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Hedge Funds Are Pocketing Much of Their Clients' Gains with 'No Limit' Fees

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Re: Hedge Funds Are Pocketing Much of Their Clients' Gains with 'No Limit' Fees

#121

Post by tombert »

alephnerd wrote: post #119
tombert wrote: post #99

Earlier quoted context omitted.

> The RoI isn't that high if you aren't quant. The postings I see on Selby Jennings (and their equivalents) seem to show a considerably higher salary than the BigCo's that I've worked at. At least the salary bands that are listed. That's honestly a big reason, but I also just find the world of ultra-low-latency software pretty interesting.

You'll also be expected to work 60-80 hour weeks. You can earn the bottom end of those salary bands in West Coast Big Tech with much less hours worked (30-50). > ultra-low-latency software pretty interesting Then go into ML Infra. It's the same skillset and problem space (high performance computing), but better work hours and decent compensation.

I've tried; I've done what everyone has done and sent applications to OpenAI; they don't call me back. I don't really want to work for an AI startup.

Re: Hedge Funds Are Pocketing Much of Their Clients' Gains with 'No Limit' Fees

#122

Post by casercaramel144 »

arcticbull wrote: post #68
casercaramel144 wrote: post #65

Earlier quoted context omitted.

That's a really bad idea, those rebalance daily, so you are basically betting against short-term volatility (if spy goes down 10% in a day then up 10% the next, you are down 1% on spy, on a 2x levered etf you are down 4% or 4x the loss). Also both fees and slippage are really terrible on all levered ETFs If you really want to do 2x lever its probably best to just buy 6 month or 1 yr dated ITM calls. They're quite che…

And yet UPRO (3X SPY) has significantly outperformed 3X the S&P 500 since inception (since June 2009 UPRO is +8000% vs SPY +700%. The reason is exactly what you described actually. If the underlying exhibits positive momentum, generally trending up instead of oscillating back and forth, the daily balancing works for you instead of against you and the ETF outperforms the target multiple of the underlying. Yes, if your…

Finance SWE here, sorry if what I say is wrong. Please correct me if that's the case.

>And yet UPRO (3X SPY) has significantly outperformed 3X the S&P 500 since inception (since June 2009 UPRO is +8000% vs SPY +700%.

Isn't this just hindsight bias? You market time to right after 2008 crash. Those two dates are probably the best possible because from 2009->2020 we had an 11 year uninterrupted bull run. If you bought in 2020-2021 you would have been screwed for 3 years at the least. If you bought 10x levered out of the money spy calls every 6 months and roll the winnings since 2009 you probably can get even higher, but probably you don't want to do that.

>Respectfully those are much more expensive and if you're near the money quite non-linear. You're going to have to pony up pretty close to the price of just buying the index again to get 2X exposure if you're deep ITM. Near the money you'll need several options to get 2X - and you'll need to delta rebalance. You'll also get eaten alive by theta decay.

Isn't this for retirement saving? IE where we have big chunks of cash we won't see for 20 years, so you can buy like 2 contracts and its good enough. You'd have to pony up 2x to get the underlying index fund anyways, so you might as well just buy deep ITM calls (which right now are hovering at a premium of 3% for strike of 315$ on spy).

+1 for European options, I forgot you can buy those on index funds, is the liquidity enough on deep OTM calls to be worth it though?

>To avoid having to pony up a ton of collateral or get eaten by theta, you may as well just buy more SPY on margin - or save yourself the hassle and get an /ES=F or /MES=F. I thought margin / borrowing costs for future etfs is some ridiculous 8-12%. Pretty bad if you have no alpha except beta go up!

Re: Hedge Funds Are Pocketing Much of Their Clients' Gains with 'No Limit' Fees

#123

Post by pinkmuffinere »

jcalvinowens wrote: post #118
pinkmuffinere wrote: post #97

Earlier quoted context omitted.

+1, the criticism of “if s&p goes up and come back down, leveraged investments lose” is just insufficient as a criticism. It examines only one case. I’m probably 30% in SPUU for years now, and would like to hear real criticisms — do you have any real criticisms to share? I legitimately have found so little competent commentary on it, and I think I understand the risk I’m taking, but don’t want to miss an opportunity…

> I’m probably 30% in SPUU for years now, and would like to hear real criticisms — do you have any real criticisms to share? I'm no expert. But it seems like writing out of the money options: it's "free money" until the market suddenly moves against you, and you get your head chopped off. When that inevitably happens, the loss has a good chance of more than wiping out all your prior gains.

Not to “fight“, but just to add to the conversation:

I agree it is taking on more risk, although potentially less than with out-of-the-money options. To lose 99% of spuu’s value the sp500 would have to drop 50% in one day, or 35% for three days in a row, or 20% for nine days in a row, etc with infinite similar cases. It’s not a rigorous argument, but I think those examples give a feel for how common/rare that occurrence would be — I think these particular cases have never happened since the sp500 started.

But it’s certainly riskier-than-traditional in either case

Re: Hedge Funds Are Pocketing Much of Their Clients' Gains with 'No Limit' Fees

#124

Post by arcticbull »

casercaramel144 wrote: post #122
arcticbull wrote: post #68

Earlier quoted context omitted.

And yet UPRO (3X SPY) has significantly outperformed 3X the S&P 500 since inception (since June 2009 UPRO is +8000% vs SPY +700%. The reason is exactly what you described actually. If the underlying exhibits positive momentum, generally trending up instead of oscillating back and forth, the daily balancing works for you instead of against you and the ETF outperforms the target multiple of the underlying. Yes, if your…

Finance SWE here, sorry if what I say is wrong. Please correct me if that's the case. >And yet UPRO (3X SPY) has significantly outperformed 3X the S&P 500 since inception (since June 2009 UPRO is +8000% vs SPY +700%. Isn't this just hindsight bias? You market time to right after 2008 crash. Those two dates are probably the best possible because from 2009->2020 we had an 11 year uninterrupted bull run. If you bought i…

> Isn't this just hindsight bias? You market time to right after 2008 crash.

Yes absolutely, I just picked when the product launched.

I wanted to point out to parent that the daily balancing isn't just a bad thing, it can be a good thing - it depends on how the underlying performs. You are right it cuts both ways though and you may have to sit in them for years to break even. Note UPRO actually somehow pays a dividend.

> If you bought 10x levered out of the money spy calls every 6 months and roll the winnings since 2009 you probably can get even higher, but probably you don't want to do that.

What do you mean by 10X leveraged calls? Like 10-delta? What was the spread between implied and realized volatility over that period? Ultimately your options outcomes are really based on realized volatility exceeding implied volatility (otherwise you break even or lose).

> Isn't this for retirement saving? IE where we have big chunks of cash we won't see for 20 years, so you can buy like 2 contracts and its good enough.

Parent said contracts that expire in 6 or 12 months on SPY. That means short term capital gains at expiry, and using SPY instead of SPX means you have to deal with early exercise and dividends.

Since you can't buy contracts too far out in time, so you have to sell, roll or exercise. In a tax advantaged account maybe that matters less. Was your proposed strategy to roll? If so, how far before expiry, and to what level?

> You'd have to pony up 2x to get the underlying index fund anyways, so you might as well just buy deep ITM calls (which right now are hovering at a premium of 3% for strike of 315$ on spy).

Over what duration? We need that to figure out the rough APR of the implied borrowing you're doing.

> +1 for European options, I forgot you can buy those on index funds...

On indexes not index funds! SPX option notional value is literally the S&P 500, in index points, times $100. They're big. XSP option notional value is basically the S&P 500, in index points, times $10.

> I thought margin / borrowing costs for future etfs is some ridiculous 8-12%. Pretty bad if you have no alpha except beta go up!

I was suggesting the underlying futures contract rather than a futures ETF. /ES is big, /MES is much smaller.

Re: Hedge Funds Are Pocketing Much of Their Clients' Gains with 'No Limit' Fees

#125

Post by arcticbull »

pinkmuffinere wrote: post #123
jcalvinowens wrote: post #118

Earlier quoted context omitted.

> I’m probably 30% in SPUU for years now, and would like to hear real criticisms — do you have any real criticisms to share? I'm no expert. But it seems like writing out of the money options: it's "free money" until the market suddenly moves against you, and you get your head chopped off. When that inevitably happens, the loss has a good chance of more than wiping out all your prior gains.

Not to “fight“, but just to add to the conversation: I agree it is taking on more risk, although potentially less than with out-of-the-money options. To lose 99% of spuu’s value the sp500 would have to drop 50% in one day, or 35% for three days in a row, or 20% for nine days in a row, etc with infinite similar cases. It’s not a rigorous argument, but I think those examples give a feel for how common/rare that occurre…

> To lose 99% of spuu’s value the sp500 would have to drop 50% in one day...

Which is exceedingly unlikely because of the circuit breakers. A level 3 breaker is triggered after a 20% decline and halts trading for the remainder of the day.

Re: Hedge Funds Are Pocketing Much of Their Clients' Gains with 'No Limit' Fees

#126

Post by pinkmuffinere »

arcticbull wrote: post #125
pinkmuffinere wrote: post #123

Earlier quoted context omitted.

Not to “fight“, but just to add to the conversation: I agree it is taking on more risk, although potentially less than with out-of-the-money options. To lose 99% of spuu’s value the sp500 would have to drop 50% in one day, or 35% for three days in a row, or 20% for nine days in a row, etc with infinite similar cases. It’s not a rigorous argument, but I think those examples give a feel for how common/rare that occurre…

> To lose 99% of spuu’s value the sp500 would have to drop 50% in one day... Which is exceedingly unlikely because of the circuit breakers. A level 3 breaker is triggered after a 20% decline and halts trading for the remainder of the day.

Oh wow good point! The existence of breakers lurked in the back of my mind, but I didn’t realize the implication there. That is nice.

Re: Hedge Funds Are Pocketing Much of Their Clients' Gains with 'No Limit' Fees

#127

Post by jfengel »

testval123 wrote: post #100
chii wrote: post #96

Earlier quoted context omitted.

> It takes a long time to realize that your hedge fund is a loser. it's been many decades since the existence of statistical analysis of hedge funds (as an aggregate) that demonstrates their lack of edge over benchmark passive index funds. Some hedge funds would still out-perform. Most don't, and those who do tend to charge fees up to their level of edge, and leave only index-benchmark returns for their investors. If…

The purpose of a hedge fund is to ‘hedge’ ie deliver alpha and not index beating returns. Obviously the fee issue is another layer.

That was the original idea. They realized that they could also run the risk equations in reverse and make index beating returns, at least in the short run, and pretend that they could also do it in the long run. Hedge funds got a reputation as overpowered mutual funds for the wealthy.

Re: Hedge Funds Are Pocketing Much of Their Clients' Gains with 'No Limit' Fees

#128

Post by arcticbull »

pinkmuffinere wrote: post #126
arcticbull wrote: post #125

Earlier quoted context omitted.

> To lose 99% of spuu’s value the sp500 would have to drop 50% in one day... Which is exceedingly unlikely because of the circuit breakers. A level 3 breaker is triggered after a 20% decline and halts trading for the remainder of the day.

Oh wow good point! The existence of breakers lurked in the back of my mind, but I didn’t realize the implication there. That is nice.

Not that a 60% 1-day decline would be welcome by many investors :P

Re: Hedge Funds Are Pocketing Much of Their Clients' Gains with 'No Limit' Fees

#129

Post by mgfist »

arcticbull wrote: post #68
casercaramel144 wrote: post #65

Earlier quoted context omitted.

That's a really bad idea, those rebalance daily, so you are basically betting against short-term volatility (if spy goes down 10% in a day then up 10% the next, you are down 1% on spy, on a 2x levered etf you are down 4% or 4x the loss). Also both fees and slippage are really terrible on all levered ETFs If you really want to do 2x lever its probably best to just buy 6 month or 1 yr dated ITM calls. They're quite che…

And yet UPRO (3X SPY) has significantly outperformed 3X the S&P 500 since inception (since June 2009 UPRO is +8000% vs SPY +700%. The reason is exactly what you described actually. If the underlying exhibits positive momentum, generally trending up instead of oscillating back and forth, the daily balancing works for you instead of against you and the ETF outperforms the target multiple of the underlying. Yes, if your…

They picked a great time to launch it!

Not sure it would've gone so well had it happened in 2007

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