. They are not very liquid and are not marked properly at the end of day.
For what it's worth, the open interest on the June call is over 5000 and today's volume was around 1500. And the options aren't particularly long term -- they purchase them a little over a year out, but any any given time they hold one option that's between 0-6 months from expiry, and one that's between 6-12 months.
Not sure about the ETF protocol to calculate NAV for these illiquid options. Trading desks used to mark these options to model and book p/l.
The annual report says they're valued as level 2 assets, they're not using an unadjusted last-trade price. They don't have a detailed description of the mechanics, though this seems to imply something like bid/ask midpoint:
Exchange-traded options will be valued at the current mean price where such contracts are principally traded

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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by DesertMan » Wed Mar 25, 2020 4:54 pm

nullisland wrote:
Wed Mar 25, 2020 2:49 pm
99% of the funds assets are in Treasuries, and Treasuries went down yesterday. Long-term treasuries dropped almost 2%. In percentage terms the options did increase quite dramatically in value, but if .6% of your portfolio doubles in value (which is approximately what happened) that's only a .6% gain for the fund overall. That roughly cancelled out the losses from the long-term treasury holdings, so you were left with the return of the intermediate term treasuries. Intermediate term treasuries and SWAN both went down about .7% yesterday, just as expected.

I feel like I may be getting trolled (if so, well played), but if you're serious then I guess I'm not sure why you think there's something suspicious happening here. I don't think a portfolio of call options and treasuries is necessarily appropriate for most people, but it is behaving exactly like that combination of assets is supposed to. I'd encourage you to read the prospectus.
No, I'm not trolling you. I just don't see how the math you've stated above worked out. The explanation you gave for SWAN going down on March 24, 2020 while the S&P 500 went up 7% is that long-term treasuries went down the same amount as the S&P went up so as to cancel out. But TLT (iShares Long Term Treasury ETF) went UP on March 24 (opened 161.25, closed 162.91 per Yahoo Finance CSV). VOO, the S&P 500 ETF, obviously also went up. (YF CSV). So, as I said, the numbers don't line up. Something else is going on. Options voodoo? Herd behavior? Who knows...

Again... I'm not here to judge you or anyone. I'm just doing due diligence as to whether I want an allocation to SWAN.

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Re: SWAN ETF - 10% Leaps / 90% Treasuries

Post by long_gamma » Wed Mar 25, 2020 5:06 pm

nullisland wrote:
Wed Mar 25, 2020 4:14 pm
long_gamma wrote:
Wed Mar 25, 2020 1:54 pm
These are long term LEAP's. They are not very liquid and are not marked properly at the end of day.
For what it's worth, the open interest on the June call is over 5000 and today's volume was around 1500. And the options aren't particularly long term -- they purchase them a little over a year out, but any any given time they hold one option that's between 0-6 months from expiry, and one that's between 6-12 months.

I see. I just went by thread title and numerous mention of LEAPs in the thread. These options technically are not LEAPs, they are just regular options
"Everyone has a plan 'till they get punched in the mouth." --Mike Tyson

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