Obviously they believe they are getting more alpha then simply buying puts. For example, these guys made money this year with the market going higher because of the moves in commodities. The put buyer would have lost that money vs being up 8%.
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Taleb -Black Swan on $1,000 per month
- Thread starter drenaud
- Start date
Obviously they believe they are getting more alpha then simply buying puts. For example, these guys made money this year with the market going higher because of the moves in commodities. The put buyer would have lost that money vs being up 8%.
Quote from Eliot Hosewater:
So why not just take 5% of a long portfolio and buy SPY puts?
ETA: I am looking at a managed fund that does something similar. It really helps to almost eliminate the downside risk. Their annualized return since inception (just over 3 years) is over 8%, S&P500 -0.01%. And their portfolio beta is usually less than .5.
Agreed... Although from the article I don't really quite get how they come up with the secret sauce, which is to say how they pick the strike. Moreover, I am not at all sure about the VIX, but in the world of rates when all these price-insensitive real money types start getting into these types of structures en masse, it's occasionally a great opportunity to fade it and sell skew (i.e. buy 1x2s).Quote from Locutus:
Well no, obviously it's not "free" because a trade is still a risk exchange so you get a different risk. I was just kidding around a bit, but I stand by the assertion that it's unlikely you will end up paying for it compared to, for example, S&P500 put options or any other long put option position, for which the odds you will end up paying are very high.
By "free" I meant that basically "if nothing happens then you don't lose much if anything (maybe commissions)".
Anyways, I see your point, but I am sure there's all sorts of nuances that the article doesn't dwell on.
dont you only get a rho edge if you buy calls? when rates go up, forwards go up and calls become more in the money on a forward basis.
Interesting topic....why not give lottery a try...hahaha...Just kidding..