This thread is rather about long term investing than short term trading... Everybody is probably going to expect some stock with great financial figures and a strong uptrend. Well, it does have decent figures but that is not what this is about. We all know diversification raises your risk adjusted return. A good diversifier is either uncorrelated or even negatively correlated to stocks. A correlation of -1 would make you loose money when stocks go up. So a real beauty would be an asset that gains when stocks tank und doesn't loose that much or even stay flat the rest of the time. That will raise the risk adjusted return of your portfolio via diversification. Companies that behave that way in my opinion: market makers When stocks tank the bid-ask spread widens and they make more money. Often times there is also a surge in volume during a panic which means a spike in their profit. Finding appropiate stocks of "pure" market making firms turned out to be a pain in the ass. Most are not exchange traded - ironic. In Europe and the US I found merely two stocks. In order to confirm my thesis the stock has to spike during at least two volatility events. February 5, 2018: S&P 500 fell 4% and Vix spiked March 2020: corona stock crash Here are the two candidates: $virtu: good: spikes in feb 2018 and in march 2020 bad: is also involved in prop trading - I would like to invest in a "pure" market maker conclusion: not entirely convinced about this one $Flow traders in Amsterdam: www.flowtraders.com good: a pure market maker, spikes hugely in feb 2018 as well as in march 2020, the company is making markets in Europe, the US and Asia. It is well capitalised and has a splended return margin. conclusion: this can act as a great diversifier to a portfolio Do you know of any other exchange traded "pure" market makers that I might have overlooked? I didn't look at asian stocks. Pls tell if you know of an interesting candidate.
executing in extremly illiquid stock options It seems like you like to trade extremely choppy stocks, extremely illiquid stock options ... Good luck with your trading.
Why would you say that? The bid-ask spread on Flow is merely 0.1%. When is thought about these stocks I stumbled upon an article "tail hedging with market makers". It kind of made me proud. When you have an "innovative" thought but you're unsure whether it is innovative or dumb because you could have overlooked something. The article showed it is not dumb. It's not a game changer. 5-6 big companies of that kind would help stabilize a portfolio. It's only one - but better than nothing. https://www.home.saxo/content/articles/equities/tail-hedging-with-market-makers-27082021 Yes, the stock and its option in the other thread is very illiquid. I mostly try to harvest risk premia like the equity premium, trend following and so on. In rare circumstances I might come across something that could be seen as market inefficiancy that could be exploited. Then I bet small as it is probably a Fata Morgana. I appreciate you warning me of the risks.
Actually I don't have any perticular stock in my favourite but I really prefer Nifty 50 indices and all 50 stock listed on it and as forex gold, USDJPY, USDCAD, EURUSD, GBPUSD and USDCHF.
It is a useful addition to portfolio even if you just buy and hold. The diversification effect is there. Some argue the more important thing is rebalancing some argue rebalancing is just necessary but the increase of the risk adjusted return comes from the diversification. Obviously this just one stock - I did invest in Flow not in virtu. You need way more assets to project your downside reliably. I use gold (doesn't spike in times of crises). Some funds like universa trade buy deep out the money puts as protection. My point was to show that you can increase the robustness of your portfolio if you find an investment that doesn't lose (not much at least) and spikes during times of crises. It's like buying puts without having to pay that much or even nothing at all for the protection. I would love to diversify in several of these kind of stocks. Finding them is difficult.