If that s really his strategy, going long shares and selling vol, it s good in bull market but very risky, Victor Niederhoffer did blow up his second Hedge Fund with this strategy !! and for a blow up, it was down more than 75 %, good luck ! You should BUY VOL for downside protection, or at least get some gamma long. Don t forget the advice of Nassim Taleb !
any more names u got in your portfolio from the beginning ? cheers your strategy is very risky selling VIX, but should pay off if no major reversal or correction, cross fingers man !
I will briefly answer your question (while I am sure a lot of others here would say what I am saying is just nuts) since it seems that you really want to get a better understanding. It is a common misconception that in order to get advantage of the time decay you need to short both the 3X bull AND the 3X bear, in my view thatâs not the case ; because the mathematics of compounding etc. you only need to short the 3X bear in order to make money in the long run. âyou have to make sure though that its only a small portion of your account (not more then 5-10% of your portfolio) so you can handle when the market moves against youâ. Thatâs was one of my strategies last year.
Lazar, Sounds like you have a very bullish bias. I hope that works out for you. I do appreciate you taking the time to respond. I'm sure it is difficult lay your ideas out for comment and criticism.
I agree with DWP. I apologize for being overly-critical regarding your methodology. Good luck in 2011 and beyond.
As Heech said, that's beta not alpha. There is tremendous pressure on HFs to reduce fees now, DE Shaw being a the most recent example. And that's an institutional firm (not 2 guys w/ a bloomberg terminal) w/ a proven track record. Investors will not pay 2 & 20 for beta. Re shorting vol, notice how the vix refuses to go below 15 despite the slow grinding uptrend since the beginning of december? When the market does the opposite of what you expect, be prepared for a huge move. If I were the OP I'd buy OTM SPX puts as a hedge given the low IV and potential for steep market correction. Not trying to rain on your parade, just trying to prevent a Niederhoffer as regento said.
That's around 8% yeld, quite high. Besides isn't the value of the securities involved decreasing by about as much as the dividend value when they pay it out, hence the dividend reinvestment per se won't bring you anywhere close to the 60% AR ?
I agree 8% is a good yield. However as a general rule the stock value will ânotâ decrease after dividend, yes it would take a temporary hit after the dividend, but then it slowly bounces back to where it was. Check out chart of PTY, JHI BAC.PRD.