Investment ideas

[techynt]

I am planning to use this investment plan. Normally I would have done 50% bond and 50% stocks since I feel like stock market/economy may be getting closer to top.


But I am thinking of using only margin for stock positions and invest all the cash in bonds.


I am thinking about 15% in six months treasury, 25% in short term treasuries, less than 1.5 years expiry.
And the rest in investment grade corp bond. For corp bond, I am using LQD which is a diversified corp bond, with diverse expiry, yields around 3.5%. I am able to sell covered call against this to generate another 1.5% extra yield.


Then use the margin to take synthetic long positions. Say for example, synthetic covered call for apple will be something like, buy call, sell put, say strike 200, Jun 2020, and sell a covered call of strike 230.


this strategy can increase our yield by 2.5-3%.


I am not planning to use 100% or the margin buying power, to take positions, I will keep around 20% balance, just in case market becomes very volatile or some of my stocks go down more than 10% (upto 10% down will be taken care by the covered call)


I am not able to figure out where exactly is my risk being increased due to this leveraged investment plan?

[wd40]

I think the risk of synthetic long v/s long stock is same. Synthetic long you lose about 1% on the difference between the call and the put price and you also lose out on the dividends I guess.

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[plansup]

I am wondering whats your opinion about assets-backed crowdfunding investments. I have put in around 10% of my net-worth and they are yielding me 8-10%. There would be some risk of course but so far payments have been very regular. I am using peerstreet and yieldstreet.

[greyfri]

I am wondering whats your opinion about assets-backed crowdfunding investments. I have put in around 10% of my net-worth and they are yielding me 8-10%. There would be some risk of course but so far payments have been very regular. I am using peerstreet and yieldstreet.

My general opinion is that the market is very efficient for the most part and I am skeptical of my ability to find excess return.

I put around 98% of my portfolio in standard asset allocation with boring index funds and low cost treasuries and bond funds.

With the remaining 2.5%, anything goes :). But not more than 2.5%. And 2.5% isn't going to make a difference to my lifesysle, so it's mostly as an exercise.

Back in 2008, a lot of these private investments (many in RE) lost out badly.

[techynt]

I am planning to use this investment plan. Normally I would have done 50% bond and 50% stocks since I feel like stock market/economy may be getting closer to top.

But I am thinking of using only margin for stock positions and invest all the cash in bonds.

I am thinking about 15% in six months treasury, 25% in short term treasuries, less than 1.5 years expiry.
And the rest in investment grade corp bond. For corp bond, I am using LQD which is a diversified corp bond, with diverse expiry, yields around 3.5%. I am able to sell covered call against this to generate another 1.5% extra yield.

Then use the margin to take synthetic long positions. Say for example, synthetic covered call for apple will be something like, buy call, sell put, say strike 200, Jun 2020, and sell a covered call of strike 230.

this strategy can increase our yield by 2.5-3%.

I am not planning to use 100% or the margin buying power, to take positions, I will keep around 20% balance, just in case market becomes very volatile or some of my stocks go down more than 10% (upto 10% down will be taken care by the covered call)

I am not able to figure out where exactly is my risk being increased due to this leveraged investment plan?

Same question is posted on Fidelity and someone raised some risk flags and my reply to that is below:
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You are right, I did some analysis and turns out in 2008 like scenario, my account may face complete wipe out since LQD will also lose a lot of value due to the credit risk on corporations (I am beginning to wonder if LQD is worth the risk or I can simply go and buy bonds of solid cash rich companies like Apple, Microsoft etc,,, I would hate to be a buyer of bonds of financial companies since those are leveraged very high due to the very nature of their business, and have tendency of losing 50% or more in bad times).

So in 2008 like scenario, not only LQD will be danger but option margins can quadruple when my stocks fall by 30% or more.

I am thinking of not being too greedy and invest only around 40% in LQD and the rest in UST of expiry less than 2 years. This way, at least my bond investment will stay safe in a bad event.

My plan for the extreme margin requirement during a bad event, was to slowly sell my bonds(since they would not go down but maybe slightly up when stocks go down) and make the cash available for margin or to just buy the underlying stocks and wait it out.

I think I will make sure that my position is such that my synthetic stock ownership never exceeds 80% of my account, that will make sure I can stay in the game even in extreme conditions.

Synthetic stock position: buy call and sell put of same strike, this gives you position in 100 stocks, your position is completely funded by margin requirement, plus a small amount for the dividend difference in put price to call price.
Synthetic Long Stock Explained | Online Option Trading Guide

The danger of synthetic positions is, you can easily take 3 times the position in stocks compared to if you were just using cash to buy the stocks.

There is no interest on margin since you are just using your bond investment as collateral and most of your trades cost very little cash since the credit from the put pays for most of the call price. In my case, I always sell a covered call, which means I always end up with credit for every account.

[greyfri]

This is somewhat similar to what the PIMCO StockPlus fund does, I think. They use futures, and they use the whole S&P rather than specific stocks to get the return of the index. Then, they use the remaining cash to pick a bond portfolio that they think will outperform Treasuries. If the fund bought Treasuries, return would be almost exactly equal to the index minus transaction costs, but by using PIMCO's bond expertise to get a 'better' return than Treasuries, they hope to beat the index.

[SSGHere]

Did you backtest your idea?
You can get $$ for your idea via Security Based landing.

[techynt]

Did you backtest your idea?
You can get $$ for your idea via Security Based landing.

Sorry didn’t understand, can you please elaborate?

[techynt]

Hi guys, I got caught again on the wrong foot on TSLA yesterday. I shorted Jan 2020 300 PUT for $59 while the stock price was around 311. Now I am looking a MTM loss of $1k. I can make it a cash secured PUT and ride it for 1.5 years. But would like to know your opinions. I believe Desi, you mentioned you have some 300 shares still? You must be thanking your stars that you had that covered call at 320 right? :) What is your game plan now with the remaining shares? My effective price now is 241 considering the premium. I understand with TSLA anything can happen and it could become bankrupt over a weekend and my loss could be the maximum $24k. It is about 4% of my networth. Sizable but it won't drown me.

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I think its time you stayed away from that day trading thread itself :)

If I had the same position and have realized that TSLA can easily tank below 200 if things looks messed up with Elon Musk. But its quite possible that even if TSLA went bankrupt someone will buy it at $50/share+debt, due to their brand and technology. So I would convert my 300 strike put into 50 strike puts($370 premium), say around 4 of them, so that your max loss after premium should not be more than 18k in case TSLA goes to Zero.

If possible do all trade of buying 300 put and selling 4, 50 puts in one go if possible. In any case you should do all trades on same hour by aggressive bidding.

[wd40]

I think its time you stayed away from that day trading thread itself :)

If I had the same position and have realized that TSLA can easily tank below 200 if things looks messed up with Elon Musk. But its quite possible that even if TSLA went bankrupt someone will buy it at $50/share+debt, due to their brand and technology. So I would convert my 300 strike put into 50 strike puts($370 premium), say around 4 of them, so that your max loss after premium should not be more than 18k in case TSLA goes to Zero.

If possible do all trade of buying 300 put and selling 4, 50 puts in one go if possible. In any case you should do all trades on same hour by aggressive bidding.

Thanks! Really appreciate your reply.
However, I think if I was afraid that the price could tank below 200, then wouldnt it make more sense to wait until the stock price drops to 200 and then buy those 50 puts, because then the premium on those puts would shoot up.

If I close my 300 PUT, then I am done with this trade and anything else will be a new trade with a new perspective.

I somehow feel all this is somehow staged. How can Elon Musk go and do so many self goals. 1st the tweet and then that interview with NYT, which he himself gave. It just doesnt make sense. Everyone knows how Elon Musk is, nothing from that article was new stuff, the sell off just doesnt make sense, was it new shorts or weak longs unwinding? What about the take private talks and why is the board so quiet and the media is coming out with all kinds of smear campaign on Elon Musk. I just cant believe it.