Investing Thread - better known as Wall Street Gambling

[Hardartery]

Anybody else on here in the markets and handling their own stuff? It can be nice to bounce stuff off of other people and get suggestions...

[quikky]

Are you talking about long term type of stuff, including retirement investing, or short term, more speculative kind of stuff?

[Hardartery]

Are you talking about long term type of stuff, including retirement investing, or short term, more speculative kind of stuff?

All of it. I am both long-term investing and selling Covered Calls for extra base income and entertainment.

[dw]

Selling covered calls sounds like the notorious trap that Taleb wrote about in his early book. But I'm sure there's a profitable way to do it.

[Hardartery]

Selling covered calls sounds like the notorious trap that Taleb wrote about in his early book. But I'm sure there's a profitable way to do it.

I have not lost money, but I have learned some things by playing with it. It is, at least as far as I can tell, the least risky use of options trading. The "Penny" stocks (Anything under $5 a share for the uninitiated) are dangerous, and it does require some capital to play the game. But can pay off quite well if you don't get greedy.

I have had a few scores, like SKT at $5 on market slide. It pays dividends and is worth more than triple that now.

[dw]

Selling covered calls sounds like the notorious trap that Taleb wrote about in his early book. But I'm sure there's a profitable way to do it.

I have not lost money, but I have learned some things by playing with it. It is, at least as far as I can tell, the least risky use of options trading. The "Penny" stocks (Anything under $5 a share for the uninitiated) are dangerous, and it does require some capital to play the game. But can pay off quite well if you don't get greedy.

I have had a few scores, like SKT at $5 on market slide. It pays dividends and is worth more than triple that now.

The problem with something like covered calls, or at least the problem I was alluding to, is that you are betting against rare events (assuming you sell calls far out of the money). So depending on just how you're doing it can be basically impossible to determine empirically whether you have a winning strategy or have just not had your share of bad luck yet. (I would prefer to use the term '+EV' or "-EV" but nobody uses those.)

That was the Taleb argument anyway. But I do believe it is possible to have a profitable (meaning actually +EV) strategy with any sort of financial instrument if the transaction costs are not too high.

[Hardartery]

Selling covered calls sounds like the notorious trap that Taleb wrote about in his early book. But I'm sure there's a profitable way to do it.

I have not lost money, but I have learned some things by playing with it. It is, at least as far as I can tell, the least risky use of options trading. The "Penny" stocks (Anything under $5 a share for the uninitiated) are dangerous, and it does require some capital to play the game. But can pay off quite well if you don't get greedy.

I have had a few scores, like SKT at $5 on market slide. It pays dividends and is worth more than triple that now.

The problem with something like covered calls, or at least the problem I was alluding to, is that you are betting against rare events (assuming you sell calls far out of the money). So depending on just how you're doing it can be basically impossible to determine empirically whether you have a winning strategy or have just not had your share of bad luck yet. (I would prefer to use the term '+EV' or "-EV" but nobody uses those.)

That was the Taleb argument anyway. But I do believe it is possible to have a profitable (meaning actually +EV) strategy with any sort of financial instrument if the transaction costs are not too high.

I do not sell way out of the money, sometimes the call is actually in the money when I sell it. As an example, I bought 100 shares of GOSS today, at $10 a share. I immediately sold a call with a $10 strike for December, and got $4.07 for it. So, I am actually hoping that it assigns. I have my profit and I really don't care if that stock goes to $20 a share. I want it to be at least $10 by the assign date and cash me out with my initial investment and I have a generous profit. The only problem I have run into is if the stock drops too much and I have to continue to sell less lucrative calls to recoup all of my initial investment, which can always happen and is a bigger risk on the cheap stocks.
I should note, I typically don't like monthly calls, I prefer the flexibility of a stock with weekly calls. And I also have some longer term strategies planned like GLW. It's stable as a company and doesn't pay the same premium, but it's steady and pays a dividend so it makes more sense to sell at a slightly higher strike and just keep selling forever.

[dw]

Selling covered calls sounds like the notorious trap that Taleb wrote about in his early book. But I'm sure there's a profitable way to do it.

I have not lost money, but I have learned some things by playing with it. It is, at least as far as I can tell, the least risky use of options trading. The "Penny" stocks (Anything under $5 a share for the uninitiated) are dangerous, and it does require some capital to play the game. But can pay off quite well if you don't get greedy.

I have had a few scores, like SKT at $5 on market slide. It pays dividends and is worth more than triple that now.

The problem with something like covered calls, or at least the problem I was alluding to, is that you are betting against rare events (assuming you sell calls far out of the money). So depending on just how you're doing it can be basically impossible to determine empirically whether you have a winning strategy or have just not had your share of bad luck yet. (I would prefer to use the term '+EV' or "-EV" but nobody uses those.)

That was the Taleb argument anyway. But I do believe it is possible to have a profitable (meaning actually +EV) strategy with any sort of financial instrument if the transaction costs are not too high.

I do not sell way out of the money, sometimes the call is actually in the money when I sell it. As an example, I bought 100 shares of GOSS today, at $10 a share. I immediately sold a call with a $10 strike for December, and got $4.07 for it. So, I am actually hoping that it assigns. I have my profit and I really don't care if that stock goes to $20 a share. I want it to be at least $10 by the assign date and cash me out with my initial investment and I have a generous profit. The only problem I have run into is if the stock drops too much and I have to continue to sell less lucrative calls to recoup all of my initial investment, which can always happen and is a bigger risk on the cheap stocks.
I should note, I typically don't like monthly calls, I prefer the flexibility of a stock with weekly calls. And I also have some longer term strategies planned like GLW. It's stable as a company and doesn't pay the same premium, but it's steady and pays a dividend so it makes more sense to sell at a slightly higher strike and just keep selling forever.

Just to point out the obvious, this is only a winning strategy if the calls are mispriced substantially enough to cover the transaction costs. If the market is accurately pricing the volatility of the underlying stocks then it has a losing expectation over time, even if those losses take a long time to materialize.

Not that I think it is impossible you are pricing the calls more accurately than the market. Just pointing out that you need to be doing so which believe it or not a lot of people dealing in options don't recognize.

[Hardartery]

Selling covered calls sounds like the notorious trap that Taleb wrote about in his early book. But I'm sure there's a profitable way to do it.

I have not lost money, but I have learned some things by playing with it. It is, at least as far as I can tell, the least risky use of options trading. The "Penny" stocks (Anything under $5 a share for the uninitiated) are dangerous, and it does require some capital to play the game. But can pay off quite well if you don't get greedy.

I have had a few scores, like SKT at $5 on market slide. It pays dividends and is worth more than triple that now.

The problem with something like covered calls, or at least the problem I was alluding to, is that you are betting against rare events (assuming you sell calls far out of the money). So depending on just how you're doing it can be basically impossible to determine empirically whether you have a winning strategy or have just not had your share of bad luck yet. (I would prefer to use the term '+EV' or "-EV" but nobody uses those.)

That was the Taleb argument anyway. But I do believe it is possible to have a profitable (meaning actually +EV) strategy with any sort of financial instrument if the transaction costs are not too high.

I do not sell way out of the money, sometimes the call is actually in the money when I sell it. As an example, I bought 100 shares of GOSS today, at $10 a share. I immediately sold a call with a $10 strike for December, and got $4.07 for it. So, I am actually hoping that it assigns. I have my profit and I really don't care if that stock goes to $20 a share. I want it to be at least $10 by the assign date and cash me out with my initial investment and I have a generous profit. The only problem I have run into is if the stock drops too much and I have to continue to sell less lucrative calls to recoup all of my initial investment, which can always happen and is a bigger risk on the cheap stocks.
I should note, I typically don't like monthly calls, I prefer the flexibility of a stock with weekly calls. And I also have some longer term strategies planned like GLW. It's stable as a company and doesn't pay the same premium, but it's steady and pays a dividend so it makes more sense to sell at a slightly higher strike and just keep selling forever.

Just to point out the obvious, this is only a winning strategy if the calls are mispriced substantially enough to cover the transaction costs. If the market is accurately pricing the volatility of the underlying stocks then it has a losing expectation over time, even if those losses take a long time to materialize.

Not that I think it is impossible you are pricing the calls more accurately than the market. Just pointing out that you need to be doing so which believe it or not a lot of people dealing in options don't recognize.

The transaction cost is 65 cents, which is essentially a non factor against $407. The only danger is in the stock falling below my adjusted break even price before the expiration. Ideally, the stock assigns and is no longer my problem short term or long term. I have been doing the same thing with VERU recently, which also carries a ridiculous premium but has weekly options. It shot up yesterday or today virtually guaranteeing the options assign. The danger there is getting greedy and trying to buy back the option to sell a further out date and getting caught. Plus, the upside to that is usually not actually worth it. Better to let it assign and start over with something. It is very uncomplicated strateg. I don't play with any naked calls and so far have stayed away from Puts, although I am researching Puts to maybe make some low risk plays with them.

[aurelius]

A lot of smart people try to game the stock market. Very few outperform the market in the long run. Those that do so cheat to do it. Unless you are one of the 'too big to fail' cheaters that manipulate the market, I just don't see the point.

Think of it this way. All of us (except for the cheaters) are using the same published information to make our decisions. And everyone gets that information at the same time. No one has an information advantage. Someone has to believe they are just smarter than everyone else. Maybe they are?

Over the long-term, I think shrewd investors can outperform the market. In the short-term? It looks too much like gambling for me.

*Had a friend that worked for Goldman Sachs out of college. Goldman took a position against a stock and then had their brokers push the stock onto their lower tier clients (read average Joes). Goldman made a killing and the lower tier clients lost money. He no longer works there.

[Skid]

I made a small fortune investing in the stock market and bitcoin. Too bad I started with a large fortune

[quikky]

I invest in index funds. I will always slightly underperform the market. Has worked well for me so far.

[omaniphil]

I invest in index funds. I will always slightly underperform the market. Has worked well for me so far.

+1. Had an actively managed fund a few years, but figured the slight lower performance of index funds would outweigh the 1.5% annual fee charged by the fund.

Investing seems like black magic to me, and so I try to do the simplest thing possible by focusing on index funds

Even with index funds, feel like it is worth while diversifying. I have all Vanguard index funds with a breakdown approximately of
1) 50% all stock market index
2) 20% bonds
3) 10% foreign
4) 10%small cap
5) 10% emerging market

[dw]

A lot of smart people try to game the stock market. Very few outperform the market in the long run. Those that do so cheat to do it. Unless you are one of the 'too big to fail' cheaters that manipulate the market, I just don't see the point.

Think of it this way. All of us (except for the cheaters) are using the same published information to make our decisions. And everyone gets that information at the same time. No one has an information advantage. Someone has to believe they are just smarter than everyone else. Maybe they are?

Over the long-term, I think shrewd investors can outperform the market. In the short-term? It looks too much like gambling for me.

*Had a friend that worked for Goldman Sachs out of college. Goldman took a position against a stock and then had their brokers push the stock onto their lower tier clients (read average Joes). Goldman made a killing and the lower tier clients lost money. He no longer works there.

The bolded is slightly overstated. There are some firms that have shown very statistically significant profits using proprietary strategies and have not seriously been accused of insider trading. Renaissance Technologies is one of the most prominent.

More generally the problem with stricter versions of the EMH is there are many markets less liquid than the stock market that people have convincingly* beaten. The early options market before accurate pricing models were widely known, the CDO market (see The Big Short), used cars, sports memorabilia, storage units. I see no reason why the liquidity and competitiveness of the US stock market should make it categorically different. Just harder to beat.

And in case it sounds like I'm referring to myself I only have index funds and have never actively traded.

*If the response to this is "they just got lucky" I'm not interested in pursuing it.

[Hardartery]

A lot of smart people try to game the stock market. Very few outperform the market in the long run. Those that do so cheat to do it. Unless you are one of the 'too big to fail' cheaters that manipulate the market, I just don't see the point.

Think of it this way. All of us (except for the cheaters) are using the same published information to make our decisions. And everyone gets that information at the same time. No one has an information advantage. Someone has to believe they are just smarter than everyone else. Maybe they are?

Over the long-term, I think shrewd investors can outperform the market. In the short-term? It looks too much like gambling for me.

*Had a friend that worked for Goldman Sachs out of college. Goldman took a position against a stock and then had their brokers push the stock onto their lower tier clients (read average Joes). Goldman made a killing and the lower tier clients lost money. He no longer works there.

I read The Intelligent Investor, and I am not interested in some sort of "Gaming the Market" discussion. I have my funds on Vanguard, which is a pretty good place to have funds in spite of how poorly they have performed the last two years (Most of them, there are actually one or two that have done okay). However, there is literally too much to look at as one person. But a groupd discussion means different people analyzing different stocks to identify better opportunities. The big money makes mistakes, compounded by the use of automatic triggers in their trading algorithms. For example, FNKO announced a bad NET profit last quater and the stock dropped by almost 60%. An actual read of what was going on would reveal that they spent a bunch of profit on relocating to a new facility and upgrading the infrastructure. They also paid to move the employees to the new place. The GROSS sales were a record for them and it really was an intelligent use of funds by a seemingly astute management which will pay off down the road. So, buyint in a $8 2 days ago after the market reaction would put you in a good place today as the stock is already up around $11 and likely will go back to at least $20 in the next 6 months. There are opportunities like that, but one guy can't watch everything. Strength in numbers.

Also, my options trading is centred around taking advantage of irrational sentiment or exuberance based on something not public. I am deeply suspicious that some options carry a premium because somebody has inside information and it's impacting the pricing. Other stocks though are clearly the Wall Street Bets crowd or similar, but I'm fine with taking their money too. An example of this would be BBW or TSLA. Long term these are terrible stocks, short term they are fantastic. I have bought and sold TSLA until the profits have actually covered my initial investment and it's now pure gravy when I get out of that one, and I have a number in mind that gets me out. No magic, but everything requires a little luck.

[SnakePlissken]

Short term buying and selling makes me think of the Mark Twain quote that all you need to succeed in life is ignorance and confidence. I had a friend at an old job that got really sucked in by the GME deal and he kept talking about how AMC would moon eventually so he had put in almost 10k into AMC when it was about 5-8 bucks a share. Eventually it did moon and he made about 80k over 2 months because it actually did moon. For every 1 of him though, there's 100-1000 other kids that got burned on that deal.

[Hardartery]

Short term buying and selling makes me think of the Mark Twain quote that all you need to succeed in life is ignorance and confidence. I had a friend at an old job that got really sucked in by the GME deal and he kept talking about how AMC would moon eventually so he had put in almost 10k into AMC when it was about 5-8 bucks a share. Eventually it did moon and he made about 80k over 2 months because it actually did moon. For every 1 of him though, there's 100-1000 other kids that got burned on that deal.

I made a little on GME, and I did well on AMC. I did not spend as much as your friend though because to me that was essentially gambling and I am somewhat risk averse. I won't trade AMC at all now for a couple of reasons, but time frame definitely seems to matter. My long term stuff is in Vanguard mostly in funds. Unfortunately, my individual stock holdings are substantially out performing the funds right now, but I am banking on the long term being in favour of the funds. I hope so anyway. The other trading is in Fidelity, for several reasons. I have some funds there too, and they honestly seem to be doing a little better than the Vanguard stuff overall but still less than individual stock holding in the short term. I seriously doubt that will continue long term, in spite of howcarefully I have chosen most of the individual stocks.

[aurelius]

The bolded is slightly overstated. There are some firms that have shown very statistically significant profits using proprietary strategies and have not seriously been accused of insider trading. Renaissance Technologies is one of the most prominent.

More generally the problem with stricter versions of the EMH is there are many markets less liquid than the stock market that people have convincingly* beaten. The early options market before accurate pricing models were widely known, the CDO market (see The Big Short), used cars, sports memorabilia, storage units. I see no reason why the liquidity and competitiveness of the US stock market should make it categorically different. Just harder to beat.

And in case it sounds like I'm referring to myself I only have index funds and have never actively traded.

*If the response to this is "they just got lucky" I'm not interested in pursuing it.

Take baseball and the moneyball revolution. Advanced statistics gave one or two teams an advantage for a short period. Then every team adopted advanced statistics and now no one has an advantage other than the established few teams that can outspend the others.

In the short term someone may gain an information advantage. Longterm that evens out. Are there investment firms that have shown the ability to maintain a competitive advantage? Yes. I just don’t think the average Joe investor can.

@Hardartery You clearly know much more about the markets than I ever well and are apparently have great success. Whatever you are doing seems to be working!

What I wrote was not directed at you but my general thoughts on stock market investing. I am expected to be an expert in my field at my career. I don’t also have the time to do the research to compete against investment experts. I don’t think most people do. So all my money is in funds and indexes. I don’t need a yacht! I just want to retire someday.

[quikky]

Are there investment firms that have shown the ability to maintain a competitive advantage? Yes. I just don’t think the average Joe investor can.

And the big problem for Joe investor is trying to identify which firms will continue having an advantage. As they officially say: past performance does not guarantee future results.

For the average guy, I think not making bad bets is far more important than making good ones. Hard to argue against index funds, as you'll never really underperform, and will never lag the market to any real degree due to the compounded effect of high costs as index funds' costs are minimal.

As you've said, most people don't need a yacht, they need some liquid net worth so they can retire at their desired age and expense level.

[5hout]

For the average guy, I think not making bad bets is far more important than making good ones. Hard to argue against index funds, as you'll never really underperform, and will never lag the market to any real degree due to the compounded effect of high costs as index funds' costs are minimal.

I think the single biggest advantage to many index funds or Vanguard-style funds is simply the benefit for low fees. The comparison, for the avg joe, isn't "highly intelligent stock picks vs index" it's "index funds vs mutual funds". Medium or high fee mutual funds absolutely fuck your long term growth, except during the best long bull market runs. If the market is flat (or god forbid, going down), 1% or more fees just utterly destroy your gains for years on years.

I'm not opposed to targeted lower fee ETFs/low fee sector funds (or even individual stock picks), but you cannot tolerate high expense funds in a flat or recessionary economy.