generating 1000 $ per month on 150 k investment

Discussion in 'ETFs' started by oktiri, Sep 10, 2010.

  1. drcha

    drcha

  2. hi atticus, would be interested in hearing you reasons for wanting to be short dispersion vs long it in this environemnt?

    also, low betas, yes of course, but, low betas today != low betas tomorrow. so, how do you manage bankruptcy/merger risk? i would imagine flirting with this scenario, especially if on multiple issues, isn't pretty in a short dispersion book. since you made it through 08 ok, you've obviously got this down, but i would think the the trick in pulling off those double digit returns aren't as trivial as the above, am i wrong? so, assuming some devils are in the details, are you actively trading vola as well, or are you just getting the trade on at high enough dispersion levels where you are sitting on a nice buffer of gravy... or any other alpha tricks not directly linked to the above?

    thanks for your posts, i enjoy them.
     
    #32     Sep 10, 2010
  3. the ivy portfolio notion was annihilated in 2008 along with the other yale-harvard endowment-consultant copycats
     
    #33     Sep 10, 2010
  4. pgp
    pgh
     
    #34     Sep 10, 2010
  5. I wouldn't (be short disp). I was differentiating trading shares instead of ETFs, in other words, "what's the difference between an option portfolio on stocks vs. index... the dispersion". I'd rather attempt to add alpha through micro-risk than dilute it by taking macro-risk. The alpha (sensitivity to the bookrunner) trades inverse to the correlation. So no, it's a risk-portfolio in the broad-sense, but I would attempt to simply benchmark the vol of returns to that of an actively-managed long-only portfolio (Fido Magellan, etc.)

    The risk is asymmetrical as the Fido fund would have upside beyond the premium collected on the short puts. I'm no more than 10% otm on any position at inception. I'll beat under one sigma up, all points down. Fido beats on two up, three up... I limit duration for that reason.

    Regarding dispersion. Once I realized I could let the long gamma positions offset (abc up 3%, xyz down 3%); it showed me that I didn't have to trade the "3-way" (long share gamma, short index gamma, share gamma-trade) any longer. There was only long dispersion or take a pass. FWIW, it's a study in futility if trading from the buy-side, IMO.

    FWIW, this is one account of a family member (in-law) and I take 1 & 20.
     
    #35     Sep 10, 2010
  6. Why not just a collar?
    Just buy T-Bond puts with the proceedings from selling calls.
     
    #36     Sep 11, 2010
  7. LEAPup

    LEAPup

    #37     Sep 11, 2010
  8. omg, you are so out of your depth. So you're recommending he go long via vertical spreads and use the "income" to buy bond puts. Yup, that's it, thread closed.
     
    #38     Sep 11, 2010
  9. The timing strategy promoted in the book returned a loss of .59% in 2008. I wouldn't consider that "annihilated". See the year by year results in the paper available here: http://www.mebanefaber.com/timing-model/
    or a chart of the real time returns (out of sample) here:
    http://www.mebanefaber.com/wp-content/uploads/2010/02/real-time.jpg

    Another option is a widely diversified portfolio with a low allocation to volatile equity. I have an account with equal parts gold, total bond market, small cap value, emerging markets, Tips, and st global bonds. Historically results average well over 10% with less then 10% standard deviation and worst year 2008 was a 13% loss. In real time I've held this allocation for a year, +10.4%, max dd < 5%, Stdev 10.1%, right in line with historical results and it only requires attention once per year for rebalancing. Nice change from my active strategies.

    For a discussion of this type of strategy see here: http://www.bogleheads.org/forum/viewtopic.php?t=39007&highlight=redux

    For a similar but more defensive strategy, see PRPFX.
     
    #39     Sep 11, 2010
  10. atticus, i am begining to understand many of the things you talk about, however i cant wrap around the following:

    "The variance to expiration exceeds the dividend payout"
    the variance of what?,

    "Dividend retention is a fallacy."
    are you talking on a company level, or from the point of view of the trading strategy of selling otm puts as proposed?

    thanks



     
    #40     Sep 11, 2010