Search found 394 matches

by lee1026
Fri Mar 27, 2015 6:25 am
Forum: Investing - Theory, News & General
Topic: [New Member Observations- Covered Calls, Financial Advisors]
Replies: 227
Views: 49948

Re: [New Member Observations- Covered Calls, Financial Advis

Definitely off topic, but I have definitely had a lot of moments of "ohh, it will be nice to get into X using futures" and then clicking though and realize that there is no active market. If case-shiller futures is the size of e-minis, then there will definitely be people who buys houses and then he...
by lee1026
Wed Mar 25, 2015 3:55 pm
Forum: Investing - Theory, News & General
Topic: [New Member Observations- Covered Calls, Financial Advisors]
Replies: 227
Views: 49948

Re: [New Member Observations- Covered Calls, Financial Advis

I was more cautioning that one should check that the futures market is alive and active before making that assumption. The assumption might fall apart for some of the CME's more quirky equity indexes without any volume as well.
by lee1026
Wed Mar 25, 2015 1:22 pm
Forum: Investing - Theory, News & General
Topic: [New Member Observations- Covered Calls, Financial Advisors]
Replies: 227
Views: 49948

Re: [New Member Observations- Covered Calls, Financial Advis

OTOH being permanently long the index futures must mimic the total return of the index. Not always true. CME offers Case-Shiller index futures. From what I can see, it doesn't come remotely close to mimic the performance of the underlying. Of course, this is why (almost) no one trades it, but the p...
by lee1026
Tue Mar 24, 2015 12:38 am
Forum: Investing - Theory, News & General
Topic: [New Member Observations- Covered Calls, Financial Advisors]
Replies: 227
Views: 49948

Re: [New Member Observations- Covered Calls, Financial Advis

Hmm. You said in PM that you thought 0.5%/quarter was a reasonable estimate after 2011, OP said he was earning a smaller premium now than before, and OP's suggested current option had a premium of about 0.6%/quarter. So clearly the model is highly simplified, but it still seems that it's a much bet...
by lee1026
Mon Mar 23, 2015 9:04 pm
Forum: Investing - Theory, News & General
Topic: [New Member Observations- Covered Calls, Financial Advisors]
Replies: 227
Views: 49948

Re: [New Member Observations- Covered Calls, Financial Advis

So all of the excess returns according to the model are from 2007/Q2-2012/Q1. Those are also the dates that we estimated options prices via a method that probably returns prices that are too high, as opposed a method that returns prices that are too low. (assuming 0.5% throughout) I rather chalk th...
by lee1026
Mon Mar 23, 2015 8:04 pm
Forum: Investing - Theory, News & General
Topic: [New Member Observations- Covered Calls, Financial Advisors]
Replies: 227
Views: 49948

Re: [New Member Observations- Covered Calls, Financial Advis

SPX options are reasonably liquid, so approximately, yes.
by lee1026
Mon Mar 23, 2015 12:23 am
Forum: Investing - Theory, News & General
Topic: [New Member Observations- Covered Calls, Financial Advisors]
Replies: 227
Views: 49948

Re: [New Member Observations- Covered Calls, Financial Advis

If the OP's right, it means that these calls are mispriced. The markets are not efficient. It's time to go buy some supercomputers, hire a bunch of smart people, and start a hedge fund to exploit this edge to get really really rich. Funny you should say that. The very first hedge fund, LTCM, sold h...
by lee1026
Sun Mar 22, 2015 5:01 pm
Forum: Investing - Theory, News & General
Topic: [New Member Observations- Covered Calls, Financial Advisors]
Replies: 227
Views: 49948

Re: [New Member Observations- Covered Calls, Financial Advis

If you get me the dates that you used as the start of each "quarter", I will be happy to run the numbers for you. I can get implied volatility for one month options and VIX options in the future, and it is generally reasonably similar to 3 month ones. From that and black-scholes, we can get fairly c...
by lee1026
Sun Mar 22, 2015 3:16 am
Forum: Investing - Theory, News & General
Topic: [New Member Observations- Covered Calls, Financial Advisors]
Replies: 227
Views: 49948

Re: [New Member Observations- Covered Calls, Financial Advis

As has been pointed out, it's difficult to verify the results of the OP strategy with a backtest without having access to the option price history. However, if we just plug in 0.6%, roughly the premium quoted by OP for the option that currently would be used, the covered call strategy fails to beat...
by lee1026
Sat Mar 21, 2015 9:57 am
Forum: Investing - Theory, News & General
Topic: [New Member Observations- Covered Calls, Financial Advisors]
Replies: 227
Views: 49948

Re: [New Member Observations- Covered Calls, Financial Advis

I did some math on selling cash-covered puts before, and it looked like things would fall apart around 2008 - ie. the losses at that time would have more than offset all the previous potential gains. I would never try naked puts - not that I would qualify for them. The CBOE publishes an index about...
by lee1026
Fri Mar 20, 2015 9:31 pm
Forum: Investing - Theory, News & General
Topic: [New Member Observations- Covered Calls, Financial Advisors]
Replies: 227
Views: 49948

Re: [New Member Observations- Covered Calls, Financial Advis

No, I was talking about the OP's strategy of selling calls 8% out of the money, not at the money. These calls wouldn't have been worth 8%, even with VIX at 31 . [(Removed) --admin LadyGeek] You are forcing me to do work. Plugging in VIX at 31 and 8% out of the money into black scholes gets me 3.18%...
by lee1026
Fri Mar 20, 2015 6:44 pm
Forum: Investing - Theory, News & General
Topic: [New Member Observations- Covered Calls, Financial Advisors]
Replies: 227
Views: 49948

Re: [New Member Observations- Covered Calls, Financial Advis

For example if you wrote SPY calls in august 2008, you might have collected a fairly small option premium at the time. At the money calls for 3 month in august 2008 would have been around 8%. (VIX was trading at 31) And if you sold a call again in november 2008, you might have collected a bigger pr...
by lee1026
Fri Mar 20, 2015 6:00 pm
Forum: Investing - Theory, News & General
Topic: [New Member Observations- Covered Calls, Financial Advisors]
Replies: 227
Views: 49948

Re: [New Member Observations- Covered Calls, Financial Advis

The Boglehead is a long term investor whose $500k portfolio (SPY = $210.69) was purchased many years ago for an average price of $105.35. The $2,875 is deposited and the market subsequently runs up to 225. It does not get assigned right away, but he waits and waits and as expiration draws near it i...
by lee1026
Fri Mar 20, 2015 3:34 pm
Forum: Investing - Theory, News & General
Topic: [New Member Observations- Covered Calls, Financial Advisors]
Replies: 227
Views: 49948

Re: [New Member Observations- Covered Calls, Financial Advis

The strategy this analysis reflects is selling a call option 8% out of the money, rolling to a new option every three months (at end of month), and buying the stock back at end of the 3-month period if option exercised at any time during the 3-month period. This isn't meant to reflect a realistic o...
by lee1026
Tue Mar 17, 2015 3:37 pm
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267957

Re: Should I use margin to buy a balanced fund?

I'm not sure what exactly you understand from Rob's post, but Rob has calculated that with a .5% borrowing premium and 5x leverage, margin investing is beneficial if the Fed Fund rate is less than or equal to 4% (all other factors set aside). Past this, it would be a loss because of taxes and borro...
by lee1026
Tue Mar 17, 2015 1:32 pm
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267957

Re: Should I use margin to buy a balanced fund?

If you think the FFR is going to be 4% in the foreseeable future, I would suggest shorting bonds, not buying them.
by lee1026
Mon Mar 16, 2015 3:32 pm
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267957

Re: Should I use margin to buy a balanced fund?

Short term gains are generally preferable to ordinary income - one can be used against other capital losses, and one can't. And in my backtesting, capital gains tend to be small relative to coupon payments - the last year had a steep fall in rates, and on average, rates don't fall anything like that.
by lee1026
Mon Mar 16, 2015 1:48 pm
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267957

Re: Should I use margin to buy a balanced fund?

Regardless of the tax situation for stocks, for bonds, futures are always better than margin as far as taxes go. Bond coupon payments is ordinary income, and expected capital gains (and by extension, the ability to not realize it in the future) is quite low.
by lee1026
Thu Mar 12, 2015 1:29 am
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267957

Re: Should I use margin to buy a balanced fund?

Keep in mind that if you buy treasuries directly, the margin requires at IB is quite low. On the not-quite-5 year, it is 4%.

https://www.interactivebrokers.com/en/i ... in&p=bonds
by lee1026
Wed Mar 11, 2015 8:27 pm
Forum: Investing - Theory, News & General
Topic: Bernstein: 2% investment returns over next 20 years
Replies: 216
Views: 34565

Re: Bernstein: 2% investment returns over next 20 years

Stock valuations are more of an art than a science. Most metrics for stock valuations have problems. For example, consider P/E. Under that metric, two firms that have the same earning should have the same "value", and the amount of money that they have in the bank is irrelevant. Obviously, this is s...
by lee1026
Mon Mar 09, 2015 1:43 am
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267957

Re: Should I use margin to buy a balanced fund?

I don't think it's as bad as 1% cost difference. I haven't checked recently, but last I remember the implied financing rate on the emini was around 0.45% or about FFR +0.35%. If someone opens a portfolio margin account ($110k minimum) and goes 5x leverage (borrows $440k), that's about 1.22% or FFR ...
by lee1026
Fri Mar 06, 2015 2:02 pm
Forum: Investing - Theory, News & General
Topic: Mr. Money Mustache: Hero or Foolish?
Replies: 452
Views: 118875

Re: Mr. Money Mustache: Hero or Foolish?

30 year bond returns will be lower in the next 30 years then in the last 30 years. That is a statement of fact that you can read from the yields. Talking about shorter term bonds is more difficult, but interest rates would have to go up really fast for future bond returns to look anything like the p...
by lee1026
Thu Mar 05, 2015 6:50 pm
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267957

Re: Should I use margin to buy a balanced fund?

According to this paper leveraged short term treasuries outperform longer termed treasuries, but all treasuries move closely together. On the other hand, the paper assumes that you have access to cheaper leverage then you actually do. I haven't looked into the conclusions carefully myself, so just t...
by lee1026
Wed Mar 04, 2015 5:17 pm
Forum: Investing - Theory, News & General
Topic: Mr. Money Mustache: Hero or Foolish?
Replies: 452
Views: 118875

Re: Mr. Money Mustache: Hero or Foolish?

I'm pleased to see he is in agreement with me. Consider that a completely safe asset with a real return of 0% will give a 3.3% SWR. Currently Vanguard UK's world high-yield tracker (which invests in the half of the world index with higher dividend yields) gives dividends of 3.8%. Although that inco...
by lee1026
Sat Feb 28, 2015 7:10 pm
Forum: Investing - Theory, News & General
Topic: How to Invest in Gold
Replies: 70
Views: 11246

Re: How to Invest in Gold

Over thousands of years, gold has maintained its buying power. If nothing else, you have to to explain what it means to maintain buying power over thousands of years. Are we talking about preserving buying power in terms of clothing, in terms of food, in terms of buying services, or in terms of lan...
by lee1026
Sat Feb 28, 2015 6:52 pm
Forum: Investing - Theory, News & General
Topic: How to Invest in Gold
Replies: 70
Views: 11246

Re: How to Invest in Gold

Investors account for only 18% of the gold market. Most gold is used for jewelry, electronics, industrial uses, and central bank holdings. The price of gold is more likely to be determined by Indian weddings than by "investors".
Central bank holdings can certainly be considered investments.
by lee1026
Thu Feb 26, 2015 8:01 pm
Forum: Investing - Theory, News & General
Topic: Holding bond funds to average duration
Replies: 22
Views: 3432

Re: Holding bond funds to average duration

If you hold a bond fund to its average duration, regardless of rate changes, you should at least break even on your initial investment (correct?) Interesting points. I guess the worst scenario for a bond investor is rising rates, year after year, for a long period of time. Is this math correct? Obv...
by lee1026
Wed Feb 18, 2015 9:21 pm
Forum: Investing - Theory, News & General
Topic: Anyone know a source showing avg. real wage in 70's vs today
Replies: 19
Views: 2911

Re: Anyone know a source showing avg. real wage in 70's vs t

Minimum wage is subject its own political can of worms. Politics can and do shift dramatically from 1970s to today - remember, California was a republican stronghold once upon a time.
by lee1026
Thu Feb 12, 2015 8:43 pm
Forum: Investing - Theory, News & General
Topic: The Future of Global Interest Rates — Trending Lower?
Replies: 19
Views: 4911

Re: The Future of Global Interest Rates — Trending Lower?

In equilibrium, these long term bonds must compete with positive real return investments and zero real return commodities for capital, so I think we are near a natural lower bound for real rates. Commodities do have risk as well as storage costs. It is not obvious that 0% +- 10% is better than -2% ...
by lee1026
Mon Feb 09, 2015 2:13 am
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267957

Re: Should I use margin to buy a balanced fund?

So unless you simulate this exactly (which you might have done at some point in the intervening time and pages, I'm not sure), you might not realize how much the term difference could matter even over longer terms where the bonds in a non-leveraged portfolio would have looked quite good. He did ind...
by lee1026
Tue Jan 27, 2015 2:36 pm
Forum: Investing - Theory, News & General
Topic: Renaissance tech vs EMH
Replies: 46
Views: 5832

Re: Renaissance tech vs EMH

Renaissance Technologies also help the EMH's case that if you are a market beating manager, you have better things to do then to take other people's money and manage it for a small fee. They don't take outsider's money.
by lee1026
Thu Jan 22, 2015 8:42 pm
Forum: Personal Consumer Issues
Topic: $7 gas - what would you do?
Replies: 125
Views: 22548

Re: $7 gas - what would you do?

The big costs of driving are fixed costs for most: insurance + depreciation + lease finance costs (if any). These don't vary much with mileage.
Depreciation is a function of mileage.
by lee1026
Tue Jan 20, 2015 11:51 pm
Forum: Investing - Theory, News & General
Topic: Does securities lending matter more than expense ratios?
Replies: 29
Views: 3206

Re: Does securities lending matter more than expense ratios?

In the event of a major stock market meltdown, Vanguard will owe the brokerages money, not the other way around.
by lee1026
Fri Jan 16, 2015 2:58 pm
Forum: Personal Finance (Not Investing)
Topic: This topic is causing stress in marriage we need some help
Replies: 81
Views: 17314

Re: This topic is causing stress in marriage we need some he

One of the problems with this is that 401K loans can come immediately due if you change jobs. Yes it can be lower interest than CC, but there are other issues with it such as having to pay it back with after tax money that later gets taxed a second time when you withdraw the interest from the 401K....
by lee1026
Fri Jan 16, 2015 2:45 pm
Forum: Investing - Theory, News & General
Topic: Confused: Why does anyone buy German bonds?
Replies: 24
Views: 3587

Re: Confused: Why does anyone buy German bonds?

And they currently assume that -0.05% is a better return than they would get by just sitting on the cash, due to inflation (and that's assuming they even have a way to hold cash in large quantities).
Yields posted above are in nominal Euros. Inflation doesn't matter for those.
by lee1026
Thu Jan 15, 2015 9:45 pm
Forum: Personal Finance (Not Investing)
Topic: This topic is causing stress in marriage we need some help
Replies: 81
Views: 17314

Re: This topic is causing stress in marriage we need some he

Taking out a loan - yuck. These loans may be better than paying the penalty for withdrawal but they do nothing to really reduce the debt. Just moves the problem from one place to another. A loan at 22% interest can be deadly whereas a loan at 6% where you pay the interest to your own 401K can be be...
by lee1026
Thu Jan 15, 2015 9:33 pm
Forum: Investing - Theory, News & General
Topic: Can you make money betting on random coin flips?
Replies: 296
Views: 33226

Re: Can you make money betting on random coin flips?

CAPM does rely at least somewhat on returns being normalish. Consider an asset that returns 1% half the time, and 100% the other half. This is the only asset in this economy. Lets say the risk free rate is 0%. Even the most risk averse person would invest 100% in this asset, but CAPM would say that ...
by lee1026
Tue Jan 13, 2015 12:00 am
Forum: Personal Investments
Topic: Oil Price Hedging - How does an individual do it?
Replies: 31
Views: 4653

Re: Oil Price Hedging - How does an individual do it?

There are gasoline future if that is all you are interested in hedging. There seems to be ETFs based on them, but I have no idea if they are a good idea or not.
by lee1026
Mon Jan 12, 2015 11:58 pm
Forum: Investing - Theory, News & General
Topic: Can you make money betting on random coin flips?
Replies: 296
Views: 33226

Re: Can you make money betting on random coin flips?

If there is no limits, just betting $1 at a time will get you to any arbitrarily large amount of money; losing everything (assuming you have say, $1000+) is nearly impossible.
by lee1026
Mon Jan 12, 2015 5:01 pm
Forum: Investing - Theory, News & General
Topic: Can you make money betting on random coin flips?
Replies: 296
Views: 33226

Re: Can you make money betting on random coin flips?

With the Kelly strategy wealth exceeds any possible value with probability 1 as the number of trials increases. That is not a statistical expectation, it is a statistical certainty. Probability will get arbitrarily close to one as the number of trials increase to infinity. There is a difference. In...
by lee1026
Thu Jan 08, 2015 5:41 pm
Forum: Personal Investments
Topic: Oil Price Hedging - How does an individual do it?
Replies: 31
Views: 4653

Re: Oil Price Hedging - How does an individual do it?

^ Tankers= Transport of products (crude and refined oil ) by ship. A secondary function of tankers is the "Storage" of oil. Third function is that oil on board can be traded and redirected.
I am not aware that a retail investor can directly by shares of these ships.
by lee1026
Thu Jan 08, 2015 3:01 pm
Forum: Personal Investments
Topic: Oil Price Hedging - How does an individual do it?
Replies: 31
Views: 4653

Re: Oil Price Hedging - How does an individual do it?

I'm shopping for a deal on a Prius. That is, I'm locking in 5-10 years of transport at low operating cost/mile, but hoping that the normally higher capital-associated portion of the equation (hybrid car) is undervalued. People as a whole are now actually signing up for 5-10 years of higher transpor...
by lee1026
Thu Jan 08, 2015 1:45 am
Forum: Personal Investments
Topic: Oil Price Hedging - How does an individual do it?
Replies: 31
Views: 4653

Re: Oil Price Hedging - How does an individual do it?

There are mini futures contracts. Granted, those are also kind of big. (500 barrels)
by lee1026
Tue Jan 06, 2015 6:14 pm
Forum: Investing - Theory, News & General
Topic: Can you make money betting on random coin flips?
Replies: 296
Views: 33226

Re: Can you make money betting on random coin flips?

Well, not really. Back to my trusty Excel spreadsheet I compared the sequence WWWL to the sequence LWWW (3 wins, 1 loss in two different sequences). If I start with $100 and bet the same percentage of my assets on each bet (100%), then I end up with $1900 from the first sequence and $850 from the s...
by lee1026
Tue Jan 06, 2015 5:38 pm
Forum: Investing - Theory, News & General
Topic: Can you make money betting on random coin flips?
Replies: 296
Views: 33226

Re: Can you make money betting on random coin flips?

Here is another way to reason about this issue, from a purely mathematical perspective. Suppose if you have a set of numbers, S, such that the mean of S is 0. If you generate another set of numbers, S2, such that each number in S2 is double each number from S, then the mean of S2 is also 0. If you g...
by lee1026
Sun Dec 28, 2014 6:04 pm
Forum: Investing - Theory, News & General
Topic: An ETF on a futures contract? Can someone explain this to me
Replies: 41
Views: 3445

Re: An ETF on a futures contract? Can someone explain this t

There are several good examples of this. See high frequency basis trader Virtu financial and their botched IPO. In their S-1 filed in early 2014, Virtu reported that over a period of 1200 days (about 5 years), they lost money only one day. So if the returns are so good, why don't other firms also j...
by lee1026
Sun Dec 28, 2014 1:49 am
Forum: Investing - Theory, News & General
Topic: An ETF on a futures contract? Can someone explain this to me
Replies: 41
Views: 3445

Re: An ETF on a futures contract? Can someone explain this t

This activity is maybe not best described as "arbitrage." You have to build and maintain massive oil storage facilities at locations probably distributed all over the world. Each futures contract have a single delivery spot. For WTI, all you need to do is to build a massive oil storage facility in ...
by lee1026
Fri Dec 05, 2014 9:09 pm
Forum: Investing - Theory, News & General
Topic: "Small-Cap Performance Edge on the Wane"
Replies: 99
Views: 9468

Re: "Small-Cap Performance Edge on the Wane"

But a beta >1 also means that something is riskier and has a higher expected return. Yes, you can generally expect to get paid for beta. What is in dispute is whether there is a small cap premium beyond that. (If you can find an asset with high Beta and low returns, we can profitably hedge our stoc...
by lee1026
Fri Dec 05, 2014 2:17 pm
Forum: Investing - Theory, News & General
Topic: "Small-Cap Performance Edge on the Wane"
Replies: 99
Views: 9468

Re: "Small-Cap Performance Edge on the Wane"

What is your source for the claim that DFSCX has more beta? Per Portfolio Visualizer, it has had 0.93 since inception. If you got it from Morningstar, it reports 1.12 over the last 15 years, but it is counting volatility due to the separate small cap factor as beta. Over the last 15 years, Porfolio...