If I told you Oct 16th I put all of my trading assets into SVXY (100%) would you say that is a huge risk? Is that risk in general terms too high for anyone to take? Would you ever even consider going all in to a leveraged ETF?
Before trading you need to figure out what your risk tolerance is. How much of your assets can you allocate towards one trade. I do admit to having a higher risk tolerance than most. But there are a few good reasons I am willing to go all in on a select setup for SVXY.
#1 - I am betting on the market going up anyways. If I am calling a bottom, then I plan to go long the stock market with all my money anyways, why not go big with leveraged ETFs? Whatever amount I don't put into SVXY will be going into UPRO (3 x S&P 500)…so if the trade looks good why not put it all into SVXY if I think it will outperform UPRO over my trade time horizon? Makes sense to me.
#2 - In this part of the bull market cycle SVXY is up almost 80% of the days and is up 50% or more in almost any 6 month snap shot. So chances are you will be right especially buying after any type of pullback in SVXY.
#3 - During QE there has never been a 10% correction and during QEinfinity there has yet to be a 6%+ pullback. Self explanatory - the trend is higher.
#4 - And my most important reason to go 100% in SVXY. When certain signals are hit to tell me SVXY has bottomed, the trade has ALWAYS worked during the QEs. Always. 100% of the time if my buy signals are hit you will make a profit (between 9% and 40%).
At some point this trade is bound to fail, I realize this. The good news is even if you did end up getting in to early my signals would tell you to sell shortly after you made the mistake (so you could "lose" only a few %)…then you wait for the further pullback, my signals tell you to get in again and you make even more profit then you could have at the first entry - in other words you make all your money you "lost" on the first failed trade and then some. The further the stock market pulls back the more you can make on the way back up on SVXY.
So to me it is a winning trade no matter what happens. You might have to wait awhile longer and stare at your up to 10% "loss" while you wait for the best entry point but you sleep soundly knowing you will make a huge gain on the way back up.
Eventually QE will end and/or the VIX curve will bend towards loses in SVXY. The easy money in the VIX ETFs will end for this boom/bust cycle and we will have to wait probably 2 years for the good times to start again. At that time I will change the amount I am willing to risk on these trades but until then I am continually looking for entries to go all in UPRO and SVXY. You have to try to make the big bank while you can.
General Terms I use (all are a % of what YOU are willing to risk with 20% as the example maximum to risk on SVXY):
Invest a little or small bet: 25% (25% of 20% = 5% bet)
Invest half: 50% (50% of 20% = 10% bet)
Invest a ton or a big chunk: 75% (75% of 20% = 15% bet)
All in: 100% (100% of 20% = 20% bet)
Disclosure: I am long UPRO.