OK, I'm about 99% sure I just came up with a way to DESTROY the market...

destriero · Dec 2, 2022

SoyUnGanador said:
TQQQs. They give you 3x leverage. Sure, there is a little drag on them, but I've tested and its really not that much.

Now, people talk about how TQQQs will eventually go to something close to zero when the Naz collapses. So you'd be crazy to keep your money in TQQQs long term they say.

But then I started thinking - I know the fix for that! So here is what you do.

You put [90%] of your money in TQQQs. That gives you an equivalent invested in the QQQs or right around 270%. Massive.

Of course, without more, your investment would eventually get obliterated when a real recession/depression hits and Naz dives 50% or more.

But that is "without more". So you are going to do more! What you are going to do is take that [10%] left over amount in your account and buy tons and tons of puts (either on the TQQQ or the QQQs). Enough to cover your [270%] investment, and maybe then some! Strike price can vary depending how much risk you are looking to offset and how much less long-term reward you are happy with.

You've now got a MASSIVE [270%] investment equivalent, and greatly limited downside because of your puts.

The [90%] in the TQQQs and the [10%] in the TQQQ/QQQ puts will be tweaked to give you the downside coverage you want (I just made up those 90/10 numbers as a starting discussion point) - maybe 80/20 is better, for example (in which case you'd still have a ~240% QQQ equivalent LOL).

This is pure money in the bank. You are welcome ETers...
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You're replicating a leveraged synthetic long call.

Edit: in after misterkel

destriero · Dec 2, 2022

The tracking/rebal-issues reduce leverage but you're also long puts at nearly 80% vols which means you're long calls from 80% vol via the synthetic.

Buy 4000 TQQQ 23.41. Buy 40 of the June 2023 23P at 4.80. $94K in shares and $19K in puts. You are now long 40 of the Jun 23C synthetically from 5.21 each (I didn't price the fwd). IOW, just buy the natural calls for $21K outlay.

$113K (no margin) v $21K for the equivalent position. A PM account will reduce the stock and put combo to mid 20-30s in initial margin, but it's cheaper to go with the call.

Dunning and Kruger say hello.

Sekiyo · Dec 2, 2022

destriero · Dec 2, 2022

Sekiyo said:

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I refuse to watch/listen to anything from the guy as he quoted his performance as an aggregate of all OVERLAYS on institutional accounts that he consulted for; he had no financial interest in the payoff on those overlays.

TheDawn · Dec 3, 2022

MKTrader said:
The devil is in the details of puts/hedging part. Like StatisticalTrader said, the market could easily land in no man's land where your puts aren't profitable but the QQQ is down 20% (so you're actually down 50-60%). You'd need to ladder the puts (not just buy way OTM ones) and decide when to buy them back if they become profitalbe..and how to buy more to keep a hedge. There's also things like "black swan hedging" (back ratio spreads) where you sell some puts to "pay for" the ones you buy...but typically that's way out of the money and you still have to decide when to cash out and re-hedge. If you backtest and figure out a robust solution, send me a message...but I wouldn't go public with it.
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It's all in the ratio. Ratio, baby, ratio... LOL

destriero · Dec 4, 2022

SoyUnGanador said:
I don't know how to backtest given I don't have options data free so far as I know.

But I am in the process of coming up with a simulation to see what the exact positions I construct do given if QQQ drops by various amounts - i.e. to forward test it LOL.
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You’re long a call, dude.

murray t turtle · Dec 6, 2022

TrAndy2022 said:
One thing not to forget, is the higher cost of leverage because of higher interest rates. In the past decade interest rates were zero or falling, now they are rising and they get significant. That will reduce the TQQQ returns a lot. Keep that in mind when going long on TQQQ. Also any longer consolidation even without deeper drawdowns lower the value of TQQQ much. In composition with high interest rates, I doubt we can get in this decade the same return as last decade. I also would say that a momentum strategy where you can make up to 25% per annum without leverage could be better then lower returns on QQQ with that triple leverage because of rates. So I would look around for momentum strategies with high returns and WITHOUT LEVERAGE too here as alternative to TQQQ, and then compare them again. A side effect is, that with Momentum strategies (on stocks) you do not get 80% drawdowns or anything near that level. So you do not need to include any put strategies as hedge or anything like that.
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%%
THAT+ 2022= bear market.
[2]THAT+ sometimes QLD[qqqx2] makes more than TQQQ, hard to believe, but true, if enough charts , are studied....................................
Except for big banks mostly, no doubt qqq,QLD,TQQQ, sqqq,PSQ has made much more for more than 4X, or Forex

KCalhoun · Dec 6, 2022

I'm long sqqq uvxy

Actuarial_Fun · Dec 6, 2022

Here's a link to put-call parity:
https://www.simtrade.fr/blog_simtrade/call-put-parity/

You're just creating the call in the first formula

destriero · Dec 7, 2022

Dood, you test this arb yet?