NVDA Multi-Asset Income Strategy
Recently, I've been looking a lot at Yield Max ETFs and other options-based yield ETFS more generally such as QDTE, XDTE, RDTE, QQQI, SPYI, YQQQ (inverse), etc.
One possible way to outperform SPY & QQQ, may be to consider investing in such ETFs, though this is purely theoretical s tradingview does not provide a quality backtesting software for a complex multi-asset, multi-directional strategy like this. Nothing in this strategy should be considered financial advice and there are various factors to consider, such as beta decay, mismanagement of the ETFs, tax advantages/disadvantages, reinvestment risk, risks associated with options in income-based derivatives, risks with leveraged assets, and the obviously risks with inverse assets.
In this chart, we are looking at the leveraged ETF NVDL, which tracks NVDA. It's important to note that this asset will decay whenever NVDA trades sideways or goes down over substantial periods of time, and when NVDA goes down the negative % returns are multiplied. Therefore a trader or "sophisticated investor" (FINRA term) needs to not only optimize their position size for a trading period, but also optimize the timing of entry's and exits on multiple position. They will also want to model, volatility, decay, and reinvestment risk (arguably the hardest in this case. This post will not discuss the specifics of those and instead, these topics should be considered as a form of "homework" for you, the reader to think about and discuss in the comments as food for thought.
In this theoretical multi-asset income strategy, risk is managed through the use of income based ETFs that are either bullish or bearish, I think of this as "directional income". In this case, NVDY is the bullish income asset and DIPS is the bearish income asset, both of which pay dividend monthly and their price performance behaves very similar to a leveraged ETF, in the sense that they only really increase when the underlying the underlying asset moves in the direction of the income derivative. Theoretically, by managing position size with the use of a modified Kelly Criterion which accounts for fed rates, the decay of the asset, and timing (through technical analysis, seasonality and quantitative analysis), I wonder if a trader could swing-trade between various income-based derivatives and leveraged assets, in order to optimize both income and grow irrespective of market conditions.
In truth, I'm still not sure if this is a completely degenerate idea no different to the way banks stacked bad loans together in 2008 and slapped a Grade A rating, and in the process over valued quantitative methods (see the book "Quants") as a sort of grad delusion to completely avoid risks, like a doctor wishing to delete pain from the world with an addictive pill, shilled by Big Pharma... Only in this case, instead of CMBS, it's ETF, leveraged ETFs, options on both, creating a derivative, then stacking more derivative on top of that...
Who knows, though... Maybe this could be a way to profit from this madness?
I honestly don't know.
What I do know is, I find the idea of "directional income" as a hedge more appealing than an inverse leveraged ETF and I'm curious how to apply this to either a single asset or multi-asset portfolio. It's a very interesting idea and I plan to spend the year exploring this idea at the cost of my own capital, rather than someone else's capital.
One possible way to outperform SPY & QQQ, may be to consider investing in such ETFs, though this is purely theoretical s tradingview does not provide a quality backtesting software for a complex multi-asset, multi-directional strategy like this. Nothing in this strategy should be considered financial advice and there are various factors to consider, such as beta decay, mismanagement of the ETFs, tax advantages/disadvantages, reinvestment risk, risks associated with options in income-based derivatives, risks with leveraged assets, and the obviously risks with inverse assets.
In this chart, we are looking at the leveraged ETF NVDL, which tracks NVDA. It's important to note that this asset will decay whenever NVDA trades sideways or goes down over substantial periods of time, and when NVDA goes down the negative % returns are multiplied. Therefore a trader or "sophisticated investor" (FINRA term) needs to not only optimize their position size for a trading period, but also optimize the timing of entry's and exits on multiple position. They will also want to model, volatility, decay, and reinvestment risk (arguably the hardest in this case. This post will not discuss the specifics of those and instead, these topics should be considered as a form of "homework" for you, the reader to think about and discuss in the comments as food for thought.
In this theoretical multi-asset income strategy, risk is managed through the use of income based ETFs that are either bullish or bearish, I think of this as "directional income". In this case, NVDY is the bullish income asset and DIPS is the bearish income asset, both of which pay dividend monthly and their price performance behaves very similar to a leveraged ETF, in the sense that they only really increase when the underlying the underlying asset moves in the direction of the income derivative. Theoretically, by managing position size with the use of a modified Kelly Criterion which accounts for fed rates, the decay of the asset, and timing (through technical analysis, seasonality and quantitative analysis), I wonder if a trader could swing-trade between various income-based derivatives and leveraged assets, in order to optimize both income and grow irrespective of market conditions.
In truth, I'm still not sure if this is a completely degenerate idea no different to the way banks stacked bad loans together in 2008 and slapped a Grade A rating, and in the process over valued quantitative methods (see the book "Quants") as a sort of grad delusion to completely avoid risks, like a doctor wishing to delete pain from the world with an addictive pill, shilled by Big Pharma... Only in this case, instead of CMBS, it's ETF, leveraged ETFs, options on both, creating a derivative, then stacking more derivative on top of that...
Who knows, though... Maybe this could be a way to profit from this madness?
I honestly don't know.
What I do know is, I find the idea of "directional income" as a hedge more appealing than an inverse leveraged ETF and I'm curious how to apply this to either a single asset or multi-asset portfolio. It's a very interesting idea and I plan to spend the year exploring this idea at the cost of my own capital, rather than someone else's capital.
כתב ויתור
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