2 ms·

Depends on your age, if you're young, you do want it because your risk tolerance should (in most cases) be much higher than someone who is close to retirement.

User23 5y ago
Risk tolerance is all well and good and I agree with you there, but you want the risk adjusted rate of return to be favorable, which it isn't for buying and holding geared ETFs[1]. Highlight quote: "It is mathematically impossible to create a fund that makes a continuous offering of its shares and consistently delivers for all its shareholders a stated multiple of a benchmark over time." [1] https://www.proshares.com/faqs/geared_investing_faqs.html https://www.proshares.com/faqs/geared_investing_faqs.html
- dannyw 5y ago
  No, investing isn't all about optimising for sharpe ratios. For individual investors sometimes you do want a higher CAGR even at a worse risk adjusted return.
  - User23 5y ago
    You’re not wrong, but that reduces to sometimes you want to win the lottery. Sure, that’s great if it happens for you.
rahimiali 5y ago
Can you explain why you prefer TQQQ over buying LEAPs on QQQ? The spread on the latter seem ok, the leverage factor is under your control, and volatility drag does not reduce your returns (though implied volatility causes fluctuations). I don’t quite understand the market for TQQQ.
- xhrpost 5y ago
  Not everyone has the ability to buy options in their 401k. Most IRAs don't have it without permission. Timing, take a look at Nov 07, had you bought a leap then, it would have taken until Jan 11 to just break even, you're really pushing the limit of the max option expiry at that point. All ITM leaps have extrinsic value, even if small. Take this value and divide by the strike price, this is your effective "interest" for not having to spend those dollars to purchase. Depending on your delta, this percentage could be higher than the expense ratio of TQQQ. Or just buy leaps on TQQQ then :)

User23 5y ago

Risk tolerance is all well and good and I agree with you there, but you want the risk adjusted rate of return to be favorable, which it isn't for buying and holding geared ETFs[1]. Highlight quote: "It is mathematically impossible to create a fund that makes a continuous offering of its shares and consistently delivers for all its shareholders a stated multiple of a benchmark over time." [1] https://www.proshares.com/faqs/geared_investing_faqs.html https://www.proshares.com/faqs/geared_investing_faqs.html

dannyw 5y ago
No, investing isn't all about optimising for sharpe ratios. For individual investors sometimes you do want a higher CAGR even at a worse risk adjusted return.
- User23 5y ago
  You’re not wrong, but that reduces to sometimes you want to win the lottery. Sure, that’s great if it happens for you.

rahimiali 5y ago

Can you explain why you prefer TQQQ over buying LEAPs on QQQ? The spread on the latter seem ok, the leverage factor is under your control, and volatility drag does not reduce your returns (though implied volatility causes fluctuations). I don’t quite understand the market for TQQQ.

xhrpost 5y ago
Not everyone has the ability to buy options in their 401k. Most IRAs don't have it without permission. Timing, take a look at Nov 07, had you bought a leap then, it would have taken until Jan 11 to just break even, you're really pushing the limit of the max option expiry at that point. All ITM leaps have extrinsic value, even if small. Take this value and divide by the strike price, this is your effective "interest" for not having to spend those dollars to purchase. Depending on your delta, this percentage could be higher than the expense ratio of TQQQ. Or just buy leaps on TQQQ then :)