PP Inspired Leveraged Portfolios

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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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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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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 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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Re: PP Inspired Leveraged Portfolios

Post by Kbg » Fri Feb 23, 2018 4:27 pm

One could check monthly or more frequently. The 100 market days return test is checked monthly and the portfolio was rebalanced monthly for the backtest. Personally I would check returns once a month minimum and rebalance at a level one feels comfortable with. One could use 125, 133 or 150% of target allocation. I don't see much difference performance wise vs. what has been posted about quite a bit in the PP rebalancing discussion threads. The fact is whether rebalancing is helpful or hurtful is totally dependent on what happens in the future...more bouncy, rebalance more, more trendy, rebalance less. As I've posted many times in many places here...rebalancing is about risk control not performance. In the other thread I posted my personal technique...hit a band, then wait for a pause point in something that has been trending and pull the trigger.
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Re: PP Inspired Leveraged Portfolios

Post by clacy » Wed Feb 28, 2018 9:52 am

Kbg wrote: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.

Kbg, you probably covered this in your previous thread, but why not just lever the standard PP?
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Re: PP Inspired Leveraged Portfolios

Post by Kbg » Wed Feb 28, 2018 10:48 am

That’s pretty much what the previous portfolio was with a dash of XIV thrown in. Going forward I’ll report on a straight leveraged version 50% SHY 16.66 the other three. I consider that the “benchmark” for this version to beat (hopefully).
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Re: PP Inspired Leveraged Portfolios

Post by Mark Leavy » Thu Mar 01, 2018 9:43 am

https://www.bloomberg.com/news/articles ... y-products
ProShares Advisors announced changes to its investment objectives to reduce leverage on its Short VIX Short-Term Futures exchange-traded fund (ticker SVXY) and Ultra VIX Short-Term Futures ETF (ticker UVXY). The former, which allowed investors to bet against a rise in volatility, is now aiming to deliver returns equal to one-half the inverse move of the S&P 500 VIX Short-Term Futures Index. Previously, the product had sought to be a perfect mirror image each session.

ProShares’s shifts will be effective as of the close of trading on Feb. 27
Well... this certainly puts a wrench in the models.
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Re: PP Inspired Leveraged Portfolios

Post by Kbg » Thu Mar 01, 2018 9:59 am

Interesting development. On Twitter I follow some of the volatility guys and it appears ZIV will be more volatile than SVXY. Also much grousing about the basically no notice change on gearing down UVXY (SVXY as well). The OCC ruled there would be no options adjustment so if you were on the wrong side of that, instantaneous loss. I’m done with these instruments. I made a bunch of money and lost a big chunk as well but overall a nice trade since 2011. However, it’s clear their sponsors aren’t really standing behind them...and that’s as clear a warning as anyone should need to move along.

I may short term dabble on a major VIX spike, but that’s trading not investing.
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Re: PP Inspired Leveraged Portfolios

Post by Kbg » Fri Mar 30, 2018 11:49 pm

Classic 2x: 200K equivalent/16.667 each to the UPRO, TMF, UGLD and 50% to SHY/50K SHY and 150K (50K x3) equivalent everything else

Classic 1x: 100K/25% each to SHY, TLT, GLD, SPY

KMix 2.1x: 45% VCSH, 28% TQQQ, 13.5% TMF, UGLD

Purchase price was at the close 12/30/16 through the close on 12/29/17

2x = -3.09%/-8.44%DD

1x = -.96%/-4.16%DD

KM = -1.16%/-11.69%DD

This year could be a challenging one. Be careful out there!
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Re: PP Inspired Leveraged Portfolios

Post by Kbg » Wed Apr 11, 2018 9:37 pm

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Re: PP Inspired Leveraged Portfolios

Post by Kbg » Fri Jun 08, 2018 8:36 am

Classic 2x: 200K equivalent/16.667 each to the UPRO, TMF, UGLD and 50% to SHY/50K SHY and 150K (50K x3) equivalent everything else

Classic 1x: 100K/25% each to SHY, TLT, GLD, SPY

KMix 2.1x: 45% VCSH, 28% TQQQ, 13.5% TMF, UGLD

Purchase price was at the close 12/29/17 through the close on 6/7/18

2x = -2.68%/-8.86%DD

1x = -.31%/-4.16%DD

KM = 4.40%/-11.69%DD

Looks like almost half way through the year things are turning out as predicted - challenging! I won't be surprised to see TQQQ tank this year and overall the year to not end all that well.

Here's the latest on decay: https://seekingalpha.com/article/418003 ... -dashboard

Unsurprisingly, UGLD has provided a stiff dose of decay. Range bound is a very not good state for 3x ETFs. So long as the current range sticks, rebalancing UGLD by buying at 11 and selling at 12 could turn that dynamic around very nicely. I think I will take a look at that for my account. 18-20 for TMF is another possibility, though TMF has been more random. If one is thinking of trying the above, do the math, check the costs to ensure it is useful/profitable for you and if there is a breakout either way just go back to your normal rebalance range. Do not average down or scale out if there is a breakout. Basically for this portfolio it is best to let things run...but if something isn't running and you have the time to manage it then you can make $$$ on the back and forth. Implementation via good til cancelled orders with limit prices. And remember, your primary rebalance strategy should remain in place and executed above all...what is described is just a little tactical diversion to turn decay into a little profit.
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Re: PP Inspired Leveraged Portfolios

Post by Kbg » Wed Jul 18, 2018 12:59 pm

From Morningstar: 5 year returns

TMF to TLT x1.74
TQQQ to QQQ x2.89
UGLD to GLD x9.96 (ouch as the annualized return for GLD has been -1.17 for the 5 year period)

If one could have stomached holding TQQQ since it's initial opening they would be sitting on just shy of 320K vs. around 35K for 10K invested (2008 til now)
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Re: PP Inspired Leveraged Portfolios

Post by Kbg » Fri Jul 20, 2018 6:20 pm

Classic 2x: 200K equivalent/16.667 each to the UPRO, TMF, UGLD and 50% to SHY/50K SHY and 150K (50K x3) equivalent everything else

Classic 1x: 100K/25% each to SHY, TLT, GLD, SPY

KMix 2.1x: 45% VCSH, 28% TQQQ, 13.5% TMF, UGLD

Purchase price was at the close 12/29/17 through the close on 7/20/18

2x = -4.48%/-8.86%DD

1x = -1.11%/-4.16%DD

KM = 5.27%/-11.69%DD
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Re: PP Inspired Leveraged Portfolios

Post by Mark Leavy » Fri Jul 20, 2018 9:00 pm

kbg,

Have you walked away from volatility?

I moved some money into SVXY after XIV went tits up - using some back of the envelope calculations - but I'm no longer confident in my models - especially since SVXY went to 50% of inverse VIX tracking. I need to spend a weekend and really do the math to develop a more solid model, but I'm curious as to where you stand now that the dust has settled a bit.

Cheers - and thank you for the meaty posts that you have served up.
Mark
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Re: PP Inspired Leveraged Portfolios

Post by ozzy » Fri Jul 20, 2018 10:04 pm

Hi all, adding my 2 cents. My leveraged PP is the following:

45% UPRO
35% TMF
20% UGLD

I keep it simple and just rebalance annually. Its returned 22.23% CAGR over the past 5 years (2013-2017), here's a performance screenshot:
http://www.tightwadweb.com/3x-2013-2017.jpg

So far, the first 6 months of 2018 its down -7.08%. No worries, I'm a long term buy-and-holder.
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Re: PP Inspired Leveraged Portfolios

Post by modeljc » Sat Jul 21, 2018 10:22 am

ozzy wrote:
Fri Jul 20, 2018 10:04 pm
Hi all, adding my 2 cents. My leveraged PP is the following:

45% UPRO
35% TMF
20% UGLD

I keep it simple and just rebalance annually. Its returned 22.23% CAGR over the past 5 years (2013-2017), here's a performance screenshot:
http://www.tightwadweb.com/3x-2013-2017.jpg

So far, the first 6 months of 2018 its down -7.08%. No worries, I'm a long term buy-and-holder.
Thanks! I wonder if there is anyway you could backtest this for returns and draw down for another 35 year or so. I know the 3X leverage did not exsist in 1971 but would appreciate it if you could make some assumptions and do a back test.
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Re: PP Inspired Leveraged Portfolios

Post by Kbg » Sun Jul 22, 2018 9:47 am

Mark Leavy wrote:
Fri Jul 20, 2018 9:00 pm
kbg,

Have you walked away from volatility?

I moved some money into SVXY after XIV went tits up - using some back of the envelope calculations - but I'm no longer confident in my models - especially since SVXY went to 50% of inverse VIX tracking. I need to spend a weekend and really do the math to develop a more solid model, but I'm curious as to where you stand now that the dust has settled a bit.

Cheers - and thank you for the meaty posts that you have served up.
Mark
I did. I like ZIV but I do not like Credit Suisse. Not sure SVXY is really that compelling. It would be great if you would post what you find. I'd be interested. I miss the "make money when the market if it is doing nothing" of volatility. It is helpful that way. TQQQ is my replacement...but not the same of course
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