The Loser's Strategy | Truth or Skepticism
Mar 3, 2016
Some people just can’t let it go. Take our favorite skeptic, Dylan Ratigan. After a flat 2015 for the S&P and a 2016 S&P currently down 3%, Dylan is still arguing for passive investing. Dylan argues active investors are down more than passive investors. If there were a wall nearby, Tom would have been banging his head against it (luckily the beret would bear some of the impact).
Tom made a bold statement but most true statements are bold: “We are a society of loser traders.” Passive investing does not work in the long run. After generating one or two decent years of returns, far too many people believe passive investing works. But it doesn’t.
Not to toot our own horn, but we believe tastytrade is the future of active investing. If we didn’t, we would be wasting a lot of time and money. Investors need to become financially literate and we’re out to create a culture of risk-taking.
The notion you can make money doing nothing is a fallacy, fantasy or both. With few exceptions, the most successful people are risk takers. They saw opportunity and strategically attacked. It’s not a head-first dive in shallow waters approach. That isn’t what we’re about. Small trades, frequent trades, that create probabilistic outcomes in uncorrelated, liquid products is our roadmap. Passive investors ultimately lose and deservedly so.
So what does an active investor’s core portfolio look like? Tom currently has 20% - 25% of his investment capital at work. Core positions are short bond futures and short puts on those bonds; short S&P futures, short puts on those S&Ps; long resources (i.e., oil) and short calls against those resources. Using highly liquid products that expire quarterly is what Tom calls the “New Age portfolio.”
The structure creates a zero correlation risk portfolio. Selling premium around those core holdings lowers cost basis and extends duration. Passive investors are ignorant to these strategies but we’re working on changing that.
Finally, it’s a topic you can’t avoid, like that car wreck that you crane your neck to stare at: Trump. What, if any impact does a potential Trump presidency have on markets? It’s not something we need to worry about, argued Tom. Markets suggest Trump can’t win. But what Trump’s rise does suggest is the Republican Party is no more. Let’s put it in market terms because that’s how we see the world. Trend traders are long the breakout stock ticker: TRUMP. We’re selling calls and collecting rich premium because implied volatility in TRUMP is HUUUUGGGGEEEE.
Josh Fabian has been trading futures and derivatives for more than 25 years.
For More On This Topic See:
Truth or Skepticism - The Loser's Strategy: March 3, 2016
Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.
May 6, 2016
Earning a certain average profit per month by selling premium is something of interest to many investors and traders. Until now, no one knew how much extrinsic premium needed to be sold to generate a targeted average monthly profit. We’re about to change that.
May 4, 2016
One similarity tastytraders share is enjoying stories from market veterans who helped pave the road we hope to build upon. Tom recently sat down with his uncle, famed investor Martin Sosnoff to discuss how Martin became involved in markets and his approach to investing.
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