patrick.net

DinOR,

I did something similar, but with the big tanking telecoms that were ripe for consolidation. But I was very much an industry insider at the time, so I'm not sure how speculative that actually was, looking back on it.

Peter,
I definitely think it is useful. It is actually a pretty decent way of looking at the factors that should affect option pricing. But I think it can also lead to systematic mispricing in some cases.

Real Estate Expo in SFO at end of August. Anyone ?

You don't want to miss Al Gore and George Foreman teaching about RE, do you ?

But I think it can also lead to systematic mispricing in some cases.

Just make sure you have the "right" volatility input. If you do, you will have the "right" price. ;)

In practice, this is very difficult because volatility changes across strikes, time, and underlying price.

DinOR,

I have a few bucks set aside as "mad money" for purely speculative purposes. I can afford to lose it all if my strategy backfires (though of course, I would prefer not to). These kinds of investments are the most fun. (Especially with DHI up over 5% today--go baby go!) Gambling, pure and simple. I don't pretend it is anything else.

You don’t want to miss Al Gore and George Foreman teaching about RE, do you ?

Huh? Does grilling food contribute to global warming?

The next thing they usually learn is “don’t ever be short naked options, it’s too risky.”

However, one can be tempted into writing too many contracts of Far OTM options. When the market makes the "wrong" move, the margin requirement can escalate very quickly.

Conor,
You are right... I have a lot to learn. Which is why I am very cautious about the amount of money I put into options. (More like a trip to Vegas than a deposit on a house.) And I know enough to know what my downside is on any particular trade.

I guess what I am saying is that I'm not sure that things like historical volatilty should matter so much. It is really just technical analysis dressed up in scientific clothing. Historical volatility tells you very little about future volatility, IMO.

There are so many non-quantifiable factors that go into investing. Sometimes you just need to sit down and figure out what you think a stock is worth, then hope the market agrees with you before your LEAPS expire.

Your sarcasm’s often funny, but I don’t find any humor in your racial comments.

How is that a racial comment? It has some truth to it.

Ok, ok. This runup is ridiculous. Nothing goes up 7% a day on no news. Plus, Conor is scaring me about my ignorance. I sold my DHI LEAPS. Maybe I'll buy them back later.

I know, I know. I'm a filthy daytrader!

I guess what I am saying is that I’m not sure that things like historical volatilty should matter so much. It is really just technical analysis dressed up in scientific clothing. Historical volatility tells you very little about future volatility, IMO.

That is an important realization. ;)

Volatility itself can be more volatile than price. However, it has been said that volatility tends to be more range-bound than pirce.

Not investment advice

Randy H,

For years we've been told:

Food, Clothing, Shelter (and I agree). Along about the 1970's I believe we added Transportation as a necessity of life. I'd like to add Communications (if we haven't already). People's need to communicate is going to diminish just b/c World Con is tanking. (But it doesn't hurt to be an insider).

Glen,

We don't so much daytrade to make money but to mitigate risk. (At least I do).

Why would you need to daytrade to mitigate risk? Couldn't you just buy an index fund and some protective puts and call it a year?

Glen,

You sure could. And many do. One thing I've found over the years is that when you have a long term position in a portfolio that has done well after no time at all we begin to take this performance for granted. By trading a shorter term position with a higher cost basis it really holds your feet to the fire. You ARE interested in every aspect of the company! Think of all the guys (intitutional or otherwise) that considered say Lucent their primary growth engine? By the time they took an active interest in what was going on at the company it was all over. Nothing motivates me like having an "active" stake. For me it's all about entry points. From what you've described you watch these closely as well.

There are a lot of condos being built in Cupertino. I do not know how it will affect the SFH market. We will see.

It will be interesting to see how the new "poorer" condo purhcasers and their kids affect the touted Crapatino schools. I'll be the SFR owners are not all that happy with this.

It will be interesting to see how the new “poorer” condo purhcasers and their kids affect the touted Crapatino schools. I’ll be the SFR owners are not all that happy with this.

Well, "poorer" condo purhcasers are still better than jealous bitter renters, right? ;)

"Keep your stinking kids off our school you damn dirty renter."

TN,

A bit sloppy on my part, but I lump in 0-3 month swing traders in with daytraders.

I agree that "day-traders" are more than just those who close out their position every day. My own definition is even a bit sloppier than yours. For me whether one is a daytrader depends upon their intent, discipline, and knowledge of their chosen strategy.

For example, a true daytrader scalper who just sits there all day playing twitch on spreads is one extreme. The mutual fund trader is the other. But somewhere in between you have private, semi-private, family, investment circle, and upstart hedge fund types who may fall into either group depending. There are hedge fund traders who are not better than a 3/5 swing trader, only with more money for protective puts/calls. There are individuals investing for themselves and their families who are more knowledgeable, more disciplined and more successful than some reckless hedge funds.

“Keep your stinking kids off our school you damn dirty renter.”

:lol: When I read that, I heard it in Charlton Heston's voice.

Conor,

I bought the LEAPS because I was reasonably confident that DHI would not fall much further than $20 and that there was a reasonably good chance that DHI would be above $30 at some point in the next 2.5 years.
I was willing to wait the 2.5 years, if necessary. And I was willing to lose 100% of my investment if I was wrong. (Note to other micro-investors: I'm pretty sure you can deduct up to $3K in capital losses to offset ordinary income. So if you lose out on a small bet on options, your after tax losses should be less than your pre-tax loss. To some extent you can time the market to take advantage of this by selling your loser LEAPs and holding your winners.)

I took profits because it is rare that I can make 25%, after expenses, in less than 2 weeks. But I'm still reasonably confident that the company will do well in the long term. If the stock drops back below my entry point ($20), I will seriously consider getting back into the LEAPS.

Overall, my investments have done fairly well relative to the market. The only reason I'm experimenting with options at all is that I am tired of my 100% long only portfolio of value stocks and I wanted to try to juice my returns a little by using a manageable amount of leverage. Options are really the only meaningful way I know of (other than homeownership, which is unappealing to me in the current market) for a little guy to get some serious leverage.

King_Cobra,

Great. Now serial refinancers can go almost indefintely without having to make a payment! I'm all for streamlining and implementing technology that makes sense but can you imagine how much "churn" a system like this can create? It's the equivelant of having your "Equity Liberator" tied to an ETrade account. With "margin pre-approval"!

King Cobra,

Interesting article. The NAR cartel is in jeopardy. I wish Redfin was a publicly traded company because I suspect that they will take massive market share from traditional brokers. RE brokers will go the way of the travel agents.

The new technology should eventually bring down the cost of buying a home. Once house listings are universally available online, buyers and sellers will have better information. And this availability of information may mean that the correction we are all waiting for could happen a lot quicker than previous downturns as buyers realize how many options they have in the current market and sellers are forced to lower prices in order to compete.

Glen,

I know I've mentioned these guys before but if you are interested in leverage Rydex Funds offers long and "inverse" funds that offer 2 to 1 leverage. This is especially nice for IRA's b/c they some how meet the IRC acid test. If you want to short the S+P 500, NASDAQ, Long Bond or even the Yankee Dollar they have something for you. When you get a chance check them out. www.rydexfunds.com.

*Not a paid endorsement/NIA

Bill C Says:

I’m Asian and I’ve never wanted to live in Cupertino and don’t even know where Monta Vista is. Your sarcasm’s often funny, but I don’t find any humor in your racial comments.

I am an Asian too. From India. All my Asian friends and me, live in Cupertino. All live there for the same reason. Schools. The difference is, I am the only renter.

There wasn't much humor in my comments anyways. It's actually sad. These are very bright engineers. I ask them - or used to ask them long time ago, not now - you pay 1M$ for what ? Elementary education for your kids. Where will you get money for their college ? Answer: The house will appreciate, as it has been all these years. Then I asked, what if it didn't ? That's it. They didn't really enjoy that discussion. I quickly realized to keep quiet, as I didn't want to loose friends. Now years later, I found this blog and I vent out here.

So it is sad but true. I did not imply ALL Asians to be desperate to live there. Not at all. But go to the open houses in Monta Vista. See the arrogance of RE agents, and notice the desperation of the mostly Asian buyers. (That HAS changed - very very recently.) Look up the sales history, appreciation and price per sqft change. You will realize what I am saying. We Asians put a lot of importance on good school education, all for good reasons IMO. Hey, that's why I rent in Cupertino. But saying it's worth the financial suicide, IMO is idiotic.

Where will you get money for their college ? Answer: The house will appreciate, as it has been all these years. Then I asked, what if it didn’t ? That’s it.

Then they will send out resume with Monta Vista High prominently listed as the primary achievement. Or perhaps there will be Voodoo student loans that take souls as the collateral?

We Asians put a lot of importance on good school education, all for good reasons IMO.

What is the point of a good high school?

One can always just go to a community college, transfer to a UC, and get a master degree from Stanford.

# skibum Says:

It will be interesting to see how the new “poorer” condo purhcasers and their kids affect the touted Crapatino schools. I’ll be the SFR owners are not all that happy with this.

Oh, the current residents don't like it a bit. Not even an insy winsy tiny bit. "The schools are going to get crowded. The SCHOOLS, damn it.". What is Cupertino if not the schools ? Take those away, and it's nothing special. What happens to their home prices, if school ratings don't remain where they are ?

I was surprised that the projects got the permissions. I remember the angry discussions in parties and offices, during and after the votes.

Welcome to Condotino.

I was surprised that the projects got the permissions. I remember the angry discussions in parties and offices, during and after the votes.

They can always vote to increase property tax to 3% if they worry about school crowding.

They can always vote to increase property tax to 3% if they worry about school crowding.

Awesome ! 3% of 1M every year ? I love it.

What is the point of a good high school?

One can always just go to a community college, transfer to a UC, and get a master degree from Stanford.

Excellent point. I have long questioned the Realtor "common wisdom" about buying into the best school district you can afford. Once you get out into the adult workforce, nobody gives a shit about where you went to high school. In fact, most of the time they don't even care where you got your degree from, unless you work in an academic, medical or research field. Employers primarily care about experience, skills and political connections --not necessarily in that order.

There is definitely value in buying a house in a safe school district, though. Especially if you don't want little Johnny joing the local chapter of MS-13 or getting knifed over his lunch money.

DinOR,

Thanks for the tip, but I'm not that bullish on the overall market. Just trying to pick my spots.

I have considered the Rydex funds and/or certain leveraged ETFs and closed end funds for my IRA. I like the idea of buying a leveraged international bond fund as a dollar crash hedge. I used to own AWF (leveraged international bond fund) for the high yield and dollar hedge, but I sold it last year. My problem with the Rydex funds is that the expense ratios are a little too high for my liking. Vanguard should come out with a low cost leveraged index fund.

Most of my money is in my IRA, so I can only buy LEAPs in my (small) taxable account. But I like using leverage only on carefully selected investments, not on the overall market (I might change my view if the S&P really tanks).

Yet another reason NOT to buy a house from a flipper:
http://www.msnbc.msn.com/id/14171265/

Asian parents seem to want their kids to become the perfect employees. So they want the right schools in the right field. However, in real life, doing the "right" thing will not get a person too far. A rat race is a rat race.

Unless you have a whole mess of kids, it is not worth paying a premium to send your kid to an elite public school. Even if you have a whole mess of kids, you could move to an elite school district in Texas much more cheaply than trying to buy in CA.

If your kid is motivated, s/he can get a good enough high school level education in most school districts.

HARM,

For elementary schools, I completely agree. I myself went to a crappy school for most of my education. No one cares about it, no one even knows about it.

The graduate school is another story. It has definitely helped me in being called for interviews. What happens afterwards is solely dependent on an individual. But an ivy league school does help to some extent.

Also, when it's a question of being part of a "network" - which is definitely needed for many jobs, the right grad school helps in "getting in".

These are all factors, neither necessary nor sufficient. They do have a perceived value, and definitely not worthless. Everyone puts a different importance to them.

Does anyone think that second-generation Asians will have different attitudes about education than their parents?

I live in a predominantly Asian community and to be honest, I am a little leery about sending my kids to school there. My kids seem smart, and I'm sure they'll do well. But I grew up with several Asian kids and was a little put off by their families' attitudes toward education. For example, my buddy James (from Vietnam) had exactly three career choices: doctor, accountant, or engineer. If he didn't actually want to go into one of those fields -- that was irrelevant. And I went to law school with a girl (Korean) whose dad didn't speak to her for six months after he learned that she hadn't gotten into Harvard law school. She said she had a roomate at Harvard (undergrad) whose father beat her every time she got less than an "A." Even in college! That seemed kind of harsh to me. I think the importance Asians place on education is great, I just think they often take it too far and turn school into a hellish pressure cooker situation.

The Asian communities near me have all of the usual stuff -- after-school "tutorial centers", SAT prep classes that begin in the 9th grade, etc.

But here's the thing -- the Asian communties near me are mostly populated by first-generation immigrants. They are basically importing the educational practices of their own country.

But my kids are quite young, and I suspect that by the time they start school, most of the kids will be the children of Asians (if our area is still predominantly Asian) who grew up and went to school here.

I am sure that Asians who were born here will continue to place a high value on education, just like any other highly educated person would. But I can't imagine anyone who was born and raised here doing the whole forced overachievement/cram school/freakish stress thing. My guess is that the schools will change when the second-generation kids arrive.

Joe,

I definitely hope so. The second generation will be different. This country offers such wade ranging endless opportunities, that one can actually do what s/he loves to do and still earn a decent living. Also, there is enough open mindedness in the society, that most people feel free to say, "I will do it my way".

doctor, accountant, or engineer

Why?

Doctors save people. This I understand. Engineer? I rather have my kids flipping condos. :)

StuckInBA,

I agree on the grad school, though it seems to matter most at the entry level (fresh out of college with no job experience). I think that was Peter P's & SQT's point as well: elementary & H.S., or even where you START college doesn't matter nearly as much as the college or university that inks your diploma. However, the importance of any college diploma tend to diminish gradually over with time, as job experience and connections tend to increase in importance.

Engineer? I rather have my kids flipping condos

Heh. Watch it there fella' ;-) .