The Night Effect
- Thread starter Rickshaw Man
- Start date
3 times leverage QQQ & SPY overnight ETFs are still missing, but this is a progress for the beginning.
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Thank you for sharing @Rickshaw Man. Volume seems low but it should be fine for holding small amounts.
So night hours for equity markets are shortened right, it's not 24 hours. Like maybe 6-830 cst?
so they are comparing performance from 6-830, to 830-3p? If they are , it feels like a apple to orange comparison.
This is a well known effect. The problem in trading it is the transaction costs. Those charts aren't including them.
NightShares is well aware of this and they claim to be able to sufficiently minimize the transaction costs using swaps etc.
It would be interesting to follow this and see how their returns (after all expenses) compare to vanilla buy and hold. No real track record yet. In addition to *their* transaction costs to run it (which you'll feel with a drag on the ETF price), there's also a 0.55% expense ratio.
I'm not interested in buying the ETFs, but I am interested in whether the company has any success.
NightShares is well aware of this and they claim to be able to sufficiently minimize the transaction costs using swaps etc.
It would be interesting to follow this and see how their returns (after all expenses) compare to vanilla buy and hold. No real track record yet. In addition to *their* transaction costs to run it (which you'll feel with a drag on the ETF price), there's also a 0.55% expense ratio.
I'm not interested in buying the ETFs, but I am interested in whether the company has any success.
What transaction costs? Buying 100 shares of stock (including ETFs) with IB is like $1 for me most times. So buying or selling (short) 100 shares of TQQQ, controlling ~$2127 of notional equity, would cost like $1 no? And that's for retail. Sure seems a very small transaction fee, like .047%, or double it to .094% for a round-trip trade. What am I missing?
Good to see you post again Rickshaw Man!
Good to see you post again Rickshaw Man!
From the brochure:
"Certainly a broad index oriented strategy that buys all the securities at their respective weights every night and sells them every morning could lead to a high level of transaction costs that would negate the value of the Night Effect."
It's not a single transaction cost.
Okay, so for the sake of argument, let's say you pay $1 on 100 shares of SPY. There are 252 trading days in a year. You buy at the close and sell the following morning. That's 252 * 2 * 1 = 504 in commissions. You also have the bid/ask. For the sake of argument, let' say you cross half the time on a spread of a penny. That's 252 * 100 shares * 0.01 = 252. So, you pay 252 + 504 = 756 on 37,500. That's a 2% drag.
So, you'll pay 2% so that, with SPY at least, you would have earned ~9.8%-2% = 7.8% on 11% vol instead of ~12.1% on 16.5% vol. Is it worth it? You earn 4.3% less to save 5.5% on vol. Depends on you, I guess. If you just want to use sharpe as a proxy, the answer is no: 0.73 vs 0.71. That's a lot of work to earn a lower sharpe.
You might point to IWM where you would actually have made more on this strategy by avoiding the day losses. Meh, maybe. Look at the other research on all the other markets first. Last time I looked (~10 years ago) it didn't look good. There's a reason nobody has eaten away this 'free lunch' after all these years... it's rotten.
Yes, maybe they can cut down on those costs with swaps etc. I'm not sure it'll be worth it. I do think, however, they'll garner a lot of interest with the right marketing. That's why I'll be interested to watch the prospects of the company, but I won't be buying the ETF.