Why I switched from UPRO to SSO (2x S&P 500 ETF)

I switched from being 100% long UPRO (3x S&P 500 ETF) to being 100% long SSO (2x S&P 500 ETF) towards yesterday’s close. I have been long UPRO since September 7, 2017 when it was at $109.3. I sold yesterday at an average of $151.35. That’s a 38% profit.
I’ve actually been thinking about this for a few weeks. Here’s why I switched from UPRO to SSO.

What the Medium-Long Term Model says

It is best to stick to UPRO from a long term perspective. Following the Medium-Long Term Model and holding UPRO (3x S&P ETF) maximizes long term returns. Switching to SSO cuts long term returns by approximately 1/3 (from 45% to 28%).
So why am I doing this. Does this mean that I don’t believe in the Medium-Long Term model anymore?
This is purely for the sake of risk management. There are only 1-2 years left in this bull market. The stock market tends to surge in the final 2 years of a bull market, but it does so in an extremely volatile and choppy manner. No model is perfect, so reducing my leverage from 3x to 2x will protect any future downside.
In addition, my lifestyle has changed and I travel a lot. I’m trying to enjoy life more after a rough 2017 (health issues) so my risk appetite isn’t the same as what it used to be.

UPRO’s erosion will be a slightly bigger problem in 2018 than in 2017

Erosion is a minor problem for UPRO. This problem is slightly amplified when the market is very choppy, which is normal for the last 1-2 years of an equities bull market. A 2x ETF like SSO will suffer less from erosion than a 3x ETF like UPRO.

2 comments add yours

  1. Sold half of my TQQQ after 100% gains because of the same reason – drawdowns would kill my returns even if overall trend is up. 3x ETF works best with no volatility.
    Thinking about getting into QLD and I believe Wes Grey or some quant had a paper showing 2x SPY beat 3x and 1x going back to the 1920’s.

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