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casercaramel144 | 1 year ago
>And yet UPRO (3X SPY) has significantly outperformed 3X the S&P 500 since inception (since June 2009 UPRO is +8000% vs SPY +700%.
Isn't this just hindsight bias? You market time to right after 2008 crash. Those two dates are probably the best possible because from 2009->2020 we had an 11 year uninterrupted bull run. If you bought in 2020-2021 you would have been screwed for 3 years at the least. If you bought 10x levered out of the money spy calls every 6 months and roll the winnings since 2009 you probably can get even higher, but probably you don't want to do that.
>Respectfully those are much more expensive and if you're near the money quite non-linear. You're going to have to pony up pretty close to the price of just buying the index again to get 2X exposure if you're deep ITM. Near the money you'll need several options to get 2X - and you'll need to delta rebalance. You'll also get eaten alive by theta decay.
Isn't this for retirement saving? IE where we have big chunks of cash we won't see for 20 years, so you can buy like 2 contracts and its good enough. You'd have to pony up 2x to get the underlying index fund anyways, so you might as well just buy deep ITM calls (which right now are hovering at a premium of 3% for strike of 315$ on spy).
+1 for European options, I forgot you can buy those on index funds, is the liquidity enough on deep OTM calls to be worth it though?
>To avoid having to pony up a ton of collateral or get eaten by theta, you may as well just buy more SPY on margin - or save yourself the hassle and get an /ES=F or /MES=F. I thought margin / borrowing costs for future etfs is some ridiculous 8-12%. Pretty bad if you have no alpha except beta go up!
arcticbull|1 year ago
Yes absolutely, I just picked when the product launched.
I wanted to point out to parent that the daily balancing isn't just a bad thing, it can be a good thing - it depends on how the underlying performs. You are right it cuts both ways though and you may have to sit in them for years to break even. Note UPRO actually somehow pays a dividend.
> If you bought 10x levered out of the money spy calls every 6 months and roll the winnings since 2009 you probably can get even higher, but probably you don't want to do that.
What do you mean by 10X leveraged calls? Like 10-delta? What was the spread between implied and realized volatility over that period? Ultimately your options outcomes are really based on realized volatility exceeding implied volatility (otherwise you break even or lose).
> Isn't this for retirement saving? IE where we have big chunks of cash we won't see for 20 years, so you can buy like 2 contracts and its good enough.
Parent said contracts that expire in 6 or 12 months on SPY. That means short term capital gains at expiry, and using SPY instead of SPX means you have to deal with early exercise and dividends.
Since you can't buy contracts too far out in time, so you have to sell, roll or exercise. In a tax advantaged account maybe that matters less. Was your proposed strategy to roll? If so, how far before expiry, and to what level?
> You'd have to pony up 2x to get the underlying index fund anyways, so you might as well just buy deep ITM calls (which right now are hovering at a premium of 3% for strike of 315$ on spy).
Over what duration? We need that to figure out the rough APR of the implied borrowing you're doing.
> +1 for European options, I forgot you can buy those on index funds...
On indexes not index funds! SPX option notional value is literally the S&P 500, in index points, times $100. They're big. XSP option notional value is basically the S&P 500, in index points, times $10.
> I thought margin / borrowing costs for future etfs is some ridiculous 8-12%. Pretty bad if you have no alpha except beta go up!
I was suggesting the underlying futures contract rather than a futures ETF. /ES is big, /MES is much smaller.