How to always beat the S&P 500
It seems to me that the smartest guys in the world that have been crushed by the market in the last year typically compare their performance to the S&P and the ones that consistently have better numbers are considered to be little tin gods.
It almost seems that the goal is to actually beat the S&P not maximize profits necessarily. I can beat the S&P all the time without exception. I'll bet many of you probably just had a negative response to that statement. How would/could one always beat the S&P every single time? Any takers?Fund managers trying to beat the S&P are trying to outperform by buying and holding equities. Trading options and comparing that to buy and hold is comparing apples to oranges. It is two different animals.
I can beat the S&P with a baseball bat.
As long as I can aim well, I can beat it every single time![quote=Ron 14]
Fund managers trying to beat the S&P are trying to outperform by buying and holding equities. Trading options and comparing that to buy and hold is comparing apples to oranges. It is two different animals.
[/quote] First I made no such comparison. I use options a lot but I'm not a one trick pony. What is the diff? You made an assumption that I wasn't going to use equities. Why would it matter what product it was if you always beat the S&P without exception? Perhaps I should change the question too. Do you think you could ALWAYS outperform the S&P? If so ... how?The benchmark for US Equity investing is the S&P. That is what fund managers are compared to and that is what many compare their investments to. I know you are not a one trick pony, I never said you were, but fund managers and most advisors are not trading anything. They are putting together long term investment plans to help clients reach long term investment goals. Is someone who owns a Mcdonalds franchise and turns a 15% profit each year also a star investor because he beats the S&P each year?
Well now you truly are talking apples and oranges. Lets limit this to things you need a series 7 to buy and sell. Do you think you can always beat the S&P? Long term, Short term and in between? If so I would be very interested and appreciate your, or anybodies, methodology to do it. When I tell you how I would do it if that was my goal you'll probably find it amusing at just how simple it is. Sometimes things are sooooooo simple we overlook the obvious. What would you think of a money manager that beat the S&P 10 tears out of 10? I'll bet that guy would be considered to have some serious bragging rights yes?Is someone who owns a Mcdonalds franchise and turns a 15% profit each year also a star investor because he beats the S&P each year?
-No, I cannot beat the benchmark every year and it doesn’t matter if I do or not
-Yes, managers who beat the benchmark consistently are considered to be at the top of their profession FYI -You do not need a Series 7 to execute options, stock, or mutual fund trades[quote=Ron 14]-No, I cannot beat the benchmark every year and it doesn’t matter if I do or not
-Yes, managers who beat the benchmark consistently are considered to be at the top of their profession FYI -You do not need a Series 7 to execute options, stock, or mutual fund trades[/quote] Semantics & you know what I mean. Yes YOU can easily beat it always. Would you like to know how? I'm curious, if beating the S&P or some such is not relevant to your practice what do you use to gage success in your clients accounts? I know I was a prick when we first began to reply to each others posts ... Sorry The tone of this discussion is not like that at all from my side. I truly am interested in your thoughts and best practices should you decide to share them with us. That goes for everyone that want to chime in. Here is the specific question A guy has 5 million and will give you 1% as long as you consistently beat the S&P. You're not allowed to take risk that exceeds the implied risk of the S&P, within reason. IF the account is off by 2% at anytime you loose the account on the 2% tick. What would you do? ALL ANSWERS FROM ANYBODY AGE GREATLY APPRECIATEDThe average investor trails the S&P by about 7% over time because of constantly overreacting at highs and lows so I follow Nick Murray's recommended value prop:
-Will the experience of my firm and myself provide a better return than the investor on their own by 1% or more -Will my guidance save them from making the big mistake (selling out at dow 6500) and sticking with their plan in bad times -Will having a trusted advisor save them time, energy, and worry vs doing it themselves I ask the client are any or all of these things worth 1% to you ? If yes welcome, if no, go back to fidelity or CD's and continue to chop yourself upI added more to the post you responded too FYI. How to simply and consistently beat the S&P???
This answer is very anticlimactic. Put all the $$$$ in the SPY and each month sell a covered call that is in the following month for expiration i.e. a May expiration if we did it today. The Delta has to be 0. A delta technically can't be zero, but, a zero Delta means that the probability is in basis points. So using todays number for fun we would be selling the May 103 for .11. If we did this for one year the Calls would give us 1.6%. So we beat the S%P by just over a point and 1/2. How simple is that? So for the purpose of prospecting/talking shop with prospective clients. Set up an account, make it small for your sister or some such, buy 100 SPY. Now you can tell people that one of your more conservative strategies has been back tested for 20 years and is currently exceeding the returns of the S&P. I know it sounds cheesy but I did it and some are greatly impressed by it. AND it's 100% true and without exaggeration.Your forgetting about trading costs.
And if you go through the strike, you stop yourself out, and the Index keeps gaining.
This is in a wrap account that is paying the broker 1% as previously stated. There are no additional fees for any trades.Your forgetting about trading costs.
IF we were lucky enough to have a black swan enter the picture and goes to a 99%+ probability of success we simply roll the position and 9 out of ten we would get a credit on the roll to add to the till. Out of literally thousands of trades I've done during my 19 month tenure we've not given up any stock we didn't want to. God I love my job. With all the 'stupidity liquidity' bubbles floating around it's easy to take their money As I said in another post. Gaming theory is significantly more useful than anything the training department taught us.And if you go through the strike, you stop yourself out, and the Index keeps gaining.
Everything your saying makes sense. The thing is it only takes once for that to blow up. There used to be a huge NDX speculator who would sell out of the money call spreads and put spreads one month out. He did it for about 3 years straight in huge quantity, selling both spreads at the same time. If the futures ever approached the strike he would roll it, but he got caught once where it just kept running away from him and it was game over. Part of it was because of the size he was doing, but it was also because he kept going back to the well and nothing is a lay up forever.
I hear what you are saying. Then lets limit it to two trades per year.
All pretty esoteric. Try to get a client to understand what you are doing.
Bill Miller beat the S&P every year…till he didnt. A lot of people bought his fund when he was “at the top of his profession”. The rest is history.
I tell cients that i dont care about the s&p 500 - i use the s&p 500 to put their performance in context, but i care more about whether or not they are on track to meet their goals.
As far as investing, i tell them that my goal is to reduce volatility and i will probably outperform in down markets, and underperform in up markets.
I totally agreeAll pretty esoteric. Try to get a client to understand what you are doing.
Bill Miller beat the S&P every year…till he didnt. A lot of people bought his fund when he was “at the top of his profession”. The rest is history.
I tell cients that i dont care about the s&p 500 - i use the s&p 500 to put their performance in context, but i care more about whether or not they are on track to meet their goals.
As far as investing, i tell them that my goal is to reduce volatility and i will probably outperform in down markets, and underperform in up markets.
This was more thinking out loud and looking for other reps thoughts. Making money is an art form, IMHO, and there are more ways to work the market that my imagination can fathom. Trying to sell this to a client would be ridiculous. As for my current clients about half don't have a clue how I keep making their account balance go up each month. Their comfort level is a facet of their belief that win loose or draw I truly have their best interest at heart, which is 110% true. The other half actively helps me look for trades. I teach them how to do it and go over each trade and place the order. "i tell them that my goal is to reduce volatility" I agree BIG TIME hence my fixation on market neutrality models. Read up on arbing convertible bonds "convertible arbitrage" I think you will be blown away about how you can almost remove volatility and get around 9%+ depending on how your firm's cost or the payment of interest. Bread and butter models for hedge funds. They use technology stocks for the most part as they don't usually pay dividends. Which brings me to another GREAT swing trade. Find convertible bonds that are being called get in and sell on the short squeeze. God I love playing this game.All pretty esoteric. Try to get a client to understand what you are doing.
Bill Miller beat the S&P every year…till he didnt. A lot of people bought his fund when he was “at the top of his profession”. The rest is history.
I tell cients that i dont care about the s&p 500 - i use the s&p 500 to put their performance in context, but i care more about whether or not they are on track to meet their goals.
As far as investing, i tell them that my goal is to reduce volatility and i will probably outperform in down markets, and underperform in up markets.
IF we were lucky enough to have a black swan enter the picture and goes to a 99%+ probability of success we simply roll the position and 9 out of ten we would get a credit on the roll to add to the till. Out of literally thousands of trades I've done during my 19 month tenure we've not given up any stock we didn't want to. God I love my job. With all the 'stupidity liquidity' bubbles floating around it's easy to take their money As I said in another post. Gaming theory is significantly more useful than anything the training department taught us.[/quote][quote=Ron 14]And if you go through the strike, you stop yourself out, and the Index keeps gaining.
I LOL'd.
That struck me funny.
Good info, but 19 months? I'd be careful who I bragged to about that.
Gaddock - I cant believe you think you have actually found some kind of “unknown” system to make money for clients with little or no risk. Those opportunities are not out there. They may present themselves month to month or year to year, but they wont last for ever and they aren’t something you can hang your hat on.
You're kidding right? Do you think that I have such an ego as to believe I've done something nobody else has? As I said before, that trade you are speaking of is called a Reverse Conversion. I'm not hanging my hat on anything. BUT I will take the trade when they present. My overall strategies are built around a core position of long term buy and hold blue chips that are enveloped by options. Any other opportunity that meets or exceeds my methodology and risk parameters, I take that trade. 9 out of 10+ of those positions end with the desired outcome giving me one hell of an edge. Would you feel better if it was one of the managers you use doing it? Morgan Stanley takes these trades and cuts them into strips and sells them like hotcakes. Getting beyond the huge haircut would it make you feel it's real if a firm does it and keeps the larger part of the profit? The fact of the matter is, speaking of the trade in the other thread. I find them everyday. Current positions include X, GM, C, MGM, GE & CBI. All expire within 90 Days. I've even given you the numbers on several of them. I guess maybe you think I'm making this up. Cool by me. You can see the numbers were there on the day I posted it. As long as there are no special divs paid I'm gold on all of them. My clients are feeling special and getting much more than their previous broker gave them. They are my advocates and actively promote me. I'm now landing foundations instead of a little cold call IRA. Kind of sad you cant get your head around taking advantage of anomalies, you yourself said you cant shoot holes in it and that it's free money. Why not take the trade? Analysis paralysis? To good to be true? Yet there it is for people like me to bang out large returns none the less.Gaddock - I cant believe you think you have actually found some kind of “unknown” system to make money for clients with little or no risk. Those opportunities are not out there. They may present themselves month to month or year to year, but they wont last for ever and they aren’t something you can hang your hat on.
Are New Broker training programs these days teaching kids to be asset gatherers or fund managers? Or are those six months enough time to master both now?
[quote=YHWY]Are New Broker training programs these days teaching kids to be asset gatherers or fund managers? Or are those six months enough time to master both now?
[/quote]
So ahhh are you saying you have no strategy or thoughts that can build upon the point of this thread? Don't feel bad, not many do. I suppose that's why mutual funds are so popular.Are New Broker training programs these days teaching kids to be asset gatherers or fund managers? Or are those six months enough time to master both now?
My point is that, after 19 whole months, you don’t even know what you don’t know yet.
Point taken. Safe to say I'm not a spring chicken.
They say that a person can be an expert on any subject after 5000 hours of study. If you consider insurance sales (employee benefits) a financial product and prop trading for 2.5 years after being trained to work arbitrage models pertinent, I've been dealing with such products for 20 years. I'm not claiming to be an expert but I am professional. I've put in far more than 5000 hours of study as well. Point is I can see a good trade when it appears and will pull the trigger. I'm beyond disgusted with managed money after their terrible performance over the last twelve months. Maybe it's short lived but I've been making rather large profits even through the crash. That success can be measured I believe by my production & AUM and the amount of referrals received. Enough about me ..... HOW WOULD YOU ATTEMPT TO BEAT THE S&P CONSISTENTLY????I am going to look again at the fund managers I mentioned to you, but I am almost positive that options are not a part of their model at all and are not in the prospectus. I admitted to you that if what you are saying is true and the entire trade is delta neutral it is a money maker. I just don’t think those opportunities will always be out there and as your book builds you will need to do more and more size that just won’t be available. That is my opinion. And as I said, my business is not about beating the S&P and I don’t believe many rational advisors are building their practice in that manner.
It’s not sexy, but simple dollar-cost averaging will consistently beat the benchmark, but this assumes that the investor does not have a large lump-sum to invest initially. I’ll give you “consistently”, but am glad you backed away from “always”. I’ve yet to see “always” hold true with market-based investing. I do appreciate your intelligence and confidence, though.
Not sure if this was addressed in the thread, but if you are able to use any asset class, I think using generally higher returning asset classes (vs. S&P), and some alternative asset classes to reduce volatility will do it most of the time.
You use small cap value, large cap value, international, sprinkle in some real estate, gold, other commodities, managed futures, global fixed income. Now, problem is, this would have destroyed the S&P the past 10 years, but that is just hindsight. In the next 10 years, US large caps could do phenomenal (doubt it, but nobody knows). Fact is, stastically, there is no way to beat ANY specific index with 100% certainty in advance. You simply CANNOT account for black swans. Now, I have seen many, many different investment theories, that over time consistently beat the S&P. But in any given year, you have no idea what's going to win. And bottom line is, one year shoudl not make your investment policy. It shoudl be about getting a consistent return over the mid-term (I hate when fund companies talk about 30+ year time horizons). It also depends what time period you are investing in. If you started investing at the beginning of a Secular Bull Market (i.e. early 80's), you can pretty much buy a basket of equities and hang on for the ride. Start investing at the beginning of a Secular Bear (i.e. 2000), and you NEED to be well-diversified with many different asset classes, and do a better job of timing. So the entire question of beating the S&P has to be put into perspective of when you are investing. One other thing - Bill Miller may have beat the S&P for years, but his total returns over time were nothing extraordinary. If I were retired, I would much rather have missed the S&P by a little bit, and had far less volatility than Miller's fund.Exactly, you can’t beat anything with certainty in advance and to base an advisory practice on returns or beating benchmarks is just not something I want to play with. Even the idea of trying to “time” different asset classes makes cringe. Nobody can with any consistency.
Gaddock—long term returns would probably be better using puts on SPY at some level below current price (say 5 or 10%) and not having “blow up” months or quarters. Then you’d capture ALL of the upside on the hugely positive periods (like the last 4 weeks or other big moves up). The “consistently beating S&P” #s might go down, but your total return over long periods of time is likely to be better. Case in point: if you had a 5 or 10% put hedge in 4th QTR 2008 (esp 5%), you weathered the storm quite well and had more capital to go back up on 3/9/09.
Another angle I'll have to play with. The only thing is the cost of the hedge. When it was down in Feb selling a put to average down would hav e worked well too.Gaddock—long term returns would probably be better using puts on SPY at some level below current price (say 5 or 10%) and not having “blow up” months or quarters. Then you’d capture ALL of the upside on the hugely positive periods (like the last 4 weeks or other big moves up). The “consistently beating S&P” #s might go down, but your total return over long periods of time is likely to be better. Case in point: if you had a 5 or 10% put hedge in 4th QTR 2008 (esp 5%), you weathered the storm quite well and had more capital to go back up on 3/9/09.
Ron,
Who said anything about basing a practice on it? I just thought it would be an interesting topic to hear other peoples thoughts. As for the other trades my software is finding them all over the place. Maybe they wont be here next week, does that mean you shouldnt take 'stupidity liquidity' where you find it? Counting on a bunch of other managers to run your book seems aweful boring to me. Diff strokes I suppose.Another angle I'll have to play with. The only thing is the cost of the hedge. When it was down in Feb selling a put to average down would hav e worked well too.[/quote] Yes, gets quite expensive when the market is scared out of its mind....if you can spend some of your call premium in "normal" times on put protection (when it is much cheaper), you have a compelling story about downside protection (to add onto your outperformance story).[quote=Cowboy93]Gaddock—long term returns would probably be better using puts on SPY at some level below current price (say 5 or 10%) and not having “blow up” months or quarters. Then you’d capture ALL of the upside on the hugely positive periods (like the last 4 weeks or other big moves up). The “consistently beating S&P” #s might go down, but your total return over long periods of time is likely to be better. Case in point: if you had a 5 or 10% put hedge in 4th QTR 2008 (esp 5%), you weathered the storm quite well and had more capital to go back up on 3/9/09.
Yes, I am counting on managers to run the investments in my book. I will manage changes in client situations and their emotions.
[quote=Ron 14]
Yes, I am counting on managers to run the investments in my book. I will manage changes in client situations and their emotions.
[/quote] And that takes all of 20 minutes a week? WOW maybe that's the reason you do it. I would be board to tears. Side thought, I've found the best way to manage a clients emotion is to make money for them.Another angle I'll have to play with. The only thing is the cost of the hedge. When it was down in Feb selling a put to average down would hav e worked well too.[/quote] Yes, gets quite expensive when the market is scared out of its mind....if you can spend some of your call premium in "normal" times on put protection (when it is much cheaper), you have a compelling story about downside protection (to add onto your outperformance story).[/quote] If Bernake starts giving speeches during market hours, shorting against the box is the cheapest hedge in town. I used it a lot during the last 8 months.[quote=Gaddock][quote=Cowboy93]Gaddock—long term returns would probably be better using puts on SPY at some level below current price (say 5 or 10%) and not having “blow up” months or quarters. Then you’d capture ALL of the upside on the hugely positive periods (like the last 4 weeks or other big moves up). The “consistently beating S&P” #s might go down, but your total return over long periods of time is likely to be better. Case in point: if you had a 5 or 10% put hedge in 4th QTR 2008 (esp 5%), you weathered the storm quite well and had more capital to go back up on 3/9/09.
[quote=Gaddock][quote=Ron 14]
Yes, I am counting on managers to run the investments in my book. I will manage changes in client situations and their emotions.
[/quote] And that takes all of 20 minutes a week? WOW maybe that's the reason you do it. I would be board to tears. Side thought, I've found the best way to manage a clients emotion is to make money for them.[/quote] It takes a tad longer, but the rest of the time is spent prospecting[quote=Ron 14]Yes, I am counting on managers to run the investments in my book. I will manage changes in client situations and their emotions. [/quote]
Just curious, and not to pick on you personally, but do you consider yourself a financial advisor? or a Psychotherapist?: “often includes techniques to increase awareness, for
example, or to enable other choices of thought, feeling or action; to
increase the sense of well-being and to better manage subjective
discomfort or distress.”
You think the average investor makes correct decisions during volatile markets ? Take one look at equity fund inflows and outflows over the last 10 years, it proves my point.
Have you looked into Behavioral Finance and Investing? Sound likes it’s right up your alley!
Peter Bernstein in “Against the Gods” states that the evidence “reveals
repeated patterns of irrationality, inconsistency, and incompetence in the
ways human beings arrive at decisions and choices when faced with
uncertainty.”
Behavioral finance attempts to explain how and why emotions and
cognitive errors influence investors and create stock market anomalies
such as bubbles and crashes.
But are human flaws consistent and predictable such that they can be: a)
avoided and b) exploited for profit?
Lately, I have seen more “money in motion” than I can remember (I’ve
been at this since 1991). I have signed up a couple of really big
accounts and have several more in the pipeline.
If I had to choose between placing my money between you and Gaddock, I
would go with Gaddock. His c***iness/self-confidence would be a big
factor in my decision. Your story is a stale one.
Managed money/hand holding business model is a story that has been
around since 1982. On the other hand, if you could develop your
behavioral finance approach and show us how you interpret triggers or
directional changes in the market(s), I would be interested in
listening.
Good Luck
Good for you. Im not interested in convincing people to do business with me because my "story" is more interesting. Buy and hold and hand holding works over time. I dont give too sh**s that it hasn't worked well over the last 10 years, that makes me even more confident moving forward. I am going to go with what I am most confident in and you feel free to do the same.Lately, I have seen more “money in motion” than I can remember (I’ve been at this since 1991). I have signed up a couple of really big accounts and have several more in the pipeline.
If I had to choose between placing my money between you and Gaddock, I would go with Gaddock. His c***iness/self-confidence would be a big factor in my decision. Your story is a stale one.
Managed money/hand holding business model is a story that has been around since 1982. On the other hand, if you could develop your behavioral finance approach and show us how you interpret triggers or directional changes in the market(s), I would be interested in listening.
Good Luck
[quote=iceco1d][quote=Gaddock]
Sam, more than one way to skin a cat!! Ice, It's in a wrap account, no transaction fees.[/quote] (i.e. why it's a "suckers bet" to be long the trade - not my words) [/quote] If you are buying an option as a vehicle to leverage a position on a expected move on the underlying security your probabilities of getting to the strike price, exceeding it to the point you're even on the credit you paid, transaction fees and taxes... Your probability of success is at the very best 50/50, a coin toss. If you're using it in the context of some sort of arb that's a diff story all together. SELLING and option can give you a 0 or -0 Delta giving you odds of failing literally in basis points. My rule of thumb is to take no trade with less than an 85% probability of success. Most are well into the 90%. And yes, probabilities on any one trade are meaningless but over the large sample they are spot on and give me 9 out of 10, actually better than that, that are successful. NOW THAT's an EDGE. Who would take a trade with a 5% probability of success? That's the question my clients ask when my strategy makes sense to them. Answer: F if I know I call it 'stupidity liquidity' and there is plenty to go around.= Hang in there champ, look at this cool chart, this strategy hasn't lost money in any decade, see here is the great depression, WW2, the 70's, S&L's the tech bubble and now ... DOHHHHHH!!!!!!!!!!!!! Well, that's only one ... ummm this one, BUT SINCE THIS IS THE ONLY DECADE, this one here, you know the one you want to retire in, It's just got to get better. I'm very comfortable things will come back ... some day. You see the smartest people in the world are managing your $$, like the guys at Bear Sterns, ML, WashMut, Wachovia, Lehman Bros. They'll get it right this time. What's that Mr. Client? A short sale? not sure what that is. Ever heard of a reverse mortgage? He he he Just kidding dude, I have a very cheap sense of humor.You think the average investor makes correct decisions during volatile markets ? Take one look at equity fund inflows and outflows over the last 10 years, it proves my point.
You are so far gone it is unbelievable.
I find it ironic that somehow "practitioners" in this industry asume time-in-the-seat equals knowledge/skill. reality proves otherwise. Just last week had a "veteran" (not like VFW) ask what the different classes of mutual funds were for. I've talked to Gaddock several times on the phone about his strategies---he aint no kid... He certainly seems to have a better grasp of these trades and how to structure them than the folks in home office. The dude ought to write a damn book. I still dont fully understand what he spent over an hour explaining....of course, I've only been here a few months longer than him so thats no real surprise to seasoned old-timers. BTW, Gaddock-- werent you some sort of trader before you came to AGE? no one else had a life before they started in this business.....Are New Broker training programs these days teaching kids to be asset gatherers or fund managers? Or are those six months enough time to master both now?
[quote=Gaddock]
Point taken. Safe to say I'm not a spring chicken.
They say that a person can be an expert on any subject after 5000 hours of study. If you consider insurance sales (employee benefits) a financial product and prop trading for 2.5 years after being trained to work arbitrage models pertinent, I've been dealing with such products for 20 years. I'm not claiming to be an expert but I am professional. I've put in far more than 5000 hours of study as well. [/quote] Sorry, dude--I guess I shouldve finished reading..its not like you needed someone to defend you. BTW--would you want to share that program--the one from india?Cmon Ron I was just teasing you. I was being an ass my apologies.You are so far gone it is unbelievable.
Not a prob
[quote=stocksandblondes]
BTW--would you want to share that program--the one from india?[/quote] Hey Bud, I'll always appreciate kind words wherever I can get them, thanks. I would be happy to share some of it's output with you. Was able to get 10,000 shares of GM to short today. Considering there are more shares short than the float that was a lucky break. RevCon city!! If you have an account that has a margin and options agreement call the short desk see if you can get a few thousand shares and give me a call. You'll be their hero. Call me anytime.This morning Gabelli told Mohamed (to his face) that the U.S. has “chosen” PIMCO to lead us out of the darkness. Mohamed, who I like, bristled at the comment (Mario hit a nerve). CNBC pulled the video and I can’t find it.
GM stock is definitely on the endagered species list. Gaddock, I will wish you luck. Don’t listen to the kool-aid drinkers.
The US automakers cannot be profitable while they have enormous legacy costs. I met with a lady who was a GM retiree. She has been retired for 28 years, and still had dental benefits. I don’t know if it was the open bar at the event, but she showed me her her new dentures which cost $18,000, paid by the GM pension.
She was probably your date!
I find it ironic that somehow "practitioners" in this industry asume time-in-the-seat equals knowledge/skill. reality proves otherwise. Just last week had a "veteran" (not like VFW) ask what the different classes of mutual funds were for. I've talked to Gaddock several times on the phone about his strategies---he aint no kid... He certainly seems to have a better grasp of these trades and how to structure them than the folks in home office. The dude ought to write a damn book. I still dont fully understand what he spent over an hour explaining....of course, I've only been here a few months longer than him so thats no real surprise to seasoned old-timers. BTW, Gaddock-- werent you some sort of trader before you came to AGE? no one else had a life before they started in this business..... [/quote][quote=YHWY]Are New Broker training programs these days teaching kids to be asset gatherers or fund managers? Or are those six months enough time to master both now?
+1 Gad is the real deal.
In terms of......?
[quote=Gaddock]
I can beat the S&P all the time without exception. I'll bet many of you probably just had a negative response to that statement. [/quote]I have a negative response to that statement. While I think you are smart, engaging and have had a nice run the past 18 months, I'd be very nervous as a prospect if anybody spoke to me with that kind of certainty. I suspect there are risks and traps out there that you will surprise you someday. We've seen a lot of smart guys go bust in the last 10 years when things happened outside their systems.
[quote=buyandhold] [quote=Gaddock]
I can beat the S&P all the time without exception. I'll bet many of you probably just had a negative response to that statement. [/quote]This would be an incorrect statement if you are referring to you previous strategy with a $5mm account and SPY. Holes everywhere.
[quote=buyandhold] [quote=Gaddock]
I can beat the S&P all the time without exception. I'll bet many of you probably just had a negative response to that statement. [/quote]I have a negative response to that statement. While I think you are smart, engaging and have had a nice run the past 18 months, I'd be very nervous as a prospect if anybody spoke to me with that kind of certainty. I suspect there are risks and traps out there that you will surprise you someday. We've seen a lot of smart guys go bust in the last 10 years when things happened outside their systems.
[/quote] FYI ALL this is not something I WOULD EVER SAY to a client or prospect, although I think I could. This is simply a thread on a broker BBS that I was hoping for some cool views from others out there. This is a thread to talk about possible strategies that just might beat the S&P always. I know if I buy the SPY I can ALWAYS have the same return. Why not beat it even just by basis points.
[quote=Sam Houston][quote=buyandhold] [quote=Gaddock]
I can beat the S&P all the time without exception. I'll bet many of you probably just had a negative response to that statement. [/quote]This would be an incorrect statement if you are referring to you previous strategy with a $5mm account and SPY. Holes everywhere.
[/quote] Hey Sam tear it to tatters I don't see the holes everywhere, although there are clearly a few. Will you please elaborate?
[quote=Gaddock][quote=Sam Houston][quote=buyandhold] [quote=Gaddock]
I can beat the S&P all the time without exception. I'll bet many of you probably just had a negative response to that statement. [/quote]This would be an incorrect statement if you are referring to you previous strategy with a $5mm account and SPY. Holes everywhere.
[/quote] Hey Sam tear it to tatters I don't see the holes everywhere, although there are clearly a few. Will you please elaborate?[/quote] Sure. I am referring specifically to your strategy using SPY, an option @ $103, and a $5mm client requestingg you beat the S&P. In order to do $5mm, you would need about 5000 shares and 50 contracts. The shares are easily purchased, however 50 contracts (using the price and day in your example) are another matter. Only 12 contracts traded that day. So you would need 4 times the volume just to fill this order, and you would need to get them all. By using an option so far out of the money, liquidity would be an ongoing concern. This works with the VIX @ 40+. This is the only reason any 103 options are trading in the first place. If the VIX were to go to 25, which is still historically high, this strategy would not work at all and you said "Beat the S&P all the time without exception". VIX drops, you fail on the price of the option. Slippage in SPY, you fail. Liquidity in the option would cause you to fail quite often. A bad fill on the initial purchase of SPY would cause you to fail. Just a few thoughts. I think your a smart guy, but this world if filled with smart guys. Don't you think if this could be accomplished with regularity, someone would market it against VFINX (little bit of money there) and make a killing? Even those guys trail the S&P by a few basis points consistently.
If the vix declines so does the IV and in turn the Delta allowing to sell a call closer in. If you hit the bid I don’t think liquidity would be a problem AND who said you needed to cover them all? just 10 contracts would be enough I would think. As for the SPY fill it CLEARLY would not be a market order. I would have an AON on the ask and wait to get the fill on my terms. Put it in with the TRIN at .5 or less I see no problem on that. After fighting to get fills pair trading the one thing I can do well is get a decent fill.
Selling the call closer in would mean the odds of getting called and missing upside increase. Remember you said always. Lower VIX would mean higher chance of getting called. 10 contracts would not cover the 1% wrap in your example. You would need at least 35 contracts in your example just the cover the 1% wrap. More contracts in you want to add return. On a side note, taxes on the options would also negate your "outperformance".If the vix declines so does the IV and in turn the Delta allowing to sell a call closer in. If you hit the bid I don’t think liquidity would be a problem AND who said you needed to cover them all? just 10 contracts would be enough I would think. As for the SPY fill it CLEARLY would not be a market order. I would have an AON on the ask and wait to get the fill on my terms. Put it in with the TRIN at .5 or less I see no problem on that. After fighting to get fills pair trading the one thing I can do well is get a decent fill.
Taxes are a constant and would only be paid on option premium. The 1% is the agreed amount of commission and not part of the equation. Lower Vix would lower the IV and the Delta & Standard Deviation respectively, keeping the odds of assignment constant or lower not higher. Lets not forget about rolling if needed. Most roles I take come with a credit
If I can generate just one cent above the SPY it's mission accomplished. You could also sell puts that have a 99.99 probability of not getting banged. Can even do a revcon, the risk on that trade is literally in basis points. The way interest rates are going I'll bet a cash carry trade could last for years. What do you think of the arb on city I wrote about above?[quote=Gaddock]
For theoretical conversation only, don’t do this at home kids OK ladies ... another broker extraordinaire IMHO, who also occasions this BBS, told me one hell of a trade. There's around a 20% premium on what city is going to convert their preferred to. If you can get any C short, buy as many shares required of the preferred needed to cover the short on the conversion. The dilution is sure to crush C not to mention all those that have the preferred beyond this arb are going to want to sell the converted shares asap. You should kill it on the arb and the short. IF I could get enough shares of C short I would go as high as 10% of a clients account value. Is this a once in a decade trade? Anybody care to shoot holes in it? CHA CHING!!!!!!!!!!!!???!!!!!!!!!!![/quote]Hedge funds have been playing in that space already for weeks. Better make sure you look carefully for any holes in the logic so as to avoid getting crushed if the hedgies decide they need out....just my 2 cents.
Well I’m sure they have and like GM the shorts are larger than the float. The advantage I (we) have is IF we can get any C to short there is no negative interest. Like GM were you to get shares to short on “The Street” you would be paying as much as 120% negative interest. That puts a hurting on the arb as much as it does a reverse conversion. But we in retail don’t pay that so its a good trade. And yes I studied it very well on the SEC website to be certain of the conversion numbers. You’re right about the details on a trade like this. You better know them cold. I’m not seeing as much competition for this trade as one would think. But IF the hedge funds did creat a short squeeze I don’t think it would last long and when they actually convert the shares C will be a penny stock when the buy and hold accounts dump their shares, IMHO.
Sorry, did not mean to bump.
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