As long as they can walk away without belief they had magic pixie dust. If they think something about them rather than (unrepeatably good) timing into random movements won..
A Tiny Hedge Fund Made 8,600% on a Vix Bet
101–110 of 122 posts
Re: A Tiny Hedge Fund Made 8,600% on a Vix Bet
#102Earlier quoted context omitted.
Do you write software? I don't get trading and I want to. I get programming. If you understand both that's great. I even took one masters course (as part of my bachelors degree) in financial mathematics about options, future, derivatives etc. but it didn't click at the time. I have funds to invest but every time I look into getting into I cannot bring myself to do it because I cannot stop my brain thinking it's gambl…
> I have funds to invest but every time I look into getting into I cannot bring myself to do it because I cannot stop my brain thinking it's gambling. Without insider knowledge I don't understand how I could beat the market short term. If you have programming skill and a good understanding of statistics, do the following: 1. Identify a subset of equities in the total market which a) have fairly one dimensional revenu…
Awesome post and your meta-analysis rings true even on tiny time horizons.
Years ago I traded energy futures and we hired someone away from a rival. He knew a trick for seeing crude oil price changes on CME a few milliseconds before they sent the updates in their data feed. For a brief period we were printing money across the energy complex, but eventually it stopped working well. The guy who taught us the trick jumped from firm to firm, many others independently learned it, and it became the worst kept secret in trading: https://outline.com/MHp6Yu
If you've done this earnings forecasting yourself, how much size can you trade before the market moves enough to make the risk/reward unfavorable? For a retail guy it's probably not an issue, but curious if major funds are doing it at scale.
How does selling to hedge funds work when the information is valuable only insofar as few others have it? I suppose you could have an exclusivity contract but there's a strong incentive to sell to multiple buyers. Is it more of a relationship/reputation type setup? Are there brokers of some sort that help filter disreputable sellers out?
Re: A Tiny Hedge Fund Made 8,600% on a Vix Bet
#103Earlier quoted context omitted.
For part of your portfolio yes but once you have a decent amount (when say your normal size of order is £2k) you want to start diversifying and playing on special sits and corporate actions. An example from the UK electra private equity ELTA was on a massive discount activist investors came in and I made over twice my initial investment in two month - I would have busted my yearly allowance for dividend income just o…
You can't diversify more than just holding the total market. And since market returns are zero sum for you to make that great profit someone else had to lose. I'll just take the market average at very low fees and not worry about it. That's what the first link explains.
You can diversify across markets (different countries) and sectors and also to lay off risk, but I have been investing starting slowly with index funds 20 years ago so I think I have more experience.
I brought a commercial property fund when office prices crashed it tripled in less than 10 years.
Re: A Tiny Hedge Fund Made 8,600% on a Vix Bet
#104Earlier quoted context omitted.
Agreed, but there is a huge, huge amount of people doing very little of value. All the games with low latency and the rules for order placement could be changed to greatly simplify and stop the race to ever-lower latency. I work in it, it's a total waste of resources. Our banking sectors are insanely large. Aren't they supposed to be efficient? Why such a large % of the economy?
> Our banking sectors are insanely large. Aren't they supposed to be efficient? Why such a large % of the economy? Are they? What is the appropriate size of a nation's banking sector as a % of GDP (or whatever)? Who decides this? This is still a free(ish) market. Anyone who can provide the same services/capture the same opportunities with fewer resources is rewarded.
Nope, we have a series of too big to fail banks which have exclusive issuance of debt as $, unconstrained by any limits other than demand now we are off the gold standard:
https://bankunderground.co.uk/2015/06/30/banks-are-not-inter...
They use this privilege to capture all benefits of wealth creation via usury against land.
Just go outside. Why are banks like the new churches in the middle of the most expensive real-estate in the world? They are supposed to be the oil of real industry. The tail is wagging the dog.
Re: A Tiny Hedge Fund Made 8,600% on a Vix Bet
#105Earlier quoted context omitted.
Remember, not everyone participating in the financial markets is simply speculating. Indeed, many market participants are hedging their business operations, future production/consumption of physical commodities, etc. So, when a speculator takes the opposite position of someone looking to hedge risk value is created for the hedger. Sure, it's not necessarily tangible, but it isn't nothing.
I would agree with you 99% of the time, but not for these products. Professional fund managers who want to insure against volatility can easily trade VIX futures or index options. They wouldn't use an ETP that can only replicate daily returns which erodes longer holding period returns, with high internal fees, daily roll costs, etc. Same goes for other products like 3x inverse leveraged oil ETPs. The Southwests and E…
Agree with everything except the "I wouldn't be surprised to see more scrutiny". That would surprise me!
Re: A Tiny Hedge Fund Made 8,600% on a Vix Bet
#106Earlier quoted context omitted.
Could you recommend any resource for gaining that understanding of options? Not just technically, but in terms of the strategies you've sketched here (obviously I can and have googled the definitions).
> Could you recommend any resource for gaining that understanding of options? The Options Clearing Corporation [1] actually has a solid set of introductory courses [2]. That said, I am very conservative about when I believe individual investors should be trading options. (With surplus investment capital, i.e. after tax-advantaged retirement accounts and liquidity reserves have been maxed out, and principally for purp…
Well, retirement accounts are certainly awesome, but there should be an investment account for your 5-year to 20-year planned events.
Between weddings, funerals, car purchases, home purchases, major home renovations (new roof, new windows, etc. etc.), there are a lot of things that can be planned for 5 to 15 years out that probably should be properly invested. These lengths are long enough that sitting on cash is probably a bad idea, short enough that you need it before you can crack your retirement accounts.
Some of those things can be paid from your 401k or Roth IRA, but its a bad idea IMO to draw from your tax-advantaged retirement accounts in these cases.
A real world example: if you are beginning to look for a house and will likely need $70k+ for a good down payment, that would be the time to buy put-options to "lock in" your $70k.
You haven't found a house yet, but within 6 months or so, you'll likely need the money.
Without options, you'd basically be forced to sell your stocks ASAP, in case the market crashes and ruins your plans. But with a put-option, you negate all the downside risks, while retaining the ability to collect dividends and benefit from upward swings of the market. The put options allows you to confidently hold the stocks up until the week before closing (You'll still need time to transfer the money and generate a cashier's check, but you won't have to worry about market fluctuations)
Re: A Tiny Hedge Fund Made 8,600% on a Vix Bet
#107Earlier quoted context omitted.
I would agree with you 99% of the time, but not for these products. Professional fund managers who want to insure against volatility can easily trade VIX futures or index options. They wouldn't use an ETP that can only replicate daily returns which erodes longer holding period returns, with high internal fees, daily roll costs, etc. Same goes for other products like 3x inverse leveraged oil ETPs. The Southwests and E…
Agree with everything except the "I wouldn't be surprised to see more scrutiny". That would surprise me!
I think it's a case of bad optics. Most leveraged ETFs or ETFs that hold futures and constantly pay roll costs just slowly decay. They're not suitable for the average mom & pop, but holders have ample time to see their investment going poorly and get out. It's hard to feel super bad for them and they're less likely to complain loudly.
Meanwhile XIV did the complete opposite. Because of the VIX futures term structure it was actually earning roll premium most days. That plus declining volatility caused its price to march steadily upward for almost two years. It looked safe and some people put lots of money in, even bought on margin. Then one day they lost 80-90% with much of the losses in after hours trading.
It's like the difference between a company having kinda crappy management that spends too much on executive perks vs. outright fraud like Enron. Sharp moves that wipe people out completely without warning will get outsized attention.
Re: A Tiny Hedge Fund Made 8,600% on a Vix Bet
#108Earlier quoted context omitted.
You can't diversify more than just holding the total market. And since market returns are zero sum for you to make that great profit someone else had to lose. I'll just take the market average at very low fees and not worry about it. That's what the first link explains.
You can diversify across markets (different countries) and sectors and also to lay off risk, but I have been investing starting slowly with index funds 20 years ago so I think I have more experience. I brought a commercial property fund when office prices crashed it tripled in less than 10 years.
>You can diversify across markets (different countries) and sectors and also to lay off risk
And you should. The ultimate goal is to own a cap weighted proportion of all the assets in the world. If you do anything other than that you're taking an active bet that some assets will do well and some poorly and someone else is taking the other side of that bet. The sharpe article is quite revealing.
Re: A Tiny Hedge Fund Made 8,600% on a Vix Bet
#109In trading and the markets, you can beat the drums of war for as long as you want. At some point you will be vindicated. Then everyone will look back at you and think "genius!". Ultimately, timing is everything. I can tell you markets will be X in Y time. Within reason, there's a good chance it will happen. Question is just "when?" The problem with strong views is whether they can be maintained. Being short in a risi…
Or, as the old saying goes: the market is able to stay irrational longer than you can stay solvent.
Re: A Tiny Hedge Fund Made 8,600% on a Vix Bet
#110Earlier quoted context omitted.
> I was referring to the stock market. Also, are you claiming to be a market maker? I used to be a market maker of stock options, amongst other things. > It doesn't take 30 mins after the news breaks for stocks to move When it comes to markets, test every assumption. In reality, information diffusion is unpredictable and heterogenous [1]. This is due to, in part, the "effects of limited attention in at least part of…
Options are great, even for individuals. The main issue is that everything is in size 100 lots, so a huge number of stocks are simply "too big" for me to regularly use options on as an individual. If I were to do something like sell a put option on AAPL ($156.41 at the moment) would be $15641 into a single stock that I may have to put up. I'm closer to ~$5000 per trade as an individual, its not like I have as much mo…
Why would you sell a naked put though? Sell a put spread (e.g. short 155 put, long 150 put) and you can exert extremely fine control over your max liability. $500 per contract in the aforementioned case.