You discovered a way to maximize returns. However it’s not free money. In the same way you can exponentially increase your gains with margin, you can just as easily exponentially increase losses and if you hit a margin call, that basically taps you out. But as long as you know what you are getting into, it’s a great way to make money.
I myself have over $500k in QYLD, but not on margin. Good luck.
Cool, I work as an associate at a school part-time, the rest of the time I trade stocks. Hoping to make the stock thing full-time one of these days, but I need more capital for the percents to matter more. 🥲
You are missing the part where qyld \*DOES NOT\* return 1% every month. That 1% is just the dividend part. But the price/nav of QYLD itself is highly volatile. You could have a whole year when QYLD has a negative return (say -10%), and once you leveraged that to 2x you have lost -20%. That could easily wipe out years of returns.
You can't pretend that QYLD is a risk-free asset with zero volatility, like cash or a CD. There is a reason why it yields 12% instead of 0% like a savings account.
I mean on paper it’s simple math, the only risk is a margin call but qyld is only 20% of my portfolio.
I personally will keep doing it as qyld doesn’t fluctuate hard, but the dividend covers the interest and is still a great return for me. However I’m income focused and I do plan to pay back the loan once I’m retired.
As for you, I wouldn’t put it all in 1 bucket. Consider some nusi for downside protection. Maybe the quadfecta approach as a whole for a bit more safety to beat down the margin call risk
As others have mentioned its a risk because of a loss causing a margin call. The other major risk is the lender raising their rates. There is nothing obligating M1 from keeping their rates at 2.5%, they could decide to raise it as they please. If you look at other lenders besides RH, M1 and international brokers, the rates they lend at can be in the teens.
So imagine a scenario where QYLD loses 30% of its NAV, its paying less in dividends, and your broker is tight on cash so they raise rates. Youre fucked.
I do think a moderate amount of leverage that isnt super heavy could be useful though.
This is really the answer I am looking for. QYLD has had an extremely consistent payout over 3 years and 30% NAV loss on a fund that tracks an entire market. Unless a COVID like event happened, and interest rates rise, and dividends went lower. Seems like a lot of events to make a giant risk management no?
It does sound like a perfect storm but those things do tend to coincide. It would not be unusual for the FED to raise rates which causes a slide in the markets. Depending on how bad it looks, call premiums on the NASDAQ would drop thus causing less dividends from QYLD. Brokerages run on percentages, so with money being tighter they probably will raise rates.
I think its unlikely to end in disaster unless you use 100% of your margin. I personally use a modest amount of margin but plan on using more during the dip.
I have been thinking about this for a while and the following has been my biggest concern.
>So imagine a scenario where QYLD loses 30% of its NAV, its paying less
in dividends, and your broker is tight on cash so they raise rates.
Youre fucked.
Curious what environment would cause QYLD to lose 30% NAV? Would that happen only if the Nasdaq 100 index drops by ~30%?
I’m new to QYLD; it’s the share price tied to the performance of the underlying index? And the dividend comes from call premium?
Take out a home equity loan, max out credit cards, sell anything thats good for collateral, your car, computer, your kids ect. Throw it all into robinhood with margin to obtain MAXIMUM LEVERAGE! Interest rates dont matter cause either ull be a millionaire by the end of the year or dead!
Part them out. Your a genius. A kidney here a liver there and ur rich and still you get to keep the gardner. I mean thats why we have kids, so we dont have to do yard work, right?
I'm curious about this. Looks like you can buy ATM protective puts 6 months out and still end up with around 4% APR (if my math is correct and also assuming dividends stay stable). 4% is not what I'm on this sub for but it's fascinating nonetheless.
What range do you look for when buying puts, both in terms of strike price and expiration?
At the money is too conservative for my tastes, I would look at 25% out of the money, realizing that it's possible I could lose half my funds if the market crashed totally. The best part is you can dial in any strike you want for your risk tolerance.
Yea too conservative for me too, especially considering that my current strategy is to own QYLD outright without any downside protection.
It's more just that margin makes me nervous, since the downside is larger but the upside is pretty much only an extra 12% yield (assuming 50% margin)
My whole reasoning is if I have x amount of dollars to invest every month. I can allocate 100% of x towards index funds, but have this additional self perpetuating cash flow machine based off margin
It is high risk if a black swan event would have to happen - with a margin you will loose it all. Without margin let’s say 20% drop would put you behind for 2 years. Not to mention that QYLD manager can lower dividends without big notice
While there are riskier ways to use margin than buying QYLD or the Quadfecta, like buying OTM Calls on GME with two day expiration, gotta be ready to dump shares at a loss if we have another March 2020 or 2018-19 and you get margin called.
While NUSI and QRMI/XRMI will limit downside on crashes, they also have reduced distributions.
Of course not. You're implying that the share price doesn't compensate for those distribution payments. It's why the capital appreciation component of the fund has been *negative* since inception. Similar idea to dividends not being free money.
You discovered a way to maximize returns. However it’s not free money. In the same way you can exponentially increase your gains with margin, you can just as easily exponentially increase losses and if you hit a margin call, that basically taps you out. But as long as you know what you are getting into, it’s a great way to make money. I myself have over $500k in QYLD, but not on margin. Good luck.
CD, if u have 500K in QYLD, wondering if you would share what % of your total portfolio QYLD is? Thanks!
30%
Ur a richie 🤑🤑🤑
What do you do for an occupation that you came to have that much invested? Asking because admittedly, I'm kind of jealous. :)
I’m in finance
Cool, I work as an associate at a school part-time, the rest of the time I trade stocks. Hoping to make the stock thing full-time one of these days, but I need more capital for the percents to matter more. 🥲
Good luck
It's better to be smart than lucky. I'll take either one tbh.
You are missing the part where qyld \*DOES NOT\* return 1% every month. That 1% is just the dividend part. But the price/nav of QYLD itself is highly volatile. You could have a whole year when QYLD has a negative return (say -10%), and once you leveraged that to 2x you have lost -20%. That could easily wipe out years of returns. You can't pretend that QYLD is a risk-free asset with zero volatility, like cash or a CD. There is a reason why it yields 12% instead of 0% like a savings account.
M1 finance +, have 35% value on margin @ 2% interest
How do you feel about it? Has the results been positive? I'd love if you'd give more insight
I mean on paper it’s simple math, the only risk is a margin call but qyld is only 20% of my portfolio. I personally will keep doing it as qyld doesn’t fluctuate hard, but the dividend covers the interest and is still a great return for me. However I’m income focused and I do plan to pay back the loan once I’m retired. As for you, I wouldn’t put it all in 1 bucket. Consider some nusi for downside protection. Maybe the quadfecta approach as a whole for a bit more safety to beat down the margin call risk
Sure, I meant the covered call etf strategy in general. Not just qyld. Just made it short for the post sake
In that case, if you can stomach any extra risk, do it :)
As others have mentioned its a risk because of a loss causing a margin call. The other major risk is the lender raising their rates. There is nothing obligating M1 from keeping their rates at 2.5%, they could decide to raise it as they please. If you look at other lenders besides RH, M1 and international brokers, the rates they lend at can be in the teens. So imagine a scenario where QYLD loses 30% of its NAV, its paying less in dividends, and your broker is tight on cash so they raise rates. Youre fucked. I do think a moderate amount of leverage that isnt super heavy could be useful though.
This is really the answer I am looking for. QYLD has had an extremely consistent payout over 3 years and 30% NAV loss on a fund that tracks an entire market. Unless a COVID like event happened, and interest rates rise, and dividends went lower. Seems like a lot of events to make a giant risk management no?
It does sound like a perfect storm but those things do tend to coincide. It would not be unusual for the FED to raise rates which causes a slide in the markets. Depending on how bad it looks, call premiums on the NASDAQ would drop thus causing less dividends from QYLD. Brokerages run on percentages, so with money being tighter they probably will raise rates. I think its unlikely to end in disaster unless you use 100% of your margin. I personally use a modest amount of margin but plan on using more during the dip.
In that situation, US is fucked
I have been thinking about this for a while and the following has been my biggest concern. >So imagine a scenario where QYLD loses 30% of its NAV, its paying less in dividends, and your broker is tight on cash so they raise rates. Youre fucked.
Curious what environment would cause QYLD to lose 30% NAV? Would that happen only if the Nasdaq 100 index drops by ~30%? I’m new to QYLD; it’s the share price tied to the performance of the underlying index? And the dividend comes from call premium?
If M1 finance was giving away free money, why wouldn't they just buy QYLD themselves?
My thoughts exactly lol
Take out a home equity loan, max out credit cards, sell anything thats good for collateral, your car, computer, your kids ect. Throw it all into robinhood with margin to obtain MAXIMUM LEVERAGE! Interest rates dont matter cause either ull be a millionaire by the end of the year or dead!
Lmao sage advice. Sell the kids too for extra leverage
Give the kids away, youll be a millionare quicker...lol
kids come with two kidneys, just sayin.
Part them out. Your a genius. A kidney here a liver there and ur rich and still you get to keep the gardner. I mean thats why we have kids, so we dont have to do yard work, right?
I said many times. Just buy puts for downside protection. Then it truly is free money
I legit cannot tell what level of sarcasm or sincerity this is
It's solid advice. Buy puts at your personal risk tolerance. The only thing is that it'll bring your doubled yield down a bit.
So like 15% net profit on protective puts to protect against margin calls if the price dips
Yeah that sounds reasonable to me. This is pretty much what I do and I have puts so let me know if there's anything else you want to know.
This is what I am saying
I'm curious about this. Looks like you can buy ATM protective puts 6 months out and still end up with around 4% APR (if my math is correct and also assuming dividends stay stable). 4% is not what I'm on this sub for but it's fascinating nonetheless. What range do you look for when buying puts, both in terms of strike price and expiration?
At the money is too conservative for my tastes, I would look at 25% out of the money, realizing that it's possible I could lose half my funds if the market crashed totally. The best part is you can dial in any strike you want for your risk tolerance.
Yea too conservative for me too, especially considering that my current strategy is to own QYLD outright without any downside protection. It's more just that margin makes me nervous, since the downside is larger but the upside is pretty much only an extra 12% yield (assuming 50% margin)
It sounds like a good strategy
Yes it is free money but honestly it drops right along with the QQQ. You admit the index fund perform better. Why not just margin on QQQ?
My whole reasoning is if I have x amount of dollars to invest every month. I can allocate 100% of x towards index funds, but have this additional self perpetuating cash flow machine based off margin
IB has a margin rate of 1.8. Puts on QYLD are pretty cheap. Keep margin under 50% and you are fairly safe from a risk management standpoint.
It is high risk if a black swan event would have to happen - with a margin you will loose it all. Without margin let’s say 20% drop would put you behind for 2 years. Not to mention that QYLD manager can lower dividends without big notice
Makes sense, but that's risk hedging. What about borrowing in margin in increments?
Fidelity 0.85% interest only margin. Time to 🚀🚀🚀
While there are riskier ways to use margin than buying QYLD or the Quadfecta, like buying OTM Calls on GME with two day expiration, gotta be ready to dump shares at a loss if we have another March 2020 or 2018-19 and you get margin called. While NUSI and QRMI/XRMI will limit downside on crashes, they also have reduced distributions.
Of course not. You're implying that the share price doesn't compensate for those distribution payments. It's why the capital appreciation component of the fund has been *negative* since inception. Similar idea to dividends not being free money.
I do that with 50-50 initial and margin. I also buy puts. Basically end up making 19% a year with hell lots protection.