Value vs Growth relative value trade

R

rucola

trying to implement a trade to play a potential outperformance of value vs growth in the coming months.
looking for ideas on how to implement it.
at the moment i'm thinking the following options:
1) go long a value ETF and buy puts on a growth ETF
2) use options for both value and growth
3) pick top 5 holdings of value and growth and use options.

any ideas which ETFs/indices are best to use? i've looked only at vanguard so far...

thanks
 
rucola said:
i'm not a day trader. I don't even look at what's moving. I look at what's cheap.
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I think its a great plan, but I would search for individual stocks instead of using ETF's. If you're right, your return will be better.

There's tons of free scanners out there in which you can insert a myriad of metrics to find the right value in the right sectors. Of course that does require a bit of knowledge about fundamentals and key balance sheet metrics for your inputs. Stuff like PEG, PE, FCF, book value, long term debt,... just to name a few. The more you know, the more refined your search will be.

I used a scanner when I wrote this post.

https://elitetrader.com/et/threads/...-dividends-that-might-be-worth-a-look.341798/

The last time I updated it the picks were doing quite well. I haven't looked at it lately... but the point is, I used a scanner. Your broker has one I'm sure, but even this one is great...

https://www.investing.com/stock-screener/ if you don't have access to anything else.

I don't think you should double down by buying puts however on the growth stocks (or those etf's). If you're wrong you'll lose all that money because they may just keep running. Obviously. If you're wrong with your value picks however, you can hold the stocks, collect the dividends (if thats one of your scanner criterion), and sell the near term calls a few strikes out for a little lunch money. If you have some good picks, I don't see how you can lose too much, and with time on your side, you'll do ok and maybe better than ok if there is in fact a big rotation. I personally think there will be too, that's why I took the time to respond to your post here. G/L.
 
i wouldn't use puts to double down. what i want to get to is a trade that ONLY plays spread compression between the two indices. right now growth has exploded relative to value. it's at historical levels. I want to play a compression of that gap... either because growth tanks or because value goes up. I don't want to buy Value outright (without shorting growth) as it's a beta play on the market - if stocks have another crash like March, I'm toast. that's why I want a relative value trade.
your suggestion with single names makes sense but it creates a lot of extra work... (name selection, decision of how many names to buy.. both long and short, and execution. if I decide to play 5 names, there's 10 trades taking place... ). that's why i'm still preferring the ETF. to me the easiest way would be to go long a value ETF (buying the ETF, not options) and then short the growth ETF either by shorting the stock (although I think it;s expensive) or by buying puts on the ETF...
unless someone thinks it's the wrong way... or difficult to maintain as options get closer to expiration etc.
 
rucola said:
i wouldn't use puts to double down. what i want to get to is a trade that ONLY plays spread compression between the two indices. right now growth has exploded relative to value. it's at historical levels. I want to play a compression of that gap... either because growth tanks or because value goes up. I don't want to buy Value outright (without shorting growth) as it's a beta play on the market - if stocks have another crash like March, I'm toast. that's why I want a relative value trade.
your suggestion with single names makes sense but it creates a lot of extra work... (name selection, decision of how many names to buy.. both long and short, and execution. if I decide to play 5 names, there's 10 trades taking place... ). that's why i'm still preferring the ETF. to me the easiest way would be to go long a value ETF (buying the ETF, not options) and then short the growth ETF either by shorting the stock (although I think it;s expensive) or by buying puts on the ETF...
unless someone thinks it's the wrong way... or difficult to maintain as options get closer to expiration etc.
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Ok I gotcha. Post a generic rough draft of how you want to structure the trade and we can go from there. Just use hypothetical etf's if that's easier.
 
I was thinking going long VTV and buying puts on VUG. But I don't know how to structure the short side of the trade in terms of quantity, strike and expiration.
 
rucola said:
I was thinking going long VTV and buying puts on VUG. But I don't know how to structure the short side of the trade in terms of quantity, strike and expiration.
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If you're buying puts on a growth index, and you're going long a value index at the same time.... I mean I'm not following the logic of what you hope to accomplish. As best as I can tell this is a directional trade based on value going up and growth going down.
That's why I used the term "double down"... because that's what you are doing. You are placing two bets, and each requires the market to do the same thing for each to pay off. Why not use one bet? On either or? Unless I'm missing something, you're not hedging anything buy buying puts on VUG... you're only accentuating the VTV long.

Unless I missed something. But whatever, hopefully someone else can chime in.
 
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