Strategy: Universal Investment Strategy

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    Frank Grossmann

    I did both, and I can not tell you what is better. I tried this options strategy for some time, but I think I am not really an options specialist and I do not have the tools to really backtest these option strategies.

    Frank Grossmann

    I am sorry, but I can not give you such an advice. I am not allowed to do this in a forum like this.




    [For some reason, this keeps appearing above earlier replies. Not sure why.]

    How are you calculating the Sharpe ratio? I was looking at your sample strategy signal, which shows it as of 12/31/14 (presumably from 10/2/14, 3 months or 63 trading days):

    SPY = 3.1, TLT = 4.4

    However, ETFreplay’s backtesting tool shows the Sharpe ratios as:

    SPY = 1.8, TLT = 3.0

    If I use the standard calculation, I get the same as ETFreplay:

    [(avg. daily return – risk-free rate)/std. dev. of avg. daily return] * sq rt of 252

    from Oct 2 through Dec 31, with a risk-free rate of 0 (which I think you said you use):

    SPY: [(0.13% – 0)/0.71%] * 15.9 = 1.8

    TLT = [(0.10% – 0)/0.88%] * 15.9 = 2.9



    I found what may be the reason. On ETFreplay, I was using buy-and-hold strategy. If it’s rebalanced monthly, as the UIS strategy is, the Sharpe ratio may be higher. I can’t test that, because it’s available only with a subscription, but I expect that’s it.


    Hi Frank,

    I started trying the SPY/ TLT with an approx. 45/55, which gives the smallest drawdown since inception (about -16%). I intend a single yearly rebalancing. I have two questions for you, have you considered using rebalancing bands, like between 35 and 50% SPY to tlt, and rebalancing whenever it goes above or below. 2- Have you considered using options risk reversals for the SPY/TLT strategies, as you get a very good risk reward from selling ‘expensive’ puts to buy comparatively ‘cheap’ calls? If you look at the SPY or SPX options table, you you see that if you choose a delta of say, .30, your long call would be way closer to the money than your short put, giving the trade a very nice risk reward profile. I guess you would be interesting to combine these strategies.


    Frank Grossmann

    I never did risk reversals, but I like to sell otm put options both on SPY and TLT with about the same premium. As SPY/TLT are inverse, the chance is big that both or at least one of them expire wortless.


    Frank, could you provide some more details on your approach with put options, please? For example how far OTM, how many DTE, Deltas etc.

    Ivan Fisher


    I came across your website recently and I have been taking the time to watch your videos and read about your strategies.

    I have a question on how best to manage leverage when combining multiple strategies.
    I live in Australia , and I have different broker accounts that can offer different instruments. With respect to ETF’s , I have access to RegT margin via IB, but also CFD’s via SAXO. Consequently I can dial up and down my leverage from 2:1 ( RegT) all the way to approx 10:1 (CFD).

    Would you suggest its best to manage the leverage from “my side” as opposed to using your Lev 2 settings in the portfolio builder ? For example, assuming I want to target 2:1 leverage , should I run the portfolio builder using unleveraged settings , then just multiply the position size x 2 ? Or is it best to run the portfolio builder using the lev 2 settings ?

    From my perspective , if I were to manage the leverage from my side it would make things a bit easier . Say if I wanted to run the portfolio at x3 then I just multiply any allocations x3 . What I’m not sure about is what happens inside your tools when one selects the Lev 2 settings ? I know its not just a straight multiplication of the standard allocations x 2 , there’s a bit more to it , so I’m after some advice given I have access to CFD’s which I believe most USA based investors don’t have access to.

    The other question I would like to ask is regarding the use of CFD’s for the ETF’s such as TLT and EDV. At current interest rates , it would cost me approx 4% PA for the financing ( and with CFD’s you pay interest on the full position size). Would that deter you from using CFD’s for those ETF’s ? I can also use CFD’s for SPXL and TMF and because they have 3X lev, it would mean my I could actually cut my position size by 2/3 which means I’m financing a smaller position. My initial thoughts are to try and carve up the broker accounts so ETF’s such as TLT and EDV are placed in a cash account or low margin account, whereas the other ETF’s used in the strategy could be done using CFD’s at higher margin and once all positions are combined, an overall margin target could be attained.

    Since you are in Europe, I imagine you are also familiar with CFD’s , so I would be very interested in your views and if you currently use them yourselves to trade the strategies .

    I would like to also say I’m very impressed with what you have put together ( although I struggle with the maths…)


    Alexander Horn

    Hello Ivan,

    Firstly, thanks for your interest in our strategies!

    The 2x leverage in the portfolio builder is actually only simulating the leverage you would apply in your account. For the signals it is indeed a straight forward multiplication, but the portfolio change a bit due to underlying trading costs and different math when combining strategies. So, yes, it would be up to you applying the X times leveraged signals in your account.

    We have no real experience using CFD’s as this is not needed when playing “safe” with max leverage of up to two times. Also we would not use them due to higher transaction costs (as you rightly point out) and them performing different than plain vanilla ETFs. Leverage is a dangerous game even using standard ETF, and even more when using leveraged ETF, this is why we do not advise any subscriber to excessively leverage or use exotic instruments.

    Hope this does not discourage you, glad to further discuss,
    All the best,

    Nikesh Simha

    I subscribe and invest in the UIS-3X model…
    Since this is a 3X ETF and very fast moving in both directions, Have you tried rebalancing weekly? If so, have you found any benefit? Also, Is there any time when both SPXL and TMF might not be the right choice and will the model go to Cash in those times?

    Thank You

    Frank Grossmann

    Backtests prove that weekly rebalancing reduces the performance of all strategies because you react to every small up or down of the markets. This results in many small buy high sell low trades. Less rebalancing is better because this allows you to invest in longer term trends.
    3x leveraged ETFs perform well in up or down markets. If the markets go sideways, then they can suffer reballancing losses.

    sunil kaniyur

    Hi Guys

    Great job at all the new developments. Thinking of switching to futures for the UIS strategy component.

    How would you use futures in the UIS Strategy when TLT is replaced by TIP ?

    Regards, Sunil

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