A Minefield Of Positive And Negative Asymmetry

Quick hits today.

There are a couple of hundred filings and the path to approval has apparently become much simpler. This is a minefield of positive and negative asymmetry. I won't say don't buy these but I will say size this stuff appropriately if at all in case your the last one in before the music stops. There will be catastrophe here. Maybe a lot, maybe just a little but definitely some. 

0dte is zero days to expiration options. The context appears to be buying 0dte. If buying them is expensive then that makes an argument for selling them somehow. I believe the only ETFs that do this are covered call ETFs that reference broad based indexes. An ETF that sells any kind of call on a broad index should not be expected to track that index, the fund would combine the index and selling the volatility of the index which is a different thing. 

Chances are that most people do not need any derivative income exposure (there is validity to the strategy), but the ETFs that implement a 0dte version of the trade seem to have far less erosion. 

I wanted to circle back to a report from iShares that we looked at a few weeks ago that highlighted their factor rotation ETF DYNF, Rick Rieder's bond ETF BINC, a derivative income fund BALI and Bitcoin. A study we did not do when we first looked at the report as follows.

I used JEPI instead of BALI just to get a little longer back test. I did not substitute BINC because the fund has done well and want to capture its return stream in case it is a uniquely good broad based fund. Portfolio 2 is similar but uses funds we regularly use for blogging purposes. 

Removing Portfolio 1 to get a slightly longer study period.

The ReturnStacked guys put out a short paper about leveraging up to add what I think was 20% sleeve of absolute return to improve returns over a plain vanilla 60/40. I'm not sure the following is what they had in mind but if you click through, you'll see where I got it. 

Their backtest added 114 basis points of CAGR over 60/40. What I build got close.

But the leverage wasn't additive. The unleveraged outperformed the leveraged by seven basis points with slightly less volatility. 

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