<p>What rate of return do you want EMM1?</p>
<p>And how long do you want to lock in the money?</p>
<p>I want to keep this portion of my assets liquid, so I’m not interested in the annuity-type products that provide a guaranteed return, but only if you leave the money tied up for (for example) ten years.</p>
<p>The answer to the first question is that I am trying to figure out how what is plausible–that is, how best to deploy the portion of my assets that are devoted to less risky investments, which tend to be income-oriented investments. It seems to me that one has two basic choices with respect to those assets–either choose investments that are inherently less risky, or choose more risky investments and find an effective hedge. In the current interest rate environment, it is had to get more than 2-3% in the first class, so the question is whether you can generate more income from investments in the second class at an acceptable level of risk.</p>
<p>I hope that was in English.</p>
<p>I understand and I think it is very hard to get decent short term returns.</p>
<p>I don’t want to work that hard for 5.5 percent. I do think 5.5 percent is a very good short term return these days.</p>
<p>I just lent money on a first mortgage. I think, lol, that it was a 1 year loan, 20 percent loan to value with 6 months interest guaranteed. It is an investor loan. The investor is going to fix up the property and sell it. If the investor screws it up, I will take the property. The land value is worth more than the loan. The house is in a great area in SF. I have title insurance. I am getting 7.5 percent. I would do more of these but most of the loans I see are in crummy areas, with suspect appraisals. The
loans pay more interest, however.</p>
<p>Can’t do home occupied mortgages anymore. Heavily regulated. Homeowners can sit in their homes and not pay the mortgage for a long time. (at least where I live).</p>
<p>Anyway, this is probably not the answer you are looking for. I don’t see anything
appealing with low risk.</p>
<p>I don’t think 3 years is long enough for backtesting because rates have dropped dramatically for high yield bonds over the last 3 years. You need to test this trade when hybonds yields are going up dramatically. And when hy bonds are stable. Are they ever stable? :)</p>
<p>Don’t use levered ETFs as long term holds - they’re momentum instruments which bleed value in non-trending environments.</p>
<p>Doug Kass is still short aapl. Either he has a small position relative to his other holdings or he can’t admit he’s wrong.</p>
<p>ADP payroll came in at 162K. That’s better than last month’s number.</p>
<p>Assuming the jobs number tomorrow morning is halfway decent, I expect a big move up in the market in the morning based on tonight.</p>
<p>The unemployment report is tomorrow; the jobs report is Friday.</p>
<p>I wasn’t referring to the jobs report.</p>
<p>Initial claims 367K, previous week claims 363K, expected claims 370K.</p>
<p>Basically we continue to muddle through. Slight beat on expectations and the futures are up.</p>
<p>Forecast for the jobs report tomorrow is +113K jobs for September which is a pretty weak number.</p>
<p>It’s a bit surprising given the reports of strong holiday season hiring by large retailers but perhaps it might take them a few weeks for them to hit the reports.</p>
<p>“Don’t use levered ETFs as long term holds - they’re momentum instruments which bleed value in non-trending environments.”</p>
<p>Certainly correct when leveraged ETFs are being used as investment vehicles. However, for hedging purposes the important thing is not the absolute value of the ETF, but rather the ratio of the value of the ETF to the investment that is being hedged. The important thing is to rebalance frequently to ensure that the target ratio is being maintained.</p>
<p>The value of the ETF does matter because you’ll have to rebalance more frequently than otherwise, and you’re still bleeding more value on the hedge than you need to. Instead of going more long and using a levered hedge that decays, just go slightly less long and use an unlevered hedge that doesn’t. Over the long term you’ll do much better.</p>
<p>So collectiv? You would use SH instead of SDS or SPXU to hedge HYB or SPY?</p>
<p>Please excuse this interuption, but we need some advice on thread asking about paying off a mortgage. I knew people on this thread would be knowledgeable.</p>
<p>I guess that we can state that a mortgage is out-right gambling for a day. What is your question?</p>
<p>The details would need to be worked out but if I owned spy and wanted to hedge it and if I were a long term investor, I would buy spy ditm (delta~1) leaps, the difference in what I would have spent for spy itself would be used to buy put ratio spreads - not sure if for the same expiration as the leaps or every week or some other time frame.</p>
<p>“The value of the ETF does matter because you’ll have to rebalance more frequently than otherwise, and you’re still bleeding more value on the hedge than you need to. Instead of going more long and using a levered hedge that decays, just go slightly less long and use an unlevered hedge that doesn’t. Over the long term you’ll do much better.”</p>
<p>Rebalancing more frequently does of course have transaction costs. At say, 8.95 per trade, the significance of those costs depends on the size of the position that you are talking about. In any event, if you are talking about hedging an income position, you can hold a much higher percentage of the income-producing asset if you hedge with a levered ETF.</p>
<p>Sorry, Doc, I’m just not familiar with put ratio spreads.</p>
<p>So how does that work doct?</p>
<p>Give us an example in the spy jan14 options.</p>
<p>edit… Nevermind…</p>
<p>Yeah doct, give us an example…</p>
<p>dstark - Yes, I would use SH to hedge equity exposure (not SPY explicitly, since I’d rather just reduce exposure to SPY), not knowing the composition of HYB I can’t really say whether I would use it for that.</p>
<p>EMM1 - It is true that you’re giving up more income production by using a less levered asset, but keep in mind that the decay from 2x and 3x levered ETFs can be very substantial. It’s very path dependent, but in some years it can be as high as 15-20%.</p>
<p>DocT - At least from what I can work out, for that strategy to work you’d most likely need to buy some pretty long LEAPS. Theta decay accelerates in the last year, so ideally speaking, your puts should be at least as long (though shorter rolls work as well or better based on your tolerance for negative carry). And your DITM calls would need to be significantly longer than a year. I’m not sure what the liquidity on DITM LEAPS is also, so you might be SOL if you need the cash for other purposes when the market’s not doing so well.</p>
<p>The figures that are generally discussed for decay of levered ETFs (and other very volatile instruments like XIV that are based on daily percentage changes) are based upon the assumption that one does not add or subtract from positions on a regular basis. If you rebalance frequently to maintain a predetermined ratio, the situation changes. </p>
<p>Now, there is no question that rebalancing comes with a cost. But the calculations are more complicated than you suggest.</p>