Wikinvest Wire
Saturday, September 13, 2008
The Big Picture for the Week of Sept 14, 2008
Just before the five minute mark I word something poorly.
Replace up nicely with ahead nicely.
Subscribe to:
Post Comments (Atom)
Just before the five minute mark I word something poorly.
Replace up nicely with ahead nicely.
Proud Member Of
Random Roger
© 2009 | Gadget Theme Blogger Template
Original WPtheme By Blogger Template | Converted By Gadget Lover
| Distributed by eFree Blogger Help
Original WPtheme By Blogger Template | Converted By Gadget Lover
| Distributed by eFree Blogger Help
8 comments:
Roger,
Thanks for the post... A little bit off topic here however I believe that you have spoken at several conferences with a RIA named Rudy Aguilera and would appreciate your feedback on his 3 prong equity option derivative investment strategy.
My feeble understanding on Rudy's insulated beta strategy is with large market swings, there is a cap on your upside but no cap on your downside. You are limited to the amount you can earn when the market goes up a lot, but you are not limited to the amount you can lose when the market goes down. So the only thing 'insulated' is the amount of your potential profit. Your potential loss is cushioned, but not insulated.
You buy CDs rather than T-bills, and buy at-the-money-calls. This is your synthetic long-position. Then you sell out of the money calls, which is your maximum upside on stock price. And sell out-of-the-money puts, which gives you income. This provides some limited downside protection if you can arbitrage CDs against T-bills.
Realize that this entire strategy hinges on the ability to use high yielding CDs as collateral rather than T-Bills , which is an arbitrage trade. The idea is to gain extra return because options have inherent T-bill yields embedded in them. However, it is not always true that CDs yield more than T-bills. The yield curve could be flat to inverted, and CDs could be yielding less than T-bills. That would add significant cost to the portfolio. And again, the trading costs and spreads in options need to be considered as well, plus Rudi's fee.
Here are Rudi's slides:
http://www.fpanet.org/docs/ass....leraHO.pdf
Any input is appreciated.
A
i can try to check this out but i am not now familiar with anything about him other than recognizing the name, We may have been at the same events but we not been on the same panel.
i take a look at what you have linked to over the weekend.
Hello Roger,
Thanks for the nice blog. I enjoy your end of the week video commentary. With tax season coming up I wonder if you could say a few words about how you manage taxes. I wonder if you could walk us through the basic process of how you keep records,etc (just the basic stuff) and some examples of how taxes influence your decision making.
Thanks again,
Asterix
taxes are way down on the list of important things to me. i am far more concerned with growing the portfolio when the market is healthy and protecting it when the market is unhealthy. IMO taxes as a first priority is not the right first priority.
Come the last couple of months if there are a couple of things to take a loss on that can be replaced without too much disruption i will do so.
as far as recording keep, RIAs are required to use very robust software for all types of record keeping. i know very little about this as that is not the hat i wear.
Roger,
I have to say I think I'm losing faith. You've been nothing if not consistent in pointing (clinging?) to your faith that this is just a "normal bear market". This weekend we are seeing an assembly of the primary dealing banks and word is that the efforts to rescue LEH privately (w/o govt intervention) are stalling out.
Even discounting some of the nightmare that Roubini and others are fearing (largely focused on the potential disaster via the CDS market), I'd have more confidence in your views if you at least considered "unprecedented" as an adjective from time to time.
Doesn't the fact that price declines in housing have already reached 1930s levels at least tip some of the meaning of your "normalcy" on its head? Especially when I have yet to hear of a clear-eyed economist say that the worst in housing is over.
I think I also found it somewhat disappointing that at this point, your reassurance is confessional - that in fact you are "lagging the S&P for the quarter", and that doing so is part of the game.
The VIX hasn't been south of 20 in months, it is nothing to see multiple days +/- 1% in a week, the Fed is scrambling to find a way out of the place that inflation (from dollar devaluation) and deflation (from panic asset sales) will meet, and having a hard time doing so.
I'd be running for SDS with all I've got except... those double short ETFs are effectively unsecured swap positions. If proshares mega fund has a counterparty blow up, good luck getting paid out on your (and my!) paper assets.
Maybe I've spent too much time on Mish's and Yves' blogs, but I would really appreciate it if you turned your steady-eddie eyes to the visible problems and help us (me) to climb down from the windowsill.
More concretely, how do I find/invest in FCB short term debt using a retail broker like Chuck, FIDO or one of the advanced option houses (thinkorswim)?
Shaky hands these days...
R in NY
SPX high 1565
Friday close 1251
30% from the high w/b 1095
1095 is 12.4% away from current level
1095 from here w/b a 10% decline relative to 1565.
Roger,
Think you meant 1095 is 30% from 1565. Anyway, that's my target for exiting SDS, (although I'll prolly chicken out and bail at anything south of 1150 and stay in cash with that part of the portfolio).
jan
rick,
you echo my sentiments that this is not a normal econ/stock pullback, but be careful not to let your emotion interfere with analysis.
don't ignore the progress that has been made. the yield curve normalized, credit spreads expanded but seem (at least to me) to have flattened out this year, and libor to treasuries (a measure of banks willingness to lend to each other) remains relatively constant albeit at a rather high rate. and keep in mind that because of the opacity of so many forms of housing-related loans and the extreme level that housing prices went to, this credit crunch will probably take longer than normal to work through.
but let the market tell you what is really happening. small domestic stocks show some positive trends. the 200-day and 50-day moving averages for the valueline equal weighted index both appear to be flattening and maybe moving upward while the index itself is above the 50-day and close to the 200-day moving average. even more interesting, the russell 2000 has generally traded above its 200-day ma for a month. i recall someone claiming that small stocks tend to act well early in the recovery from recessions (and we are in recession). i agree with roger about looking for confirmation using moving averages, but you might want to look at more than the moving average on the s&p as an indicator.
--gjg49
Post a Comment