Controlled-Risk High-Beta Portfolio
Say you have $100,000,000 in investable assets. You might consider allocating 5–10% of that to a specialized, higher-risk strategy designed for investors with a strong understanding of markets and a higher risk tolerance (typically accredited investors).
At my firm, I work extensively with options. I use them to generate income, manage risk, and provide the flexibility to take on additional upside while maintaining peace of mind.
The strategy I’m proposing uses TQQQ, a 3× leveraged ETF that tracks the Nasdaq-100 (QQQ). If QQQ moves up 1% in a single day, TQQQ generally moves up 3%. Note: this is a daily target; over multiple days, returns may diverge from 3× due to compounding and volatility drag.
To manage risk, we use protective puts. These options limit downside, typically to a specified percentage below your entry price plus the net cost of the put. We also write covered calls, generating income that helps offset the cost of protection. Combined, these create a collar — a strategy with defined upside and downside. For example, your potential gains might be capped at around 30%, while losses are limited to roughly 10% plus option costs.
This approach is similar to how some investors protected gains during past market downturns, such as the early 2000s tech crash — prioritizing risk management over chasing maximum returns.
A few important considerations:
Market environment: Collars perform best in trending markets. In sideways or low-volatility markets, the cost of protection may not be fully offset by call premiums, reducing net returns.
Leverage risk: Leveraged ETFs like TQQQ amplify both gains and losses. A single-day drop of approximately 33.33% in QQQ could theoretically wipe out TQQQ entirely. While extremely unlikely — larger than the largest single-day drop in market history (the 1987 crash, –22.6%) — it represents tail risk. In fast declines, puts can be sold or exercised to help cap losses, though liquidity and execution may affect outcomes.
Option risks: Execution, bid-ask spreads, early call assignment, and liquidity all influence the effectiveness of collars.
This strategy can be adapted to non-leveraged or lower-risk assets depending on your risk tolerance, time horizon, and investment objectives.
I currently use this approach in several portfolios, and they are outperforming their benchmarks this year. If you’re interested in exploring this strategy further, I’d welcome a one-on-one conversation. You can reach me at jon@belvedereinvestmentsco.com. We tailor strategies to each client’s specific objectives, risk tolerance, and time horizon — I like to think of myself as a financial chef, crafting portfolios to fit your needs.
