Talk about leveraged ETFs and their options

We all know that TQQQ is three times as long as QQQ, so buying one TQQQ share is equivalent to buying how many QQQ shares? In other words, after buying x shares tqqq, what is the ratio of x and y to achieve the same profit/loss?

If your answer is 3, then you've made a mistake. A clear understanding of the leverage ratio is very important for leveraged ETFs.

The current price of qqq is 426, and tqqq is 56; the ratio of the two rates of change is three times, that is, qqq increased by 1% and tqqq increased by 3%. The actual change in stock price is that qqq rose 4.26, and tqqq rose 1.68. The calculation shows that 4.26/1.68 = 2.5, which means that the increase in 1 share of qqq requires buying 2.5 shares of tqqq to eat.

What is the utilization rate of funds?

As can be seen from the above question, in the case where the profit is the same, the ratio of QQQ and TQQ shares is 1:2.5, and the amount required to invest is 426:140 = 3. Therefore, everyone should be aware that triple leverage is based on capital rather than number of shares. At this point, the results are very intuitive. Next, let's discuss the options issue.

The current monthly option call ATM price is qqq: tqqq = 9.2:3.4 = 2.7. The result we got in question 1 is 2.5, which is very close. However, there is also a share leverage ratio for options.

1. Mobility. Some of the underlying leveraged ETFs have different liquidity. Choose better liquidity as much as possible, reduce spreads, and the difficulty of closing positions after drastic changes

2. The volume of funds. If you want to cash secure sell put TSLA, you need at least 18k cash, while the starting price of tsll is only 1k, which is much more room for adjustment; conversely, if you have large enough capital, then the original stock will be better because the handling fee for options trading will be less, and there is no need for additional adjustment space brought about by the low stock price of leveraged ETFs.

3. The investment cycle. Leveraged ETFs are generally not suitable for long periods of time; they are only suitable for short hedging or one cycle (1 day to 1 month). Long-term holding and management fees can cause many unexpected losses. However, the option price pricing for leveraged ETFs takes wear into account, but it is not possible to accurately predict the future wear rate (continuous movement up and down will accelerate wear, and unidirectional motion alone will cause very little wear)