The Nasdaq-100 Index ($IUXX) is showing some signs of stress, but it is not in a full-blown decline by any means. However, it caught the eye of one of the members of my investing club who wanted to know if you could apply an options collar – my favorite risk management strategy – to an inverse exchange-traded fund. And specifically to the UltraPro Short QQQ -3X ETF (SQQQ), which aims to move in the opposite direction of the Nasdaq-100, but with triple leverage applied. Wow. 

After I got over the initial mind bending, it made a lot of sense. As with most hedging approaches, the money is made (or saved) by being out in front of the trouble. 

And in this case, I don’t see it as a hedge as much as a way to try to exploit the potential for the market to finally crack again. Using an options collar on the SQQQ ETF is a way to reduce the risk associated with cracks in the Nasdaq-100 without missing out on high after new high in hot big tech stocks. 

Let’s dig in and see what there is to offer here. 

A Trade That Sounds Like Ordering Coffee

“I’ll have an ETF, inverse, triple levered, and collar it, please.” They’ll kick me out of the local coffee store if I try that one. But that’s exactly the order here. We’re looking at buying SQQQ, which will fly in a market decline and drop hard in a market rally.

Let’s remember what a collar does. If the stock market falls, SQQQ goes up, and life is good, at least for this trade. If the market rises a lot from here, say through year end, SQQQ will sink hard. Ah, but that’s what the put option side of the collar is for. You see, the principle is the same as a regular collar trade. The goal is to first protect against a bad outcome, and offset some of the cost of that insurance by selling a covered call option. In this case, the roles are reversed, in that SQQQ falling means an up market, not a down market, for stocks. 

The charts don’t tell us much here, but this is less about timing the chart. The market is showing signs of weakness, and this is a way to try to profit mightily from it getting worse. I suspect most investors have plenty of long equity exposure, so this is a different avenue. But with limited loss should the market keep rising.

That said, I like the looks of the PPO here. SQQQ looks like it is warming up in the bullpen to come into the game. And if it gets going, there’s room to run.

Collaring SQQQ

As I often do, I’m providing a table with several possibilities, with prices as of the Aug. 5 close. These shift around constantly, especially for a 3x leveraged ETF. But the concept is the same. The specifics of the strike prices (and the expiration date if you prefer) are determined at trade time.

I’ll focus on that top one here, which is a $26-$18 SQQQ collar to 12/19/25.

The cost here is light at about 5.4%. But remember, this ETF is a 3x, so the collar holder owns and controls 3 times the Nasdaq-100 for each share owned and collared. 

The downside is under 10%, as shown at far right in red. The upside is more than 3 times that. Applying the 3x leverage in reverse, that’s more like 3% downside and 11% upside in the Nasdaq-100. 

There’s enough liquidity here to make this a consideration for many self-directed investors. Collars are one of the ways I think we DIY types can compete in a market increasingly skewed toward big-money interests. And in cases like this, you don’t have to be too crafty to set yourself up to crush a down market. Because despite rumors to the contrary, those happen too.