How to outperform the markets, if you are a fundmanager

[ImamicPH]

Quote from Pekelo:

Sure, but when it goes down, the fund goes down LESS.

The fund would have made 8.9 percent on 10 percent of asset under management.

Thats more like 5.5 percent. not 13.

Look you need to win risk trades to make it as a fund manager.

I would just go buy a million dollors worth of 30-year t-bonds.

Or in another country make nearly double what you're fund would do.

 

[Pekelo]

Quote from MTE:

However, typically you wouldn't use futures, but you would use options. The reason being that with futures you can lose more than you have, with long options you cannot.

I didn't come up with the 16 ctrs per millions by looking at my navel. That is exactly a leverage of 1:1 compared to the million, thus you wouldn't lose more then you would by being fully invested in Spiders...

 

[MTE]

Quote from Pekelo:

I didn't come up with the 16 ctrs per millions by looking at my navel. That is exactly a leverage of 1:1 compared to the million, thus you wouldn't lose more then you would by being fully invested in Spiders...

I didn't say you did, but that wasn't the point. The point is that you can not only achieve the returns by using leverage, but also have a capital guarantee either 100% or less with options as oppose to futures.

 

[Pekelo]

Quote from ImamicPH:


Or in another country make nearly double what you're fund would do.

I told you in the dream I was :

-lazy
-didn't want to do research
-all I wanted is to outperform the S&P with the simplest, minimum risk way

 

[MTE]

Quote from ImamicPH:

The fund would have made 8.9 percent on 10 percent of asset under management.

Thats more like 5.5 percent. not 13.

Look you need to win risk trades to make it as a fund manager.

I would just go buy a million dollors worth of 30-year t-bonds.

Or in another country make nearly double what you're fund would do.

If you hedge currency exposure then your return will be no different than investing in the US, I'm talking about t-bonds and their overseas equivalents.

 

[Pekelo]

Quote from MTE:

The point is that you can not only achieve the returns by using leverage, but also have a capital guarantee either 100% or less with options as oppose to futures.

OK, please state in a few simple steps what should I buy, how many, etc. I doubt you can do it in a simpler, less risky way with options, then with futures, but I am willing to listen...

 

[ImamicPH]

Quote from Pekelo:

I didn't come up with the 16 ctrs per millions by looking at my navel. That is exactly a leverage of 1:1 compared to the million, thus you wouldn't lose more then you would by being fully invested in Spiders...

so you think you're gonna you 10:1 margin. What happens if you get a margin call?

 

[MGJ]

Alas this arbitrage play has already been discovered and exploited. As a result the S&P futures always trade at a premium to the S&P cash. Plot them on the same axes to see for yourself.

The premium (difference between cash and futures) is equal to the cost of borrowing the funds necessary to buy the basket of stocks called the S&P 500. This exactly cancels the "profit" from holding T-Bills.

The phenomenon is so well known that it has a name: "Fair Value". There's even a little discussion of it on the CME's website: http://www.cme.com/files/fairvalu.pdf

 

[MTE]

Quote from Pekelo:

OK, please state in a few simple steps what should I buy, how many, etc. I doubt you can do it in a simpler, less risky way with options, then with futures, but I am willing to listen...

The problem with futures, as it has been pointed out above, is the margin call, i.e. that your loss is not limited to those 10% you used to trade futures. If you buy options either call or put, your loss is limited to those 10%.

As to how many you should buy that totally depends on the amount of leverage you want. If you really wanna speculate then buy OTM calls/puts, if you wanna be more conservative then use ITM options.

 

[Pekelo]

Quote from MGJ:

As a result the S&P futures always trade at a premium to the S&P cash. Plot them on the same axes to see for yourself.

Man, this was already addressed in the very first post. I called it time depreciation, not a premium, but we are talking about the same, and I already explained how to deal with it....