2024-05-05 14:12:56 ET
Summary
- Tail-risk hedges can constrain worst-case losses and mitigate volatility decay in trading 3X-leveraged UPRO. XSP works well for hedging UPRO.
- Using 3X-leveraged UPRO in 1/2 commitments normally devoted to SPY or S&P holdings can offer greater gain potential and lower risk exposure.
- With structured hedge strategies, using UPRO with XSP hedges typically mitigates 98%-confidence loss potential by over 70% while preserving 80%+ of the gain potential.
- Since XSP trades at 8 times UPRO, on downturns XSP put options ultimately overtake UPRO's 3X leverage. Hence the "tail risk' terminology is particularly appropriate.
- If you're inclined toward mini panics on sharp daily downturns, consider putting a hard bottom on your exposure, and then consider running high-return symbols.
Introduction
For about a year now I've been trading 3X-leveraged [[UPRO]] with tail-risk hedges using [[XSP]] options. That combination offers unique advantages which will be explained here....
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For further details see:
3X Returns With Constrained Exposure - Tail Risk Hedging