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The wheel on TQQQ and SOXL: why 3x funds break the usual math
TQQQ and SOXL pay big premiums because they move three times as hard as their index on any given day. The wheel assumes that if you're assigned, you can wait for a recovery. A 3x fund can lose far more than three times the index, and it doesn't climb back the same way.
The short answer
You can sell puts and calls on TQQQ and SOXL. Their options are busy and the premiums are big.
But the wheel strategy leans on one idea: if you're assigned, you own something that tends to recover. A 3x fund is built for one day at a time. After a crash and a bounce, it can sit far below where the index alone would be. So an assignment can turn into a hole the calls never fill.
This isn't a recommendation to buy or sell TQQQ or SOXL.
What these two funds are
- TQQQ is ProShares UltraPro QQQ. It aims for 3 times the daily move of the Nasdaq-100, the index behind QQQ.
- SOXL is the Direxion Daily Semiconductor Bull 3X Shares. It aims for 3 times the daily move of a semiconductor index.
Both are Leveraged ETFs. The key word is daily. Each fund resets its leverage every day. Over weeks and months, its result can drift far from 3 times the index.
What that means for selling options:
- Huge swings. A 5% day in the index is roughly a 15% day in the fund. That's why the Implied volatility and the premiums are so high.
- No company behind it. There's no earnings report to plan around. But the big companies inside the index report, and those reports move the fund.
- Small payouts, if any. Don't count on a dividend to cushion anything.
- Splits happen. Leveraged funds sometimes split or reverse-split their shares. Your options are adjusted if that happens mid-trade.
Why the daily reset hurts after you're assigned
Here's a choppy week, worked out. Each move happens in a single day.
| Day | Index move | Index | 3x fund move | 3x fund |
|---|---|---|---|---|
| Start | 100 | 100 | ||
| 1 | −10% | 90 | −30% | 70 |
| 2 | +10% | 99 | +30% | 91 |
| 3 | −10% | 89.10 | −30% | 63.70 |
| 4 | +10% | 98.01 | +30% | 82.81 |
After four days the index is down about 2%. The 3x fund is down about 17%. Nothing went wrong with the fund. That's just what a daily reset does in a market that swings.
This is called volatility decay. Try your own numbers in the leveraged ETF decay calculator.
For a wheel seller, the effect is simple. If you're assigned after a drop, the index may recover and your fund may not. Waiting stops being a plan.
A crash month, worked out (an illustration, not a trade idea)
These numbers are for a made-up 3x fund, XYZ3. They are not TQQQ's or SOXL's prices.
Month 1. XYZ3 trades at $50. You sell a 30-day $45 put for $2.00. You collect $200. Your broker sets aside $4,500.
The index falls about 15% over the month, in a choppy slide. XYZ3 falls to $25, worse than 3 times the index, because of the chop. You're assigned 100 shares at $45.
| XYZ3 at expiry | What happens | Shares vs $45 | Premium | Total |
|---|---|---|---|---|
| $55 | Put expires | $0 | +$200 | +$200 |
| $43 | Assigned at $45 | −$200 | +$200 | $0 (break-even) |
| $40 | Assigned at $45 | −$500 | +$200 | −$300 |
| $30 | Assigned at $45 | −$1,500 | +$200 | −$1,300 |
| $25 | Assigned at $45 | −$2,000 | +$200 | −$1,800 |
| $10 | Assigned at $45 | −$3,500 | +$200 | −$3,300 |
Month 2. The index bounces 10%. XYZ3 rises about 30%, to $32.50. A $45 call pays almost nothing, so you sell a $35 call for $1.50 ($150). That's below your cost. XYZ3 ends at $32.50 and the call expires.
| After month | Index (from 100) | XYZ3 | Shares vs $45 | Premiums | Total |
|---|---|---|---|---|---|
| 1 (assigned) | 85 | $25 | −$2,000 | +$200 | −$1,800 |
| 2 (call expires) | 93.50 | $32.50 | −$1,250 | +$350 | −$900 |
Look at the two price columns. The index is down 6.5% from the start. XYZ3 is down 35%. Your cost after premiums is $45 − $3.50 = $41.50. XYZ3 needs to climb almost 28% more from $32.50 just to get you back to even.
The index only needs about 7% to get back to where it started. XYZ3 needs about 54% to get back to its $50 start. That's far more than three times 7%. Each month you wait, more chop can dig it deeper.
What 2022 looked like
This isn't only a textbook case. In the 2022 bear market, the Nasdaq-100 had a hard year. TQQQ lost most of its value from its late-2021 peak. Semiconductor funds were hit hard too.
Anyone assigned on a 3x fund early in that slide owned shares that kept falling for months. The calls at their cost paid next to nothing. The calls that paid were far below their cost.
If you still want to sell options on them
- Size for a 50% drop. Ask what half the position's value costs you. If that's too much, the trade is too big.
- Consider the plain index fund. If you want the Nasdaq-100 for the wheel, QQQ holds it without the daily reset.
- Don't plan on waiting it out. Decide in advance what you'll do if you're assigned and it keeps falling.
- Check the cash. One put ties up the strike times 100. See our cash-per-stock table.
Questions
Can you do the wheel on TQQQ?
Yes, the options exist and they're liquid. The problem is assignment. TQQQ can fall far more than three times the index over weeks, and it doesn't recover in step with it. So holding through a drop is much riskier than on QQQ.
Why are TQQQ and SOXL premiums so high?
Because the funds move about three times as hard as their index each day. The market prices that in. A big premium is pay for a big expected move.
What is volatility decay?
It's the drift that comes from a fund resetting its leverage every day. In a choppy market, a 3x fund can end up down a lot even when the index is nearly flat.
Is it better to sell covered calls on TQQQ instead of puts?
A covered call and a cash-secured put carry about the same downside. A covered call only adds a small premium. The decay still works on the shares while you hold them.
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