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Downturn strategies (SQQQ)
Posted on 2/8/21 at 3:23 pm
Posted on 2/8/21 at 3:23 pm
I've read conflicting methods on downturn protection, but see if this makes sense. SQQQ has about reached the point where it has been hammered into the ground ($12/share). I am contemplating purchasing about 5-10% of my total non-retirement portfolio in SQQQ. Should we see a market correction of around 30% on equities like last spring, I should more than make up for my temporary losses (SQQQ hit around $150/share). The potential for loss on the SQQQ is minimal since it is already so close to zero. Upside could be very substantial when the SHTF.
Am I wrongthink here, or is this a valid plan to execute in the coming months?
Am I wrongthink here, or is this a valid plan to execute in the coming months?
5
Posted on 2/8/21 at 3:27 pm to Bamajedi
quote:
The potential for loss on the SQQQ is minimal since it is already so close to zero.
If it gets low enough they will reverse split it.
I wont argue the merits of a 30% correction. You are paying for insurance just know that it could be a complete loss of the funds you put in not minimal as you assume
This post was edited on 2/8/21 at 3:29 pm
Posted on 2/8/21 at 3:30 pm to hiltacular
Following this thread. I'm not smart enough to explain it in detail but I'm sure you understand the risk posed to you by time decay. You have to figure we're due for a significant correction at some point (stonks can't only go up) but this only woks if your timing is spot on.
Posted on 2/8/21 at 3:32 pm to Bamajedi
as hiltacular noted you should (if you do this) treat it as insurance. i would not "buy & hold" SQQQ. buy it weekly at most, then get out, and then do it again
Posted on 2/8/21 at 3:37 pm to hiltacular
quote:
If it gets low enough they will reverse split it.
That's why I ask for you smarties to input. I haven't thought about that. A while back I bought $1K of TQQQ and I held on to it. It is now worth over $3K. They just did a 2:1 split on it, but that didn't hurt me any. Is there some other shenanigan I should be on the lookout for? I realize these leveraged funds are supposed to be watched over daily, but this is my first time exploring what to do when the market goes backwards.
Posted on 2/8/21 at 3:39 pm to hiltacular
I second hiltacular. They will reverse split it. That might be still a few months out since they last did a reverse split last August. But it was somewhere down here last time IIRC.
Also, I agree that a drop is likely, but I would consider not putting too much in SQQQ at the first drop. SQQQ is a short term vehicle. And a bounce is always likely before we’re deep into the bear.
PSQ is another NASDAQ short. A little less volatile.
The best way to play a bear is to sit in cash and watch for breakout growth stocks at the start of the next bull.
Also, I agree that a drop is likely, but I would consider not putting too much in SQQQ at the first drop. SQQQ is a short term vehicle. And a bounce is always likely before we’re deep into the bear.
PSQ is another NASDAQ short. A little less volatile.
The best way to play a bear is to sit in cash and watch for breakout growth stocks at the start of the next bull.
Posted on 2/8/21 at 3:56 pm to Bamajedi
Yeah if you look at the price history for these leveraged etfs it can be misleading. They are really intended for short term price action. Like buying at todays highs for a dip tomorrow could be a nice swing trade. BUT if you truly want insurance for a massive dip that could come SQQQ is one way to do it.
Posted on 2/8/21 at 4:30 pm to Bamajedi
Buy a put on QQQ or SPY several months out
Posted on 2/8/21 at 4:43 pm to Bamajedi
quote:
The potential for loss on the SQQQ is minimal since it is already so close to zero.
I’ll admit I don’t know much about the mechanics of inverse ETFs (much less 3x leveraged inverse ETFs) but isn’t the potential for loss still effectively 100%?
A quick Google search tells me SQQQ has already undergone 5 reverse splits since 2012 (four 1-4 and one 1-5). Including one in 2019 and one in 2020.
If you had bought 20 shares of SQQQ at the beginning of 2019, at ~$330/share (total cost basis ~$6,600), today you would have 1 share worth $12.26. That’s a 99.8% loss in 2 years.
OTOH, if you had bought at the bottom right before the correction last spring (~$82) and sold at the peak right when everything had crashed ($160) you still would have only seen a ~97.5% gain. With perfect timing.
Seems like there must be ways to hedge with less risk of total loss.
This post was edited on 2/8/21 at 4:46 pm
Posted on 2/8/21 at 5:02 pm to Bamajedi
Wouldn't VXX be similar?
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