Why on EARTH doesn't the SQQQ outperform (on the negative side) more than 3x the QQQ?

S

SoyUnGanador

We all know the TQQQ is designed as a 3x long fund. We all know that it experiences "drag" or "time decay", or whatever you guys want to call it, so over time it does not truly perform as good as 3x the QQQ. I've tested this, it is true. It makes LESS than 3x the return of the QQQ but as more than 3x the drawdown. Not but a ton, but by a significant amount. Makes sense.

But then, by that logic, shouldn't the SQQQs, which are designed to be 3x negatives, if you shorted perform better than 3x the QQQs, not from a 3x total return perspective, but from a return/draw down ratio? Obviously they could adjust the amount of futures to make it 3x, but are not they just SELLING the same futures TQQQ is buying, and if so, should it not get the benefit, rather than the detriment of that time decay?

But by my calculations - since SQQQs inception, if you had invested $100 in QQQ, you would have received an IRR of 16.945% and a max DD of 35.119%

To make that same 16.695% on your money in the SQQQs, you would have had to shorted $33.367 of SQQQ (note, that is slightly MORE than 33.33% if it was a perfect 3x, showing no time decay working in your favor, the opposite it seems to a very little bit), and your max DD would have been 35.663% (again, slightly WORSE) than the DD on the QQQs.

Why does shorting the SQQQs perform slightly worse, rather than somewhat better, than buying the QQQs? Why is there apparently no time decay or whatever?

Thanks! And sorry if this is a very newb question, I'm not sure I know how these funds work.
 
SoyUnGanador said:
We all know the TQQQ is designed as a 3x long fund. We all know that it experiences "drag" or "time decay", or whatever you guys want to call it, so over time it does not truly perform as good as 3x the QQQ. I've tested this, it is true. It makes LESS than 3x the return of the QQQ but as more than 3x the drawdown. Not but a ton, but by a significant amount. Makes sense.

But then, by that logic, shouldn't the SQQQs, which are designed to be 3x negatives, if you shorted perform better than 3x the QQQs, not from a 3x total return perspective, but from a return/draw down ratio? Obviously they could adjust the amount of futures to make it 3x, but are not they just SELLING the same futures TQQQ is buying, and if so, should it not get the benefit, rather than the detriment of that time decay?

But by my calculations - since SQQQs inception, if you had invested $100 in QQQ, you would have received an IRR of 16.945% and a max DD of 35.119%

To make that same 16.695% on your money in the SQQQs, you would have had to shorted $33.367 of SQQQ (note, that is slightly MORE than 33.33% if it was a perfect 3x, showing no time decay working in your favor, the opposite it seems to a very little bit), and your max DD would have been 35.663% (again, slightly WORSE) than the DD on the QQQs.

Why does shorting the SQQQs perform slightly worse, rather than somewhat better, than buying the QQQs? Why is there apparently no time decay or whatever?

Thanks! And sorry if this is a very newb question, I'm not sure I know how these funds work.
More...

https://seekingalpha.com/article/4574152-lessons-of-spxs-decay
 
SoyUnGanador said:
We all know the TQQQ is designed as a 3x long fund. We all know that it experiences "drag" or "time decay", or whatever you guys want to call it, so over time it does not truly perform as good as 3x the QQQ. I've tested this, it is true. It makes LESS than 3x the return of the QQQ but as more than 3x the drawdown. Not but a ton, but by a significant amount. Makes sense.

But then, by that logic, shouldn't the SQQQs, which are designed to be 3x negatives, if you shorted perform better than 3x the QQQs, not from a 3x total return perspective, but from a return/draw down ratio? Obviously they could adjust the amount of futures to make it 3x, but are not they just SELLING the same futures TQQQ is buying, and if so, should it not get the benefit, rather than the detriment of that time decay?

But by my calculations - since SQQQs inception, if you had invested $100 in QQQ, you would have received an IRR of 16.945% and a max DD of 35.119%

To make that same 16.695% on your money in the SQQQs, you would have had to shorted $33.367 of SQQQ (note, that is slightly MORE than 33.33% if it was a perfect 3x, showing no time decay working in your favor, the opposite it seems to a very little bit), and your max DD would have been 35.663% (again, slightly WORSE) than the DD on the QQQs.

Why does shorting the SQQQs perform slightly worse, rather than somewhat better, than buying the QQQs? Why is there apparently no time decay or whatever?

Thanks! And sorry if this is a very newb question, I'm not sure I know how these funds work.
More...
%%
REALLY depends on theQQQ... trend path, so sometimes its better ;
but long term sqqq,SPXS, SPXU will do much worse than SPY/QQQ,UPRO/SPXL.
Also interesting SSO[spyX2] will outperform SPXL, UPRO sometimes.
And in a choppy almost flat year sqqq,spxu,spxs will do notable worse than cash qqq,spy.
Its in the 555 page prospectus or whatever all pages numbers.

By the way max qqq+ sqqq drawdoWn is more that ''35.119%''; its more than ''slightly''=> 80%[$120 QQQ cash to less than $20, bear of 2000-2002] Good question
 
SoyUnGanador said:
We all know the TQQQ is designed as a 3x long fund. We all know that it experiences "drag" or "time decay", or whatever you guys want to call it, so over time it does not truly perform as good as 3x the QQQ. I've tested this, it is true. It makes LESS than 3x the return of the QQQ but as more than 3x the drawdown. Not but a ton, but by a significant amount. Makes sense.

But then, by that logic, shouldn't the SQQQs, which are designed to be 3x negatives, if you shorted perform better than 3x the QQQs, not from a 3x total return perspective, but from a return/draw down ratio? Obviously they could adjust the amount of futures to make it 3x, but are not they just SELLING the same futures TQQQ is buying, and if so, should it not get the benefit, rather than the detriment of that time decay?

But by my calculations - since SQQQs inception, if you had invested $100 in QQQ, you would have received an IRR of 16.945% and a max DD of 35.119%

To make that same 16.695% on your money in the SQQQs, you would have had to shorted $33.367 of SQQQ (note, that is slightly MORE than 33.33% if it was a perfect 3x, showing no time decay working in your favor, the opposite it seems to a very little bit), and your max DD would have been 35.663% (again, slightly WORSE) than the DD on the QQQs.

Why does shorting the SQQQs perform slightly worse, rather than somewhat better, than buying the QQQs? Why is there apparently no time decay or whatever?

Thanks! And sorry if this is a very newb question, I'm not sure I know how these funds work.
More...

I dunno about this SQQQ, but as far as I know about those leveraged ETF's from my experience in trading the SPXL and the SPXS, they are only designed to mimic the 3X of whatever X times the return of the DAILY returns of the underlying and even that is not guaranteed. So over the long term, they would definitely not meet the X times return goal. So those funds are meant to be traded daily and not held over a period of time it seems.

If I were you, I would trade the S&P directly, either through SPX or SPY or the S&P 500 futures or its e-mini futures so that way you get the 1:1 returns at least if you plan on swing trade the market.
 
TheDawn said:
I dunno about this SQQQ, but as far as I know about those leveraged ETF's from my experience in trading the SPXL and the SPXS, they are only designed to mimic the 3X of whatever X times the return of the DAILY returns of the underlying and even that is not guaranteed. So over the long term, they would definitely not meet the X times return goal. So those funds are meant to be traded daily and not held over a period of time it seems.

If I were you, I would trade the S&P directly, either through SPX or SPY or the S&P 500 futures or its e-mini futures so that way you get the 1:1 returns at least if you plan on swing trade the market.
More...
%%
Partly true, on daily, but can be a bit more than 3X depending on trend path;
+a slop chop almost flat market, like some years do\ would do notable worse, than cash SPY, QQQ.
But impossible to get a margin call ;unlike many derivatives+ others.:caution::caution:
Its not a big deal but higher management fee+ more slippage than cash QQQ, SPY.
Of course QQQ reversed sharply in bear market, up 10%, so that's 30%against SQQQ+ against the main bear trend , $30 area , bear 2000-2002. And vice-versa.
 
Thanks everyone! BRK88, thanks for that link, that is similar to what I read before. But here is what is confusing to me. The main "drift" as they call it seems to be do to "beta decay", which is explained in that article. Well, if TQQQ, which is long futures to a tune of 3x, experiences "beta decay", i.e. its doing worse than it might because of beta decay, shouldn't SQQQ, which (I think) is short those same futures to a tune of 3x, get the BENEFIT of that beta decay the TQQQ is suffering? I.E. if they are holding exactly opposition positions more/less why is one's loss not the other's gain?

Thanks!!!
 
SoyUnGanador said:
Thanks everyone! BRK88, thanks for that link, that is similar to what I read before. But here is what is confusing to me. The main "drift" as they call it seems to be do to "beta decay", which is explained in that article. Well, if TQQQ, which is long futures to a tune of 3x, experiences "beta decay", i.e. its doing worse than it might because of beta decay, shouldn't SQQQ, which (I think) is short those same futures to a tune of 3x, get the BENEFIT of that beta decay the TQQQ is suffering? I.E. if they are holding exactly opposition positions more/less why is one's loss not the other's gain?

Thanks!!!
More...
%%
ITS not mainly due to ''decay'' or higher management fees even those factor in;
ITS sqqq is bear [inverse] 3 xQQQ\ which went from start of 1999 more or less $50 area to current last days close of $300.
So regardless of start date= note the manager is paid to rebalance daily which tend to keep sqqq above zero. Its simply losses are x[times]3.Those are called losses not decay.
Its also why average down with leverage[sqqq or tqqq] simply makes losses 3 times QQQ move.
Long story short ;seldom is a TQQQ loss exactly same as sqqq gain or vice versa.
Same reason most things are not exact; life seldom works that way.
TQQQ uses swaps i see , but its more the leverage, because SH uses swaps + its fairly close,not exact[ inverse] to SPY %.
HEY, in a perfect world bank foreclosures would sell for fair appraisal but they dont;
oh\ those use leverage also , no wonder.:caution::caution:
 
SoyUnGanador said:
Thanks everyone! BRK88, thanks for that link, that is similar to what I read before. But here is what is confusing to me. The main "drift" as they call it seems to be do to "beta decay", which is explained in that article. Well, if TQQQ, which is long futures to a tune of 3x, experiences "beta decay", i.e. its doing worse than it might because of beta decay, shouldn't SQQQ, which (I think) is short those same futures to a tune of 3x, get the BENEFIT of that beta decay the TQQQ is suffering? I.E. if they are holding exactly opposition positions more/less why is one's loss not the other's gain?

Thanks!!!
More...

Example:
Stock price = 100
3X price = 100
-3X price = 100

Day #1:
Stock rises 10% to 110.
3X price rises 30% to 130.
-3X price drops 30% to 70.

Day #2:
Stock drops 10% to 99.
3X price drops 30% to 91.
-3X price rises 30% to 91.

Day #3:
Stock rises 1% to 100.
3X rises 3% to 93.73.
-3X drops 3% to 88.27.

After 3 days, the stock is back to the start (100) so 0.00%.
3X ETF lost 6.27%.
-3X ETF lost 11.73%.

So it's the math that causes both to lose rather than 1 gaining the same amount the opposite lost. It doesn't matter what happens behind the scenes as far as the futures/derivatives they're using to back the trades. If there's anything to be gained with the backing, the market provider is keeping those gains.

***Several years ago I shorted a basket of offsetting pairs (NUGT/DUST ... TNA/TZA ... etc..) as I knew if you held both short long enough, they'll both lose or 1 will lose more than the other gains. I made a little but stopped doing it as you never knew when a $10K short might turn into a $100K short.
 
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