Thursday, April 18, 2024

Don't Move The Goal Post On Your Financial Security

First, an update on my test drive of the Defiance NASDAQ 100 Enhanced Option Income ETF (QQQY). I bought 100 shares on its first or second day of trading last fall for $2017 and I sold it today for $2114 which includes reinvesting the dividends. The price, without reinvesting dividends has fallen by about 24% but as I've been saying all along with these, if the entire dividend is taken out and spent, they are likely to go to zero (not quite literally). At some low price they will reverse split. I made 4.8% in about seven months. Defiance did a good job setting the expectation when I asked that they thought it would look like a covered call fund and I believe QQQY met that expectation. 



QYLD is more of a plain vanilla covered call fund where QQQY sells 0dte put options. It has had considerably less volatility than the underlying QQQ but twice the vol of QYLD. I have no complaints about the fund or the concept. I will keep tabs still on it and the similar fund they have that sells 0dte puts on the S&P 500 with symbol JEPY but I think there are better ways to add volatility strategies into a portfolio. 

Speaking of volatility, I swapped the QQQY money to test drive Simplify Bitcoin Strategy Plus Income ETF (MAXI). I've written about the fund a few times and described it as long and short volatility. It buys bitcoin futures, long volatility, and it sells option combos on mostly equity indexes and equity index ETFs. It pairs Bitcoin with an income source that doesn't cap Bitcoin if it goes up the way a Bitcoin covered call strategy would do. 


It tracks Bitcoin close enough to be a proxy in my opinion. I've invested a decent amount of time in trying to understand Bitcoin and I've owned a little for a good while, I am surprised though that only a couple of clients have ever asked about it. My answer would be the same as what I say here which is I view it primarily for now as asymmetry, it could go to a bazillion or go to zero. I would not tell someone not to buy but I would try to make sure they understand zero is a possible outcome. I actually doubt it would go to zero but it is not clear to me that it must become what the touts say it will become. You want to take a flier with a small, small part of your account, ok. Right now, I would use one of the "plain vanilla" Bitcoin ETFs but maybe MAXI proves out to be a better mousetrap, if I am correct about the option strategy not getting in the way of any increases or maybe some sort of plain vanilla/MAXI blend would be appropriate for the client wanting to add Bitcoin in. 

An interesting read from Texas Monthly about the desert town of Terlingua being "discovered." I found this line to be very thought provoking. "Ivey and other locals maintain that the newcomers are bringing the outside world’s values with them, lured to the middle of nowhere by pure self-interest. Instead of adding value to the community, too many see an opportunity to scoop up ten, twenty, or a hundred acres to hold on to as an investment or develop into the area’s latest vacation-rental playground." If you are familiar with this part of Texas, the motto "don't Marfa our Terlingua" might resonate.

Lastly, Joshua Becker wrote about something called the Prosperity Paradox. This is the behavior of continually moving the goal post on how much money is needed for financial security or happiness or any other like term you would substitute in. Think you need $500,000, then you get there and so you think you need $1 million, then you get there and think you need some higher number. The energy expended on not being content seems draining to me but I can't where many people would view it differently, always striving for more. Maybe the article can help anyone who hasn't thought about it before.

The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.

No comments:

Annuitization, Maybe, Annuities In The Traditional Sense, Not So Much

Over the last few months we've taken a couple of looks at the Stone Ridge Life Cycle suite of mutual funds. The quick and dirty on them ...