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Background: I have a NASDAQ-heavy portfolio, and wanted to use the SQQQ ETF (Short leveraged Nasdaq-100 ETF) as a way to hedge on days when I expect the whole index to go down (one sub-question here is - assuming this is done in short term when the market seems to be dropping, is this a good way to hedge?)

However, from what I see, because of new EU regulations, EU retail investors can't invest in (most?) US-based ETFs.

I am now learning about Options as a common way to hedge, but if one has many positions it would be a lot more time-consuming and generate a lot more fees - whereas an ETF that counters the majority of the portfolio would be a single transaction pair and act as a close-enough nullification of daily gains/losses with ease.

So, the several questions I have arising from this issue would be:

1) Is there any way for an EU citizen (small retail investor) to buy US ETFs like Proshares QQQ/SQQQ?

2) Are there any alternatives to TQQQ/SQQQ for EU citizens? (inversed is prefered so one can long instead of shorting, and leveraged is prefered, so a smaller cash % is needed to cover the bigger part of the portfolio)? I see EQQQ exists, but it is unleveraged and would need to be shorted to serve as a hedge.

3) If the answer to both (1) and (2) is "no", what other options are there? Is there any way to do this without hedging every single portfolio position via "put options"?

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I'm from across the pond so I can't address any of the EU regulations and limitations. My perspective is from a Yank with no such encumbrances.

I'd be hesitant to suggest that it's a good idea to use a leveraged SQQQ position in expectation of a drop but it's certainly a good way to put on a hedge intraday during a drop. For us, there are margin issues with leveraged ETFs but that's immaterial for appropriately sized hedging.

You'd want to avoid hedging individual equity positions with options unless you had a specific belief as to why that position should be hedged and not the others (High beta? Over weighting in portfolio? Pending earnings? Etc.)

You could buy puts on any ETF whose composition is best lines up with the your NASDAQ heavy portfolio. The XLK SPDR Tech ETF would likely be appropriate but it tends to have wide B/A spreads and you'd want to avoid them. SPY and IWM are liquid and narrow but they won't correlate as well. QQQ is also liquid and I think that it's tech holdings are approaching 60%.

As an alternative, if you are interested in something more long term and you're willing to give up the upside beyond a certain price, consider long stock collars. The calls sold will pay for a large part of the protective puts thereby avoiding the large drag on portfolio performance. And, protection will be in place at all times.

  • Thanks for the reply! Yeah, maybe focusing on certain bigger positions would do, although for days when everything goes to the dumpster (like last week), I'd love to be able to blanket-cover the entire thing (and SQQQ looks perfect for that). I will look into options related to ETFs, but somehow suspect "mother EU" will protect me from those as well... And excellent point about stock collars, first time I hear about those but I checked it out now and yeah, it might be just the right thing for risky times. – quetzy Oct 19 '18 at 9:05
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    If you want to make some headway toward really understanding options, pick up a copy of "Options as a Strategic Investment" by Lawrence G. McMillan and "Option Volatility & Pricing: Advanced Trading Strategies and Techniques" by Sheldon Natenberg. – Bob Baerker Oct 19 '18 at 12:13
  • Thanks for the tips! Will look into it. (I'll also mark your answer now. Even though I still have no idea if I can somehow trade SQQQ or an alternative in EU, you did push me in a direction that seems promising, so thank you for that!) – quetzy Oct 19 '18 at 12:18
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    FWIW, here are some other comments that I made about hedging: money.stackexchange.com/questions/100515/… – Bob Baerker Oct 19 '18 at 12:21

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