3x Leveraged ETF Strategy Guide, Updated for 2020, Part 1: Intro

In 2016 I published my 5-part wealth creation guide about how to beat the S&P 500 by shoring leveraged inverse ETFs. Since publication, the method has worked very well, especially in 2019 when bonds and stocks surged together, but it is also complicated and difficult to implement and also involves risks inherent to short-selling leveraged ETFs. It also has the added risk of both bonds and stocks performing poorly as was the case in 2015 and 2018.

It is possible to generate market-beating returns using a simpler method that involves a combination of cash/short-duration bonds, 3x ETF out-of-money call options, and investing in 3x leveraged ETFs. This avoids the need for short-selling and is much simpler and less risky to implement than the 2016 method. The sharpe ratio is not as high as the 2016 method, but I prefer that the system be correlated with the S&P 500 but at the same time generate some excess risk-adjusted returns, and not have the added risk of both bonds and stocks falling together.

As a disclaimer, this is not a remedial stock option and investing course and covers math that can be considered by some to be fairly technical (although it’s mostly just pre-calc). This tutorial assumes the reader understands how options work, payoff diagrams, the risks, and is able to trade options on their account if one so chooses to implement this strategy. Buying uncovered calls typically involves at least level 2 option trading, depending on your broker.

The tutorial is divided into the following sections:

Part 1: Intro

Part 2: Calibration of variables market cycles

Part 3: Strategy without options, asset allocations ,and dip buying method

Part: 4 Strategy with options