Are there any legitimate low risk investment opportunities left?

[sail]

After 25 years in this business, it has never been easier to enter orders, get reports, and any sort of information (or misinformation) I desire.
Cost of execution has never been lower, I have never had more capital at my disposal, and my expectations have never been lower (Thanks to Sir Alan).
There is technological overload. I have too many screens in front of me, and too many keyboards at my fingertips.
There are more trading and hedging vehicles than I ever dreamed of, and yet from my side of the screen it seems like there are few low - risk strategies with any positive expected value left.
My cost of capital is roughly 2% per annum, and I would be willing to do any
combination of transactions, that lock in a return in excess of this princely return net of all expenses (for investments of up to say 1 year).
Years ago, (on the floor) you could put on forward conversions, trade boxes and butterflies etc. On expirations there were always opportunities.
I would consider program trading and basket arbitrage, but I suspect the margins are too small, and the street would always have an advantage over me.
Statistical arbitrage, relying on the law of large numbers, may be the way to go. (Timber Hill has had results which are amazing, even adjusting for their size and infrastructure) But here again, I am at a disadvantage.
The market has never been truly efficient but seems to be getting much closer.
Your thoughts either public or private
would be appreciated.

 

[esc_trader]

Of course the old saying goes - low risk = low reward.. However, you may want to consider a stock/options combination (especially around exp dates) or integrate stocks going ex-div into the mix.

Certainly the key is having alot of capital at your disposal, but you should easily be able to pull 10-20%/yr. out of the market at very low risk.

 

[Satyrican]

10%/20% per annum---> Pure bullshit

Please enlighten...

Quote from esc_trader:

Of course the old saying goes - low risk = low reward.. However, you may want to consider a stock/options combination (especially around exp dates) or integrate stocks going ex-div into the mix.

Certainly the key is having alot of capital at your disposal, but you should easily be able to pull 10-20%/yr. out of the market at very low risk.

 

[esc_trader]

Quote from Satyrican:

10%/20% per annum---> Pure bullshit

Please enlighten...

Think about what you are saying. If 10-20%/yr. was too difficult, daytrading wouldn't exist. You would need 300-400k in capital just to make a living!

10-20% a year, so let's say about 1% return per month is our goal. With leverage of 20x which you can get trading futures, or the many firms that will give you that leverage on stocks, you will need to make 0.05% return per month with your trading capital, or 2 1/2 cents on a $50 stock after costs. You do not need a very high risk strategy for this amount of profit.

Some will say, yeah but more leverage = more risk. Not true, and one of the many misconceptions about trading risk. Risk is better measured by the amount of time you are in a trade (time horizon), and the difficulty of getting out if things go wrong(liquidity).

You also need to control costs so go get the lowest costs you can find. There are stock and futures firms offering rates now that can get you at least a couple of r/ts for less than the cost of a tick of the instrument you are trading. That is very helpful.

As far as strategies to make our .025 profit, for straight out stock trading there are a number of methods. It could be accomplished with straight "stat arb" methods, or I mention the combination of stock/options, for instance, covered calls on stocks going ex-div.
The key here is that we only need a very small profit on capital traded, so we enjoy the luxury of using low risk methods.

You may say, well how can this be done when investors would be jumping all over a low risk 10-20% return. That beats most mutual funds, right! Well they cannot be compared, we are talking about TRADING not INVESTING. As traders, we are expected to generate much larger returns on capital, since we are actively managing the capital ourselves, on a full time basis.
In fact, using % return on capital is a very poor measure of trading success, since with futures you can put up astronomical rates of return given the high leverage.

 

[Satyrican]

Are you delusional or are you Steve Cohen? I find you argument very very crude and not well thought out. Maybe I am just missing the point.

For starters, I am not refuting your assertion that 10% cannot be done. But 10% on a risk-adjusted basis is very very tough. Your claim that it can be done with very very little risk goes contrary to what I have seen.

Moving right along: Stats Arb average 8-10% with Leverage mind you. This is with survirorship bais intact. A fair number of funds have tanked in the last two fiscal seasons boosting the average beyond what is considered normal.

Nominal 10% year in and year out would put you in the class of very FEW.

Please enlighten ..give SPECIFIC instancse of making 10% on a consistent, low drawdown basis.

P.S. The only "true" measurement of risk is one's own trading return and volatility. You could use either Jensen's alpha or Sharpe alpha (a bit more difficult) as substitue.

Quote from esc_trader:



Think about what you are saying. If 10-20%/yr. was too difficult, daytrading wouldn't exist. You would need 300-400k in capital just to make a living!

10-20% a year, so let's say about 1% return per month is our goal. With leverage of 20x which you can get trading futures, or the many firms that will give you that leverage on stocks, you will need to make 0.05% return per month with your trading capital, or 2 1/2 cents on a $50 stock after costs. You do not need a very high risk strategy for this amount of profit.

Some will say, yeah but more leverage = more risk. Not true, and one of the many misconceptions about trading risk. Risk is better measured by the amount of time you are in a trade (time horizon), and the difficulty of getting out if things go wrong(liquidity).

You also need to control costs so go get the lowest costs you can find. There are stock and futures firms offering rates now that can get you at least a couple of r/ts for less than the cost of a tick of the instrument you are trading. That is very helpful.

As far as strategies to make our .025 profit, for straight out stock trading there are a number of methods. It could be accomplished with straight "stat arb" methods, or I mention the combination of stock/options, for instance, covered calls on stocks going ex-div.
The key here is that we only need a very small profit on capital traded, so we enjoy the luxury of using low risk methods.

You may say, well how can this be done when investors would be jumping all over a low risk 10-20% return. That beats most mutual funds, right! Well they cannot be compared, we are talking about TRADING not INVESTING. As traders, we are expected to generate much larger returns on capital, since we are actively managing the capital ourselves, on a full time basis.
In fact, using % return on capital is a very poor measure of trading success, since with futures you can put up astronomical rates of return given the high leverage.

 

[esc_trader]

They aren't trading my methods!

Seriously though, you could simply jump in front of size all day long and get 2 1/2 cents on your $50. There are a number of methods that work with a positive expectancy, as evidenced by the success of (some) on this message board.

 

[Satyrican]

Goes back to survivorship bias. Just because a few traders make it does not imply that everyone can replicate their success. Moreover we're looking at RISK-ADJUSTED returns....

Quote from esc_trader:

They aren't trading my methods!

Seriously though, you could simply jump in front of size all day long and get 2 1/2 cents on your $50. There are a number of methods that work with a positive expectancy, as evidenced by the success of (some) on this message board.

 

[esc_trader]

I agree, everyone cannot replicate the success. That's impossible anyway, since if everyone employed a successful method, it would stop working.

The question was, can I get a 10-20% low risk return. Yes they can, although certainly they must be good traders to do so.

 

[WDGann]

Disregarding the skill level of the trader...

I've always struggled to find a time tested strategy that returns 10-20% return consistantly (In any condition... like market condition, capital size, and etc.).

Honestly, if I had one, I'll be billion dollar fund manager...