ProShares UltaPro QQQ (TQQQ) is a leveraged ETF that seeks daily returns that are three times those of the Nasdaq 100 Index before fees and costs (or the QQQ ETF, which tracks the same index). For example, if the QQQ gains 1% in a day, the TQQQ will most likely rise 3%.
If you decide to invest, keep in mind that the 3x return applies to both the upside and the downside. If the price of the QQQ drops by 1%, the TQQQ might drop by 3%. That means that buying TQQQ is essentially betting on the Nasdaq 100 (or QQQ) rising. TQQQ is primarily used by investors as a speculative tool with a limited holding duration.
Is it safe to put money into TQQQ?
Don’t buy and hold TQQQ – or other leveraged stocks ETF – “naked” for the long term unless you have a hedge in place, because they can’t always recover from significant losses. TQQQ has had a terrific decade, but don’t be fooled by its recent success.
TMF is most likely the best hedge for TQQQ and UPRO funds. Check out my discussion on levering up the All Weather Portfolio if you have a weak stomach but still want to employ leverage.
TQQQ is a sort of stock.
- The Nasdaq 100 Index is primarily made up of technology businesses, with most financial equities excluded.
- QQQ is better suitable for long-term investments due to its nature, whereas TQQQ is designed for short-term holding periods.
Who controls Tqqq?
Susquehanna International Group, Llp, Jane Street Group, Llc, Jane Street Group, Llc, Citadel Advisors Llc, Citadel Advisors Llc, Jane Street Group, Llc, Cutler Group LP, Cutler Group LP, Wolverine Trading, Llc, and IMC-Chicago, LLC are the company’s largest shareholders.
TQQQ is taxed in what way?
ETFs are a low-cost, simple method to invest in a wide range of asset types, from equities to bonds and commodities. Or at least that’s how many investors, both professionals and private investors, see them.
Some are expensive, while others have peculiarities that can result in unanticipated losses.
- Contango. It has the sound of a Latin dancing step. It isn’t the case. It’s the name given to an investment that consists of a succession of futures contracts, with near-month contracts being less expensive than longer-term contracts.
When the near-term contract is set to expire, the ETF sells it and uses the funds to purchase a more expensive contract due to contango.
“Essentially, an imprudent investor sells low and buys high over and over,” Todd Rosenbluth, an analyst at S&P Capital IQ, explained.
As a result, ETFs that hold futures may lag their benchmark index in a contango scenario.
When you buy in an ETF that invests in a commodity rather than futures, you avoid being locked into a succession of increasingly expensive contracts.
Understanding when contango is likely to occur is the best defense against being exposed to it.
Many commodity-investing funds use futures contracts rather than purchasing the physical product. “The issue arises when investors believe an ETF invests in the underlying commodity,” Vedran Vuk, senior analyst at Casey Research, explained. “As a result, have a look at the fund’s holdings.”
ETF literature frequently refers to holdings in broad words like “natural gas” and “corn.” This can make it appear as if the fund is investing in the actual commodity. Check the fine print to discover if it invests in futures contracts instead.
Look for built-in contango safeguards as well. Complex securities that are essentially mirror replicas of the ETF’s commodity indexes are used as defenses.
The Optimum Yield version of PowerShares DB Commodity Index Tracking Fund (DBC) tries to reduce the impact of contango.
- Leverage. Investing in and holding leveraged exchange-traded funds (ETFs) that strive to double or triple the movements of underlying indexes can produce better-than-expected returns — but also less-than-expected results.
The distinction is purely mathematical. Leveraged funds promise to provide the promised performance every day, not in a week, month, or year. If an index falls, a fund that doubles the percentage gain will also double the decline. If an index drops one day and then increases by the same amount the following, the leveraged version will come up short. Over time, the disparities can become more pronounced.
Over the last 12 months, PowerShares QQQ (QQQ) has gained 15.19 percent. ProShares Ultra QQQ (QLD), which aims for twice the daily movement of QQQ, could have been up at least 30.38 percent. It was only up 27.42 percent instead.
If you expected ProShares UltraPro QQQ (TQQQ), which aims to quadruple QQQ’s daily gain, to return 45.6 percent, you would have received 37.70 percent instead.
If you’re hoping to outsmart other investors in a downturn by buying a leveraged short ETF in a popular index and banking on it to turn the index’s loss into a double or treble gain, leveraged ETFs are exceptionally risky.
In a fund with contango, leverage is extremely dangerous. “A leveraged ETF with contango can incur massive losses in a short period of time,” according to Rosenbluth.
Leveraged ETFs should only be used for short-term trading and hedging, according to experts.
- Names that are deceptive. Take ProShares Hedge Replication as an example (HDG). This appears to be a technique to gain hedge-fund exposure based on the headline.
This could be appealing to retail investors who are unable to invest in hedge funds due to a lack of income eligibility.
HDG attempts to replicate the HFRI Fund Weighted Composite Index, which includes 2,000 hedge funds. HDG, on the other hand, does not own any hedge funds. Other sorts of assets are used to replicate the index’s risk and return characteristics.
As of Oct. 24, 66 percent of HDG’s assets were invested in three-month Treasuries. “Those are pretty tame,” Vuk of Casey Research said. “They’re completely different from what some retail investors think they’re getting.”
Instead of the outperformance that hedge funds are known for, HDG’s year-to-date return was 1.12 percent, compared to 14 percent for the S&P 500 and 3.37 percent for its multialternative peers as of Oct. 24.
- Concerns about taxes. Consider the SPDR Gold Shares (GLD), which is a gold investment fund. It is formed as a grantor trust, unlike most ETFs. Gains and losses are passed on to stockholders. The underlying assets – in this example, gold bullion — are the target of taxes.
Gains on collectibles, such as gold, are taxed at a rate of 28 percent, rather than the standard 15 percent rate on long-term capital gains.
ETFs formed as partnerships have advantages and disadvantages in terms of taxes. Taxable income is included in their distributions. However, a portion is considered a return of capital, which is not taxed.
Even if no gains were paid or reinvested, you’ll be taxed on the imputed gains reported on the K-1 tax form. The PowerShares DB Commodity Index Tracking ETF, which has a market capitalization of $6.49 billion, is the largest of these ETFs (DBC).
Another structural anomaly exists in the ALPS Alerian MLP ETF (AMLP), Global X MLP ETF (MLPA), and Yorkville High Income MLP ETF (YMLP). These are corporations with the letter C. They pay a federal income tax of 35 percent, as well as state and municipal income taxes. Those taxes are like massive expense ratios that slice returns. Ronald Rowland, head of Capital Cities Asset Management, remarked, “Many people don’t understand taxes.” “They’re looking for (AMLP’s) 6% yield.” This year saw the launch of MLPA and YMLP.
According to Rowland, no other ETFs are taxed at the fund level. The tax structure of the other ETFs is similar to that of a partnership.
- Fees are really high. The average audited annual expense ratio of US stock ETFs is 0.51 percent, compared to 1.37 percent for US stock mutual funds. However, keep an eye out for outliers.
The audited annual expense ratio for Teucrium Natural Gas (NAGS) in 2011 was 11.59 percent. That’s a lot more than you’ll discover in the prospectus, which only shows expenses at specific points in time. The price of Teucrium Crude Oil (CRUD) was 10.76 percent. FactorShares 2X: S&
“The smaller the expense ratio, the better for shareholders,” Rosenbluth explained, “since an expense ratio eats into an ETF’s return.”
Expense ratios are generally high in ETFs with minimal assets, such as new ones. Those featured above have a combined net worth of less than $5 million. According to CEO Dale Riker, both Teucrium funds’ fees reflect nonrecurring expenses from their 2011 debuts.
The spending ratio for NAGS in 2012 is restricted at 1.5 percent. He says that this is what new stockholders pay. CRUD’s expense ratio for the first nine months of this year was 7.26%. Riker believes it will continue to decrease. The prospectus expense ratio for FactorShares is 0.75 percent.
Look for a similar ETF with a lot more assets if you come across a high-expense ETF that shows promise. Expenses paid by a larger number of shareholders should lower the expense ratio.
The United States Brent Oil Fund (BNO) has $48.06 million in assets versus $1.98 million for CRUD. The expenditure ratio for BNO is 0.91 percent. It had a 7.26 percent return until Oct. 19, compared to CRUD’s -11.19 percent.
But this isn’t always the case. Despite having $1.32 billion in assets and a 0.85 percent cost ratio, U.S. Natural Gas (UNG) is down 10.64 percent year to date, compared to -3.89 percent for $5.35 million NAGS.
Rosenbluth advised, “Keep looking.” “Avoiding small funds will give you a leg up on selecting one you prefer.”
Is it possible to lose more money in TQQQ than you put in?
With the potential to treble your investment returns, leveraged ETFs like the popular TQQQ can be very appealing. TQQQ, on the other hand, is a more complicated product than most index ETFs. TQQQ can make you a lot of money, but it can also make you lose money, even if the Nasdaq is flat. In this post, we’ll look at one of TQQQ’s most essential performance characteristics and how to leverage it to trade more efficiently.
Is TQQQ a viable option?
Options can be seen by Expiration Date in Barchart (choose the expiration month/year from the drop-down box at the top of the screen). In the expiration date list, weekly expiration dates are denoted by a (w).
Options information is updated at least once every 15 minutes throughout the day, with a minimum delay of 15 minutes.
To see all possibilities, pick “Near-the-Money” or “Show All” from the drop-down list at the top of the table, and then “Near-the-Money” or “Show All.”
Option quotations with an asterisk * following the strike price are “limited options,” which are frequently generated during mergers or spin-offs.
Options can also be viewed in a stacked or side-by-side format. The View option controls how Puts and Calls appear on the page. “Near-the-Money” Calls and Puts are underlined for both views:
- Choose a page layout (Stacked, Stacked OHLC, Side-by-Side, Side-by-Side HLC)
- Select whether or not the Volume Graph should be displayed. The Volume Graph shows the relative proportions of volume and open interest for various strikes. It allows you to quickly see activity that could indicate new positions or a move in the underlying asset.
- Finally, in the top right corner of the page, click the “Make this my default view” link to preserve your preference for the next time you come.
The information provided at the top of the page for the selected Options Expiration date includes:
- Expiration of Options: The last day on which an option can be exercised or the date on which an option contract expires. The number of days till the options expire is also included (this number includes weekends and holidays).
- The average implied volatility (IV) of the nearest monthly options contract. IV is a forward-looking estimate of the underlying asset’s chance of price change, with a greater IV indicating that the market expects significant price movement and a lower IV indicating that the market expects the underlying asset price to stay within the current trading range.
- History Volatility: The underlying asset’s historic volatility during the last 20 days. Historic volatility is calculated by multiplying the standard deviation of “price returns” over a certain number of sessions by a factor (260 days) to get an annualized volatility level.
Puts and Calls are stacked on top of each other in a Stacked view, which is sorted by Strike Price.
- The price at which the contract can be exercised is known as the strike price. The contract specifies the strike pricing. The strike price for call options is the price at which the shares can be purchased (up to the expiration date), while the strike price for put options is the price at which the shares can be sold. The difference between the current market price of the underlying contract and the strike price of the option signifies the profit per share obtained upon exercise or sale of the option. This is true for in-the-money options; the most money that may be lost is the premium paid.
- Moneyness is calculated as a percentage of the previous price: (strike price – last / last). The relative position of the underlying asset’s last price to the strike price is referred to as moneyness. The underlying last price is less than the strike price when the Moneyness of a call option is negative; when it is positive, the underlying last price is greater than the strike price. When the Moneyness of a put option is negative, the underlying last price is higher than the strike price; when it is positive, the underlying last price is lower.
- The difference between the current price and the previous day’s settlement price is referred to as “change.”
- percent Change: The percentage difference between today’s price and the previous day’s settlement price.
- For that given strike price, the total number of option contracts acquired and sold for the day.
- Open Interest: The total number of open option contracts that have been traded but have not yet been liquidated via offsetting trades for that date is known as open interest.
- For the Strike Price, Vol/OI stands for today’s volume / today’s open interest. A greater ratio suggests that the option has seen unusual activity.
- Implied Volatility (IV) is the estimated volatility of the underlying stock over the option’s expiration period. IV can assist traders in determining if options are cheap, overvalued, or appropriately valued. As a result, it can assist traders in determining option pricing and whether it is a suitable moment to purchase or sell options. Implied volatility is calculated theoretically by combining current option prices with Standard Volatility in a formula (which is based on historical data). The resulting figure aids traders in determining whether or not an option’s premium is “fair.” It’s also a gauge of investors’ expectations for the underlying stock’s future volatility.
The Volume Graph, when enabled, displays the relative share of volume and open interest for chosen strikes. It allows you to quickly see activity that could indicate new positions or a move in the underlying asset.
All calls and puts, not simply Near-the-Money options, are included in the totals at the bottom of the page. Options traded during the current session are included in the volume totals.
- Put Open Interest Total / Call Open Interest Total is the Put/Call Open Interest Ratio.
What is a 3x leveraged ETF, exactly?
Leveraged 3X ETFs monitor a wide range of asset classes, including stocks, bonds, and commodity futures, and use leverage to achieve three times the daily or monthly return of the underlying index. These ETFs are available in both long and short versions.
More information on Leveraged 3X ETFs can be found by clicking on the tabs below, which include historical performance, dividends, holdings, expense ratios, technical indicators, analyst reports, and more. Select an option by clicking on it.
Are leveraged ETFs a bad investment?
- ETFs that are triple-leveraged (3x) carry a high level of risk and are not suitable for long-term investing.
- During volatile markets, such as U.S. equities in the first half of 2020, compounding can result in substantial losses for 3x ETFs.
- Derivatives are used to provide leverage to 3x ETFs, which introduces a new set of risks.
- Because they have a predetermined degree of leverage, 3x ETFs will eventually collapse if the underlying index falls by more than 33% in a single day.
- Even if none of these potential calamities materialize, 3x ETFs have substantial fees, which can result in considerable losses over time.
TQQQ resets how frequently?
This ETF gives the NASDAQ-100 Index 3x daily long leverage, giving it a formidable instrument for investors with a bullish short-term outlook for nonfinancial equities. Investors should keep in mind that TQQQ’s leverage resets on a regular basis, resulting in compounding of gains over time.
TQQQ is a mutual fund, right?
According to Morningstar Inc., the fund, known by its ticker name TQQQ, returned an average of 51.5 percent annually for the ten years ending July 31, making it the single best-performing mutual fund or ETF of the past decade.