E. Szado and H. Kazemi: Collaring the Cube: Protection Options for a QQQ ETF Portfolio

April 1, 2008

This article assesses the effectiveness of a long collar as a protective strategy. We examine the risk/return characteristics of a passive collar strategy on the Powershares QQQ trust exchange traded fund (Ticker: QQQQ) from March 1999 to March 2008 and find that, over this time period, a 6-month put/1-month call collar provides far superior returns to the buy and hold QQQ strategy at about 1⁄3 of the volatility. Since returns from protective strategies are not normally distributed, we use both Leland alpha and the Stutzer index to measure risk-adjusted performance.