PP Inspired Leveraged Portfolios

A place to talk about speculative investing ideas for the optional Variable Portfolio

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Kbg
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Re: PP Inspired Leveraged Portfolios

Post by Kbg » Fri Feb 02, 2018 8:19 pm

Well this week hasn’t been very much fun has it? :-).

Nothing like a correlated drawdown in everything you own. Even my STBs are down. The portfolio I moved to has not had a good year, losing to pretty much everything.

It’s all good though. Risk assets come with...get ready for it...risk! 2016/17 were quite kind to us however.

Life has gotten way busy as of late so not much in the way of posting. If February is a bad month I’ll post a performance update. If it turns out well I’ll wait for the end of the quarter.

Thanks for the post Ozzy, I had just finished reading the article before I came here. I think MV ports with leverage are very PP like philosophically. And while we can’t bank 100% on history repeating itself to come up with the weighting mix for a couple of significant reasons and some minor ones, I think the methodology is probably a bit better conceptually than equal weighting. I’m not a fan of using short term lookbacks for determining weighting. It has a nasty habit of setting you up for a big allocation to something that does a nice swan dive as bull markets also are low volatility markets. I think it is fine if you use multi year lookbacks so that you are estimating average volatility over a long period.
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Re: PP Inspired Leveraged Portfolios

Post by dragoncar » Tue Feb 06, 2018 2:34 pm

How bout that xiv? I know you expected it to blow up some time but ouch.
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Kbg
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Re: PP Inspired Leveraged Portfolios

Post by Kbg » Wed Feb 07, 2018 12:01 am

Yup not fun and not happy about it, Particularly given how it happened. However, over the years I’ve made more money than I lost or am pretty close to break even. I have the stuff in several accounts but all properly position sized...so no serious damage done. One account I took on too large a chunk offset by a big chunk of LTTs...so down 25% on that one (including other holdings also down). The rest are down 12ish%.

Actually my only serious regret was being in XIV vs SVXY.

As mentioned, not happy about it (at all) but I was fully prepared to take the size of loss I did and did not overdo it for my risk tolerance level. If SVXY behaves well I’ll probably jump on the horse again.

One lesson for sure...never ever invest in anything backed by Credit Suisse. That’s the second time they’ve walked away from a product. I suspect there is some serious thinking going on about SVXY beyond ProShares and predict if it also crumbles the entire volatility space will go down.

And I seriously hope folks who copied anything I did paid attention and followed my constant harping / advice on risk control.
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Re: PP Inspired Leveraged Portfolios

Post by clacy » Wed Feb 07, 2018 2:44 pm

Looks like XIV is trading again. It could be a good time to buy some additional shares at a 90% discount??
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Kbg
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Re: PP Inspired Leveraged Portfolios

Post by Kbg » Wed Feb 07, 2018 3:42 pm

If one is so inclined I would go with SVXY and deal with the K-1 (which isn’t that bad, they just don’t come out until March). Credit Suisse is now on my list of never buy anything with their name on it. They have tubed two of their ETFs now due to poor management.
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Re: PP Inspired Leveraged Portfolios

Post by iwealth » Thu Feb 08, 2018 7:51 am

Sorry this happened to you kbg. This was actually a fascinating case study. Here's what I took away from it:

I'm going to use the term "M1/M2" to represent the basket of VIX futures XIV inversely tracks.

Intraday XIV only has a hypothetical NAV. CS isn't wheeling and dealing M1/M2 all day long. They settle at the end of the day. Traders bid the price of XIV up and down during the day not just to match the M1/M2 move, but also to where they predict M1/M2 will move.

XIV closed at $99. CS had yet to perform their daily settlement. VIX futures markets close at 4:15. The $99 XIV misprice was caused by 1) traders not calculating hypothetical NAV, and 2) traders making a big bet that regardless of the hypothetical NAV, volatility would continue to ease (I say continue because there was a massive volatility spike during the 1600 pt Dow drop that eased significantly already). This is where everyone including the pros got caught with their pants down.

Sometime between 4:00-4:15pm, CS started to rebalance their M1/M2 positions to reflect the inverse of the daily change in the price of M1/M2. The magnitude of the volatility spike during the day meant this would require buying a LOT of M1/M2 contracts. This drove the price of M1/M2 higher and higher as they purchased enough contracts to meet the goals stated in the prospectus. Ironically perhaps, the prospectus even states that a a negative feedback loop is a distinct possibility and that the rebalancing may adversely move the price against themselves - this is what happened and this is what blew up the fund.

No more inverse VIX products for me. I'd rather short VXX if I was feeling so daring.
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Re: PP Inspired Leveraged Portfolios

Post by dragoncar » Thu Feb 08, 2018 8:47 pm

I found it interesting that this was posted last year:

https://www.zerohedge.com/news/2017-07- ... might-look

I only understand some of those words. Glad I got cold feet about XIV (I held it briefly but realized I didn't fully understand it), plus KGBs ending of the 3x ETF thread coincided with my need to liquidate that experiment to meet other investing needs. Got really lucky all around, but glad KGB still has lifetime gains from that product.

Just be glad you're not this guy who bout XIV on margin: https://np.reddit.com/r/wallstreetbets/ ... g/dtssuqa/
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Re: PP Inspired Leveraged Portfolios

Post by Kbg » Thu Feb 08, 2018 9:02 pm

I got really curious about my net since 2011...my accounts have grown over the years so of course I had the most money in XIV this year, but using tonight's price (i.e. what I lost) vs. gains over the years the trade has returned 32% since 2011. Not great but not a total waste of time. In other words, net positive.
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Re: PP Inspired Leveraged Portfolios

Post by Kbg » Mon Feb 12, 2018 9:16 pm

So with the blow up I’m retooling what I was going to track/post on here. I’m thinking 20% st vol was a bit much. :-)

I’m looking at something Golden Butterflyish. Selling vol will still be a part of it but looking at different forms. Could be just a switch to SVXY.
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Re: PP Inspired Leveraged Portfolios

Post by pugchief » Tue Feb 13, 2018 8:36 pm

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Re: PP Inspired Leveraged Portfolios

Post by Kbg » Fri Feb 23, 2018 1:14 pm

I'm not sure this is all that new and improved and maybe I should go back to the other thread for continuity purposes and let this one die. Thoughts?

In any event, the recent XIV unpleasantness was not super fun to my portfolios but a base planning assumption for my allocation to XIV was that it could all one day go poof. So I lost what I thought I could take and not freak out/damage my portfolio beyond what I could accept. After redoing all my old analysis with the new data it became pretty clear that the risk to reward balance was found lacking as compared to other options. So here is the new allocation which is sorta but not really Golden Butterfly-ish.

The basics will stay the same: amp up to round 2x using 3x ETFs to increase our cash stash while realizing we are going to take some volatility decay hit.

What is different:

Portfolio Allocation
- For the aggressive part (stocks)...ditch XIV and UPRO/SPXL and replace with TQQQ @ 28%
-- TQQQ provides similar/better performance and is far less likely to go poof (use futures if your account is big enough)
- For LTTs dial down TMF to 13.5% (use futures if your account is big enough)
- For Gold dial down UGLD to 13.5% (use futures if your account is big enough)
- For cash take on a bit more risk and replace SHY with VCSH @ 45%. For those not keen on VCSH, SHY, VGSH or your favorite super safe cash/STB fund/ETF will work or use rolling 4-week T-Bills

Risk Control
- Because our backtests indicate around a 22% draw down during the financial crisis we are going to slap on an absolute momentum filter whereby the base (non-leveraged version) assets with the exception of VCSH must be returns positive over the previous 100 market days. That not allocated will go into VCSH.
- The downside is we are going to give up a bit when the markets are going up cuz we are gonna get smacked with whipsaw from time to time...them's the tradeoffs.

Benchmark
- We will compare ourselves to VGSH @ 50% with 16.66 to UPRO, TMF and UGLD
- We expect to do worse in a stock bear market, we expect to do better in a stock bull market
Last edited by Kbg on Fri Feb 23, 2018 4:15 pm, edited 1 time in total.
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Re: PP Inspired Leveraged Portfolios

Post by stuper1 » Fri Feb 23, 2018 2:44 pm

Are there rebalancing rules?

Is this a thing where you check once a month but only trade if your absolute momentum signal changes or if you need to rebalance?
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