Simple Timing system

[RockOn]

RockOn--For the record, the part I quoted was in your post. You've subsequently edited out your stated request for a %5 guaranteed return (after provided a place where you could get it. What's the new request going to be--belly dancers on your birthday?

Sorry about that, I set my goal a little too low. No not belly dancers just 5% for as long as I want it with no reinvestment risk (risk rates will be lower at the time of the rollover) can you do that too.

 

[ERD50]

Ok 5% isn't enough without any inflation protection or any other upside. Sorry I need 6.5%, can you do that with a level of safety?

I want the rate guaranteed for as long as I want it also, CD's have reinvestment risk.

RockOn, you keep missing the point about a free market. If the gov't is offering (or insuring) a 'risk free' (say) 5%, then why would any capitalist offer to pay a significantly higher rate, unless it also included higher risk (which it does, almost be definition).

If it existed, it would be bought up faster than you could move on it, and it would exist no more. This seems to be how markets work.

-ERD50

PS - did someone say 'bellydancers'?

 

[RockOn]

There is a general misunderstanding of 'naked puts'. Technically, yes I sell them 'naked', but I always have the cash to buy the stock at the strike price. I think it is more descriptive to call them 'cash covered' puts. This is in an IRA, and it is the only way you can do it in an IRA. Funny thing is, some institutions won't let you. If anyone should understand that a cash covered put is no more risky than a covered call, it *should* be a financial institution.

There is (slightly) less 'black swan' risk than holding the stocks. I generally sell the puts at a strike below the current stock price, and get a premium to boot. So my potential loss is a few % less than just holding the stock. But it ain't your grandma's money market.

I won't say that options are 'over-priced', they are priced at what the market will bear. Yes, there is a premium to pay to buy an option. But if it was 'over-priced', more people would jump in and sell them, and that would drive the price down... supply/demand.

In theory, you should be able to make good money selling options. Just like a casino makes good money selling the option to get rich. In practice, I think you need to be diversified across maybe a hundred underlyings , and I can only afford to be diversified across a dozen. So, I still get hit with the downside risk, and maybe not enough diversification to balance that out with the premiums.

But I try. 'Testosterone trading', I think unclemick calls it.

-ERD50

I didn't know that was allowed in an IRA, do you mind saying who allows it. I think I could make some scratch doing that. The market action recently would be a tough one to handle though. I think they are overpriced because the reward doesn't equal the risk on the long side IMO but there are a lot of variables at play. Time decay is on your side.

 

[RockOn]

RockOn, you keep missing the point about a free market. If the gov't is offering (or insuring) a 'risk free' (say) 5%, then why would any capitalist offer to pay a significantly higher rate, unless it also included higher risk (which it does, almost be definition).

If it existed, it would be bought up faster than you could move on it, and it would exist no more. This seems to be how markets work.

-ERD50

You are correct. I think I got a little offtrack talking about a guaranteed fixed rate, I really am more interested in reasonably priced limited risk equity/portfolio participation ideas.

On the capitalist, he might be willing to pay more because he is willing to take risk and invest it in stocks (or something else) and pocket the difference and make profit over the long run.
I have heard quite a few financial people talking about 8% to 10% returns over the long haul, if they are sure why wouldn't they spread the risk by creating a large long term pool and give me 6% and keep the rest? Is it because 2% to 4% (20 to 40%) a year isn't enough profit? If so, that greed may abate some day.

 

[unclemick]

25 years ago - the SO for my 40th birthday party - got me the Bellydancer instead of 'The Singing Telegram.'

Habiba, Shiek of the week T-shirt, and a fake belly button ruby.

All of which goes to prove - you could have fun in New Orleans even on week nights!

With something as ho hum as pssst Wellesley you get dividends and interest which to paraphrase Yogi are almost as good as real money.

Yogi real money - not inflation or world currency adjusted - but .

heh heh heh - over the years either the T shirt shrunk or I put on weight. .

 

[RockOn]

25 years ago - the SO for my 40th birthday party - got me the Bellydancer instead of 'The Singing Telegram.'

Habiba, Shiek of the week T-shirt, and a fake belly button ruby.

All of which goes to prove - you could have fun in New Orleans even on week nights!

With something as ho hum as pssst Wellesley you get dividends and interest which to paraphrase Yogi are almost as good as real money.

Yogi real money - not inflation or world currency adjusted - but .

heh heh heh - over the years either the T shirt shrunk or I put on weight. .

That's it I'm buying some pussy Wellesley on Monday.

 

[ERD50]

I didn't know that was allowed in an IRA, do you mind saying who allows it. I think I could make some scratch doing that. The market action recently would be a tough one to handle though. I think they are overpriced because the reward doesn't equal the risk on the long side IMO but there are a lot of variables at play. Time decay is on your side.

E-Trade for one.

But, do you not see the contradiction in your own words?

Do you want to limit your risk, or do you want to 'make some scratch' selling risk?

As I posted earlier, if you try to do both, all you will do is pay commissions and spread.


Stick to bellydancers

-ERD50

 

[RockOn]

ERD50, it is not a contradiction. The naked selling of options is an idea I have always had but never fully pursued. I thought if I found a way to do it in an IRA (my money is almost all tied up in retirement accounts) I'd give it a shot. I know most brokers don't want to hear about naked options. Collecting time decay is pretty inviting, it significantly lowers the risk of the short postion, be it put or calls. It is an interesting income generating idea. Just watch out for the Black Swan.

Of all the option ideas, I like that one the best. The margin is large though, making it marginally profitable even if successful. If it works, I'll get myself a dance or two.

 

[ERD50]

Selling a put is not a short position. You are accepting the obligation to go long on the stock if it drops below the strike price.

Sometimes the premiums you receive seem too good to be true. Sometimes they are.

-ERD50

 

[cloudeleven]

Just checked and it was October 2002 when I rejoined the land of big gains and possible loses and I "stayed the course" until my jump out at the end of last year.

Guest, would you let us know when you decide to get back in the market? You seem to be pretty good at it.

 

[RockOn]

Selling a put is not a short position. You are accepting the obligation to go long on the stock if it drops below the strike price.

Sometimes the premiums you receive seem too good to be true. Sometimes they are.

-ERD50

I understand, I meant short the put. Selling fairly deep out of the money options with little time remaining is pretty safe, again except when the swan shows.

How long have you been doing it? Have you done ok? Are you doing it for income or as a stock play?

 

[RockOn]

Guest, would you let us know when you decide to get back in the market? You seem to be pretty good at it.

ditto

 

[haha]

For example, you can buy Puts to limit risk. Except for special circumstances (holding for long term cap gains vs short term, protecting an employee stock option position, or just wanting to hold during a volatile period that you *think* is over reaction), I think that just owning less equities is a better way to hedge risk than buying puts on those equities. No one charges a premium for that.

I have bought puts. Invariably I get tired of losing money month after month, and neglect to continue the put buying program ino the very month that the damn market crashes. I think I give up on this "strategy".

Full disclosure: I tend to sell puts for the premium - I am a seller of risk.

Fuller disclosure: It's only working out so-so .

Erd50 might have been selling puts to me. As luck would have it, neither one of us did very well with it.

Ha

 

[RockOn]

I have bought puts. Invariably I get tired of losing money month after month, and neglect to continue the put buying program ino the very month that the damn market crashes. I think I give up on this "strategy".

Erd50 might have been selling puts to me. As luck would have it, neither one of us did very well with it.

Ha

If you get tired of buying puts and losing money, what about trying to sell them? You could be making money month after month . I think that selling them is a much easier way to make money since time decay is on your side and you win in a sideways or up market (2 out of 3) but it has the risk of a serious loss so you have to be very careful. If something happens overnight, you could get trampled.

 

[ERD50]

Selling fairly deep out of the money options with little time remaining is pretty safe, again except when the swan shows.

If it is 'pretty safe' there won't be a very exciting premium, they go hand-in-hand in my experience, and from my very basic knowledge of supply/demand and risk/reward, I would expect nothing different.

How long have you been doing it? Have you done ok? Are you doing it for income or as a stock play?

3-4 years. Consistently did a *bit* better than the market with lower volatility for about 18 months. Then kinda sideways, then the market volatility (and premiums dropped) and I did a bit worse than the market, then volatility picked up, but I seem to get slammed from time to time.

I try to construct it to do a bit better than the market, with a bit of downside protection to reduce volatility. In theory, the premium that people are willing to pay to either reduce risk, or to gamble on gains should make this a profitable endeavor. But, as Yogi Berra said:

In theory there is no difference between theory and practice. In practice there is.


-ERD50

 

[samclem]

An observation that will probably come as no surprise to those here: Trading options (selling or buying either puts or calls) is a zero sum game. By definition, for every person that makes a dollar, someone loses a dollar. For every person on one end of a trade wo thinks he knows what will happen, there's someone else on the other end who is sure he knows. Add in substantial transaction costs and it's clear who the long-term winner always is.

Owning actual stocks (or MFs/ETFs, etc) is different--it is possible for everyone to make money.

 

[RockOn]

An observation that will probably come as no surprise to those here: Trading options (selling or buying either puts or calls) is a zero sum game. By definition, for every person that makes a dollar, someone loses a dollar. For every person on one end of a trade wo thinks he knows what will happen, there's someone else on the other end who is sure he knows. Add in substantial transaction costs and it's clear who the long-term winner always is.

Owning actual stocks (or MFs/ETFs, etc) is different--it is possible for everyone to make money.

I'll have to think about your last statement. I suppose that is true as long as you do not trade but didn't someone sell you that stock? Didn't he lose if it goes up? I always thought of trading options as essentially the same as tading stock. You have a buyer and a seller, a bid and an ask, two people who think they are right, and a commission.

 

[haha]

If you get tired of buying puts and losing money, what about trying to sell them? You could be making money month after month . I think that selling them is a much easier way to make money since time decay is on your side and you win in a sideways or up market (2 out of 3) but it has the risk of a serious loss so you have to be very careful. If something happens overnight, you could get trampled.

Hey. I just might hire you to be my investment advisor!

 

[RockOn]

Hey. I just miught hire you to be my investment advisor!

You might not like all the money I'd have of yours in MM funds at 2% right now.

 

[samclem]

Didn't he lose if it goes up?

No

 

[haha]

I'll have to think about your last statement. I suppose that is true as long as you do not trade but didn't someone sell you that stock? Didn't he lose if it goes up? I always thought of trading options as essentially the same as tading stock. You have a buyer and a seller, a bid and an ask, two people who think they are right, and a commission.

You can really boil things down to their essence!

 

[RockOn]

No

I'll go with that. I guess you are right, I'm still pondering on whether it is really different. You got it for now.

 

[RockOn]

3-4 years. Consistently did a *bit* better than the market with lower volatility for about 18 months. Then kinda sideways, then the market volatility (and premiums dropped) and I did a bit worse than the market, then volatility picked up, but I seem to get slammed from time to time.

I try to construct it to do a bit better than the market, with a bit of downside protection to reduce volatility. In theory, the premium that people are willing to pay to either reduce risk, or to gamble on gains should make this a profitable endeavor. But, as Yogi Berra said:

In theory there is no difference between theory and practice. In practice there is.


-ERD50

Thanks for the info. This is an idea of interest to me. You are looking for lower volatiliy without giving up on getting market type returns. I agree with your in theory assessment, it's like selling insurance or profiting from greed. But we should both know it can't be done.

 

[RockOn]

If anyone is interested in timing here is another very simple system by Marty Zweig. He is not just trying to use it at times like these, but as a full time system.

CXOAG Investing Notes - Martin Zweig's Four Percent Model Indicator

The average weekly gain fell from 0.23% to 0.22% percent, a loss of 4%
But the standard deviation went from 2.13% to 1.54% went down 28%.

Of course that is only true for the 25 year period period studied. It is possible to reduce risk and still get market type returns?

 

[samclem]

Of course that is only true for the 25 year period period studied. It is possible to reduce risk and still get market type returns?

T A A N S A A F L.

Thousands of stock pickers and "technical analysts" (including Zweig) make their living convincing people that it is possible.

I could build you a back-tested model that does much better than Zweig's.

IMO, the most trustworthy and realistic way of reducing portfolio risk (measured as volatility) while increasing returns is through use of modern portfolio theory. The Basics of Investing and Portfolio Theory A lot of responsible folks have looked into it, and it has academic backing. It also works in the real world.