Good point. And the daily tracking nature of SH pretty much guarantees decay over time. TAIL doesn't have that problem.I don't think SH will compare to TAIL, because by design SH should negate any movement of SPY on a daily basis. Holding both long term, would cancel SPY's returns and add a decay component from SH to it, resulting in a gradual loss.
Makes sense, but I don't know anything about modelling those combinations (I don't know much about options).Combining SPY with TAIL would be like buy an ITM call option, with the added optionality of being able to decouple the trade at opportune occasions.
I attempted to walk through a monthly simulation to see what happened with a SPY/TAIL mix with monthly rebalancing. Along the lines of your earlier suggestion.
First just SPY alone. From 2018-07-01 to 2020-06-01, the total return including dividends is 8.3% CAGR. The worst drawdown using monthly data was -24%.
- 70% SPY 30% TAIL. Now the return is 9.0% CAGR with -10% drawdown... better!
- 50% SPY 50% TAIL. Now the return is 8.4% CAGR with -2% drawdown. Just wacky.