NUSI is a Nasdaq ETF that provides ~8% of annual dividend with downside protection (they sell OTM calls and buy OTM puts as hedge). During March 2020 crash, it dipped by ~10% compared to ~30% drop of QQQ and SPY. In my opinion, it is better and safer than QYLD/RYLD due to the calls sold being OTM (some upside) and having puts as hedge.
Is there any reason not to use all Robinhood margin to buy 2x NUSI and hold it for ~16% annual dividend? It nets ~13.5% of dividend after deducting 2.5% margin rate if the price doesn't change. A huge portion of the dividend is also treated as ROC, so it is also tax efficient.
More importantly, there should be no margin call risk because it drops at most 20% per month with 2x margin. My understanding is that the fund is buying OTM puts 10% lower than current price, so it is possible that NUSI will keep on dropping 10% every month if Nasdaq drops >= 10% every month, but NUSI would drop at most ~10% per month (correct me if I am wrong). At that moment, we can re-access the market sentiment to either buying the dip/crash without margin or liquidate a portion of holding to reduce margin used. If we think recovery will happen soon, we can also sell NUSI and buy other ETFs that drop more (e.g., sold -10% NUSI to buy -30% SPY during March 2020).
What's your thought about this margin strategy? Thanks!
Submitted May 13, 2021 at 11:06PM by LimeEfficient https://ift.tt/3w9UQFf
