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Originally posted by Comrade Stalin So you must be in at least 25 different positions no?

More like 100-150. It's fun as fuck to try to keep up on so many names.

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Originally posted by Shakka More like 100-150. It's fun as fuck to try to keep up on so many names.

Is your portfolio beta close to 1? Having so many names and all...What do you do when the market is taking a nose dive?

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Originally posted by Comrade Stalin Is your portfolio beta close to 1? Having so many names and all...What do you do when the market is taking a nose dive?

Our beta is actually pretty much 0. We have an actively managed long/short portfolio. If the market is actually trending down, we can capitalize on the action by changing our attribution to more net-short to capture downside. We will generally underperform in a bull market and outperform in a bear market with the stated goal of outperforming the market over a full-market cycle (both bull and bear phases).

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Originally posted by Shakka Our beta is actually pretty much 0. We have an actively managed long/short portfolio. If the market is actually trending down, we can capitalize on the action by changing our attribution to more net-short to capture downside. We will generally underperform in a bull market and outperform in a bear market with the stated goal of outperforming the market over a full-market cycle (both bull and bear phases).

So what phase are we in now? ^_^

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Originally posted by Comrade Stalin So what phase are we in now? ^_^

Cyclical bull within a secular bear with cross currents coming from sovereign debt issues in the EU, inflation picking up in emerging markets, but also a lot of liquidity being unleashed by the Fed. Tough environment to be a buy and hold kind of guy. Definitely have to trade this market.

Until we get the Dow above 14,000, we'll be in a secular bear?

You know, I've tested the approach you're outlying here. What I did was, I went long on about 50 stocks, which I judged to be high quality fundamentals-wise whose market value was substantially beaten down. Then I went short exactly the same amount (50 stocks), with the worst fundamentals I could possibly find who market value was way overvalued. I ran at least 5 of these test portfolios and a huge majority of them did awesome during the time I maintained them. All I know is, you've got something good there, because I have seen it work. When I get a hedge fund going, I might be doing the same thing. I never want to be only long or only short.

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Originally posted by Comrade Stalin Until we get the Dow above 14,000, we'll be in a secular bear? You know, I've tested the approach you're outlying here. What I did was, I went long on about 50 stocks, which I judged to be high quality fundamentals-wise whose market value was substantially beaten down. Then I went short exactly the same amount (50 stocks), with the worst fundamentals I could possibly find who market value was way overvalued. I ran at least 5 of these test portfolios and a huge majority of them did awesome during the time I maintained them. All I know is, you've got something good there, because I have seen it work. When I get a hedge fund going, I might be doing the same thing. I never want to be only long or only short.

I know that we measure bull/bear markets by their % moves. This current market environment, imho, is unlikely to be closer to the end until we can really get our debt levels down and get our currency stabilized. I believe this secular bear started in 2000. Now the market certainly broke above the high-water mark set in 2000 in the 2005-2007 period, but the gains were given right back up, so I can't tell you an exact level that will mark the end of a secular bear market--that is something we'll only know in hindsight.

As to your point, I know there are some people who believe in buying both the best and the absolute worst name in a sector. During bear market rallies, it is usually some of the shittiest companies that perform the best as we have temporary (can last weeks/months/years) flights back to risk.

This is a tough gig! Not for the faint of heart.

So I jumped back into option trading. I sold a covered call on CSKI, collected about $15-20 premium. I am also entering into option trades that bet on companies that have been in the news. For example, Expedia and Orbitz no longer sell tickets for American Airlines. So I bought an AMR put option expecting American to fall in value due to lost revenues. I am hedging this trade with a call option on XCO, which I made sure was highly correlated to AMR. So if AMR rises in value, my put option will lose value, but my call option on XCO should offset the loses, given that XCO was found to be highly correlated as a hedge. I make sure the probability of in-the-money expiration on both sides of the hedge equal roughly 100%. The AMR/XCO hedge was 99.25%.

Do you hedge your option trades Shakka?

So the year is done, with the Dow Jones up 11%, the S&P almost 13%, Buffet made over 21%, and gold finished almost 30% higher. How did you do and what are your predictions for 2011?

I got a nice 45% from the year and I'm expecting metals (gold, silver, copper, and rare earths) to continue to rise, accompanied by an increase in both oil and green energy, as well as another overall gain in the market. Germany will continue to be strong, but most of Europe won't do so well which will continue to depress the Euro. Though who knows

Currently I'm long a few American banks and looking at a few green companies, trying to plan my next move.

I don't understand option trading. Never really looked into it, but it just seems confusing. Also, how are you actually going to make money out of that? You'll make money off the put if AA falls in price, but won't you also lose money on XCO?

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Originally posted by Comrade Stalin So I jumped back into option trading. I sold a covered call on CSKI, collected about $15-20 premium. I am also entering into option trades that bet on companies that have been in the news. For example, Expedia and Orbitz no longer sell tickets for American Airlines. So I bought an AMR put option expecting American to fall in value due to lost revenues. I am hedging this trade with a call option on XCO, which I made sure was highly correlated to AMR. So if AMR rises in value, my put option will lose value, but my call option on XCO should offset the loses, given that XCO was found to be highly correlated as a hedge. I make sure the probability of in-the-money expiration on both sides of the hedge equal roughly 100%. The AMR/XCO hedge was 99.25%. Do you hedge your option trades Shakka?

No, not really. But they are a very small piece of my total portfolio.

quote:

Originally posted by Lews So the year is done, with the Dow Jones up 11%, the S&P almost 13%, Buffet made over 21%, and gold finished almost 30% higher. How did you do and what are your predictions for 2011? I got a nice 45% from the year and I'm expecting metals (gold, silver, copper, and rare earths) to continue to rise, accompanied by an increase in both oil and green energy, as well as another overall gain in the market. Germany will continue to be strong, but most of Europe won't do so well which will continue to depress the Euro. Though who knows Currently I'm long a few American banks and looking at a few green companies, trying to plan my next move. I don't understand option trading. Never really looked into it, but it just seems confusing. Also, how are you actually going to make money out of that? You'll make money off the put if AA falls in price, but won't you also lose money on XCO?

I'm betting on one over taking the other in win over loss or the position being net zero. We'll see how it works.

Strategies that I know will work for me:

1) Value investing
2) Writing covered calls on my investments
3) Writing naked calls on really bad companies, and then, rolling over to a different strike price, if the call option becomes in-the-money, so that I am never exercised against, and I make back any losses on the previous position
4) Leveraged statistical arbitrage of the S&P500, NASDAQ, and Dow Jones
5) Statistical arbitrage of selected highly correlated, high beta stocks

Hey shakka, I have a question. How much of my portfolio value should I risk when writing a naked call option? If the margin requirements are 5% of my portfolio value, is that too much? What is a good number? 2%? Less? I plan on doing a strategy, in which I sell a front month ATM call option, desiring to collect the premium if the stock is below the strike by expiration. I expect that the security could move up against me. So when my strike is breached, I buy back the call option, and sell enough of the next higher strike, so as to cover the losses on the previous trade. So obviously, my margin requirements rise each time I do this. This resembles a Martingale betting system, where the gambler doubles his bet after each loss so that when he finally wins, he makes back all his losses, with a small profit. This "rolling for credits" strategy isn't exactly doubling the bet, but it can easily be more than double or less depending on the situation. So I need enough capital to finance a large move against me.

I would appreciate any insights.

EDIT: I just got an email from Lawrence McMillan, author of, Options as a Strategic Investment. He told me 5% is the most I should risk on the first step of a rollover option writing strategy. Also, that this strategy is very risky unless I have a lot of capital to give enough room to rollover to the end.

Last edited by Comrade Stalin on Jan-10-2011 at 20:03