Before and after pictures
(used with permission)
(used with permission)
These pictures map the paired coordinates of upside price change prospects implied by Market-Maker [MM] hedging actions -on the green horizontal scale - with actual experienced worst-case price drawdowns from similar prior forecasts - on the red vertical scale. Figure 1 is as of Monday's April 18th market close, and Figure 2 is from the Friday, April 22nd close.
That dotted diagonal is where bad experiences meet equally good expectations. In Figure 1 there were few leveraged ETFs with an encouraging trade-off below the diagonal. Now in Figure 2 the LevLong ETF population has (started?) a migration from its red version of Africa and the middle-east to the promised European land of green where price gain profits of 5 or more times price drawdown headeaches are offered.
The ProShares UltraPro QQQ ETF (NASDAQ:TQQQ) has led the migration from point  in Figure 1 to  in Figure 2. We will concentrate our attention on TQQQ.
How it looks to MMs now and in the last 6 months
(used with permission)
The vertical lines in this picture are forecasts of price ranges expected in the coming weeks and months, implied by Market-Makers' self-protective hedging actions while serving big-bucks fund clients. The ranges are split into upside and downside prospects by the daily closing market quote heavy dot, taken at the time the forecasts were made.
It may be visually apparent that the proportions of up-to-down prospects seems to have implications for subsequent actual price change directions. A few decades ago the same thought occurred to us and we created a measure, which we called the Range Index [RI] that tells what percentage of the whole range lies below the then current market quote.
A low RI may be a cheap price. A high RI may be time to thank your investment position and wish him good-by, perhaps also "good buy".
Whether the position may have earned that accolade depends upon when it was bought and how the decision to depart is reached. It is always easier to get into trouble than it may be to get out, so an exit plan is important. Our standard one, for use in hindsight-proof measurement of possible (now and past) choices we call TERMD.
The acronym stands for Time-Efficient Risk-Management Discipline. It simply says once an investment commitment is made at the cost of the next market day's closing price, it will be liquidated at the first day's market close price that equals or exceeds the top of the MM's forecast price range responsible for triggering the commitment. If that hasn't happened in 63 market days (3 months), then stop investing any more time and close out the position regardless of profit or loss.
So with that discipline, and the past MM forecasts, we can look at how the TERMD outcomes occurred for every opportunity to get into trouble since TQQQ made forecasts possible. That happened on 3/11/2010, so Figure 4 pits all the RIs since then against their reachable TERMD results.
Please note that loss experience dots below the white horizontal 0% payoff line do not start until RIs reach midway between 10 and 20. Now it is time to go back to Figure 3 and check on TQQQ's current RI.
Ahah! The data row on Figure 3 between the two blue-background pictures tells us the RI is now 12. It also says the ODDS of making a profit from here are rather high, 98 out of 100, based on experiences illustrated in Figure 4.
No guarantee that such a commitment will make the +18.8% upside gain indicated as possible by other MM community folks selling the hedge protection to the MM filling his client's block trade order. But the fact that in past prior forecast situations like the present the average payoff (net of that other 2 in the 100) has been +15.9%.
Depending on your current alternatives, that may seem like it's worth doing. If the past gets repeated and a +15.9% could be achieved as it was before in only 29 market days, 6 weeks, that's an annual CAGR of +264%. It's happened 48 times before in the last 5 years.
We don't know for sure how cheap other Leveraged Long ETFs in this set of ~45 might get. But it looks like TQQQ is getting interesting.
Figure 4 is indicative of the historic detail we have on each of the ~2500 stocks and ETFs covered by blockdesk.com. Besides the payoff outcomes, there are odds of profitability, holding period commitments, distributions of Range Indexes, and other candidate-choice preferences with similar detail behind the data row seen in Figure 3.
Every investor should have the means of comparing alternative investment candidates on the basis of identically measured features of importance to them. We try to provide that ability, rather than simply plumping our idea of what looks like a great investment to us, to suit our particular investing objectives.
Our focus is on price possibilities and probabilities, not on the economic, financial, and competitive stories leading to the comparative price prospects. Other SA contributors do a fine job of laying the groundwork. We see our contribution in the choice of commitments arena, where perspectives and opportunities are competitively priced.
We have preferences, like everyone else, but as we encounter opportunities we expect to present them in a perspective with sufficient description of attributes so other investors may make their own comparisons. Best wishes for your investment progress.
Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in TQQQ over the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.