In an effort to better understand the instruments that are being
traded with the Spy Pro System, are you aware of any similar
potential "Black Swan" concerns/risks with the other leveraged ETFs
used by the system (SSO, UPRO or possibly SPXL)? Is their 2x
/ 3x leverage effectively maintained relatively closely with
respect to the SP500 index on a daily basis without significant
changes in this leveraging amount due to magnitude or rate of
market volatility? Of course investing involves risk, but as
part of risk management, are you aware of any other potential
concerns/risks with SSO, UPRO, SPXL that would be in addition to
the inherent daily 2x / 3x S&P500 leveraging such that the
leveraging could increase significantly (gain or loss) in response
to other market factors?
I'm mentioning this I thought I had noticed on a couple trading
days last week that UPRO appeared to close well above the 3x SP500
price, and then well below the 3x SP500 price the following day.
Perhaps that was some anomaly with StockCharts at that time,
but I had noticed that SPXL traded close to the 3x SP500 price
during that same duration - which is why I have used SPXL lately
instead of UPRO. But based on your response, perhaps I may
need to re-evaluate how/when to use these specific leveraged ETFs
and how I may need to set and adjust a stop loss with the Spy Pro
System. Any additional info/guidance/suggestions you may have
is welcome and appreciated.
Great question Nick as this is something that has been discussed
many times here but seemingly overlooked by some. For starters, all
leveraged products by nature imply added risk. I have noted and
posted that many of the commodity ETF/ETNs seem especially
problematic over time. Remember this fact, these leveraged
instruments were designed for sophisticated investors to be
primarily used as short term vehicles such as overnight hedging.
You must understand that there prices are recalibrated everyday
which leads to certain degrees of variation to the underlying
security they are tracking. My main message last evening was
to avoid trading the questionable leveraged instruments until you
have a full and complete understanding of how they work and
their inherent risks after reading the respective
prospectus.
Thanks, Steve... I didn't see this post until after I posted my
last one. I think I had understood the leveraging/degradation
risks, but not sure that I had understood all of the "implied"
added risk... at least as it applied to its use in the Spy Pro
system. I do try to read and listen to the newsletters, but
sometimes I'm not able to get to them all. I know the FAQ
section of the Spy Pro system has warnings about allocating your
capital with leveraged investments, but perhaps a little more
information to discuss/identify these potential/ implied risks and
how that may or may not be reflected in the System Performance
would be helpful. But a sincere thanks for all your efforts,
guidance, and recommendations based on your investing and trading
experience.
definitely. Though I will say that in my investigation SSO
and UPRO's were very well managed and didn't degrade over time,
they would have 2 and 3X the performance over months and months,
whereas things like XIV especially, and VXX, UVXY, and even other 2
and 3X ETF's degraded horrible, NUGT, UGAZ, heck even some 1X ETF's
like USO and UNG degrade. SSO and UPRO seemed to be some of
the best. But that said, there's always gonna be some risk
with any leveraged ETF
Thanks for the information, Matt. It's good to know
that although your investigation found the SSO and UPRO ETFs to be
well managed and maintained good leverage performance over time,
they still have potential risks that might affect the performance
or potentially have a "Black Swan" event. I know it may be
hard to quantify, but I assume from your response that SSO and UPRO
may have risks, but may not be in the same risk category / level of
risk as the XIV "crap"?
After doing a little research, it makes sense that if the
S&P500 reaches an intraday loss of 33%, then the entire UPRO
investment/position could be lost in a "Black Swan" event.
While it appears that this condition would not have occurred
in UPRO with the Black Monday S&P500 drop of 20.5%, it
doesn't mean that it couldn't occur in future market conditions.
Using well-managed investment tools with a lot of liquidity,
a system like Spy Pro, having some hard stop-losses does help to
manage the risk. However, if this type of event were to occur
in after-hours, I'm not sure that my current trading
platform/provider applies the regular market session stop-loss in
After-hours trading... With lower liquidity in after-hours, some of
these moves can be amplified that would not be present when
liquidity is higher during the day, and may want to figure that
into setting a stop loss in after hours as well.
Sorry for the rambling, but just trying to do a better job of
identifying any additional potential risk, and evaluating that risk
in investment/trading decisions with the Spy Pro system - risk that
may not be apparent from the System / sub-system statistics that
you have already provided. Appreciate all of the additional
feedback on this topic that you and Steve have provided in the
extra posts in the trading community and newsletter this past
evening. Any additional thoughts/comments/suggestions that
you might have on how we can better identify/evaluate/manage
increased risk to these investments under changing market
conditions (other than what you and Steve have already
posted/discussed this evening) is also appreciated.
Thanks!
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Matt / Steve: In an effort
with all due respect, Steve says stay away from crap ...
Posted by desanyn on 6th of Feb 2018 at 12:47 am
Matt / Steve:
In an effort to better understand the instruments that are being traded with the Spy Pro System, are you aware of any similar potential "Black Swan" concerns/risks with the other leveraged ETFs used by the system (SSO, UPRO or possibly SPXL)? Is their 2x / 3x leverage effectively maintained relatively closely with respect to the SP500 index on a daily basis without significant changes in this leveraging amount due to magnitude or rate of market volatility? Of course investing involves risk, but as part of risk management, are you aware of any other potential concerns/risks with SSO, UPRO, SPXL that would be in addition to the inherent daily 2x / 3x S&P500 leveraging such that the leveraging could increase significantly (gain or loss) in response to other market factors?
I'm mentioning this I thought I had noticed on a couple trading days last week that UPRO appeared to close well above the 3x SP500 price, and then well below the 3x SP500 price the following day. Perhaps that was some anomaly with StockCharts at that time, but I had noticed that SPXL traded close to the 3x SP500 price during that same duration - which is why I have used SPXL lately instead of UPRO. But based on your response, perhaps I may need to re-evaluate how/when to use these specific leveraged ETFs and how I may need to set and adjust a stop loss with the Spy Pro System. Any additional info/guidance/suggestions you may have is welcome and appreciated.
Thanks!
- Nick
Great question Nick as this
Posted by steve on 6th of Feb 2018 at 06:38 am
Great question Nick as this is something that has been discussed many times here but seemingly overlooked by some. For starters, all leveraged products by nature imply added risk. I have noted and posted that many of the commodity ETF/ETNs seem especially problematic over time. Remember this fact, these leveraged instruments were designed for sophisticated investors to be primarily used as short term vehicles such as overnight hedging. You must understand that there prices are recalibrated everyday which leads to certain degrees of variation to the underlying security they are tracking. My main message last evening was to avoid trading the questionable leveraged instruments until you have a full and complete understanding of how they work and their inherent risks after reading the respective prospectus.
Thanks, Steve... I didn't see
Posted by desanyn on 6th of Feb 2018 at 07:20 am
Thanks, Steve... I didn't see this post until after I posted my last one. I think I had understood the leveraging/degradation risks, but not sure that I had understood all of the "implied" added risk... at least as it applied to its use in the Spy Pro system. I do try to read and listen to the newsletters, but sometimes I'm not able to get to them all. I know the FAQ section of the Spy Pro system has warnings about allocating your capital with leveraged investments, but perhaps a little more information to discuss/identify these potential/ implied risks and how that may or may not be reflected in the System Performance would be helpful. But a sincere thanks for all your efforts, guidance, and recommendations based on your investing and trading experience.
definitely. Though I will say
Posted by matt on 6th of Feb 2018 at 12:51 am
definitely. Though I will say that in my investigation SSO and UPRO's were very well managed and didn't degrade over time, they would have 2 and 3X the performance over months and months, whereas things like XIV especially, and VXX, UVXY, and even other 2 and 3X ETF's degraded horrible, NUGT, UGAZ, heck even some 1X ETF's like USO and UNG degrade. SSO and UPRO seemed to be some of the best. But that said, there's always gonna be some risk with any leveraged ETF
Thanks for the information, Matt.
Posted by desanyn on 6th of Feb 2018 at 07:04 am
Thanks for the information, Matt. It's good to know that although your investigation found the SSO and UPRO ETFs to be well managed and maintained good leverage performance over time, they still have potential risks that might affect the performance or potentially have a "Black Swan" event. I know it may be hard to quantify, but I assume from your response that SSO and UPRO may have risks, but may not be in the same risk category / level of risk as the XIV "crap"?
After doing a little research, it makes sense that if the S&P500 reaches an intraday loss of 33%, then the entire UPRO investment/position could be lost in a "Black Swan" event. While it appears that this condition would not have occurred in UPRO with the Black Monday S&P500 drop of 20.5%, it doesn't mean that it couldn't occur in future market conditions. Using well-managed investment tools with a lot of liquidity, a system like Spy Pro, having some hard stop-losses does help to manage the risk. However, if this type of event were to occur in after-hours, I'm not sure that my current trading platform/provider applies the regular market session stop-loss in After-hours trading... With lower liquidity in after-hours, some of these moves can be amplified that would not be present when liquidity is higher during the day, and may want to figure that into setting a stop loss in after hours as well.
Sorry for the rambling, but just trying to do a better job of identifying any additional potential risk, and evaluating that risk in investment/trading decisions with the Spy Pro system - risk that may not be apparent from the System / sub-system statistics that you have already provided. Appreciate all of the additional feedback on this topic that you and Steve have provided in the extra posts in the trading community and newsletter this past evening. Any additional thoughts/comments/suggestions that you might have on how we can better identify/evaluate/manage increased risk to these investments under changing market conditions (other than what you and Steve have already posted/discussed this evening) is also appreciated. Thanks!