TQQQ vs QQQ
I see a bunch of posts on here about buying TQQQ and was wondering if someone could explain something to me and if it was more advantageous versus QQQ. From my understanding, TQQQ is leveraged 3x for QQQ and leverage is reset every day? Can someone explain what that means?
Next, let's say both QQQ and TQQQ are $100, if QQQ goes down 33% over the course of a month then TQQQ goes down 99% right? so QQQ and TQQQ are now at $67 and $1 respectively. Now if QQQ increases 100%, its at $134 and TQQQ then increases 300% then it should be at like $4. Does "leverage resetting" every day make this not the case (not sure what it means)?
So what I understand is that if QQQ goes down any significant amount, its really difficult to make it back up and, long-term, is a bad hold because QQQ at some point WILL go down a significant amount if we're talking about holding for 20+ years? Sure if it only goes up then TQQQ is the right way but being realistic, QQQ will likely provide returns that is greater than TQQQ
Yeah you pretty much got it all. Any leveraged ETF essentially locks in the gains and losses of the day because of "leverage resetting," leading to this issue, which is called volatility decay
This has been covered before on this site if you search TQQQ.
If you're struggling to understand the daily reset, do some calculations yourself in excel.
10 days of +1%, underlying x3 is 31%, TQQQ is +34%.
10 days of -1%, underlying x3 is -28.7%, TQQQ is -26.3%.
A drop of 33% over a month is not going to make TQQQ go to 0.
The summary prospectus lays out the hypothetical returns given different annual vol in a table if your interested in learning more about the decay.
Vol decay easier concept when you write out daily returns, TQQQ doesn't do as well during high vol. Starting with a $100:
Day 1 (5% gain): QQQ - $100 x 105% = $105; TQQQ - $100 x 115% = $115
Day 2 (5% loss) QQQ - $105 x 95% = $99.75; TQQQ - $115 x 85% = 97.75
Day 3 (5% gain) QQQ - $99.75 x 105% = $104.74; TQQQ - $97.75 x 105% = $102.64
Short SQQQ, Short TQQQ, Long QQQ and you have a risk free profit of chop.
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