patrick.net

I came to the conclusion long ago that it is a waste of energy to get angry or frustrated at shit I can't control. Actions of the federal reserve fall well within that realm. Therefore I might as well make the best of it and trade profitably against the coming storm.

Mish, and many others think that the dollar will increase in purchasing power...most likely for many years before any dollar erosion happens. I am putting the vast majority of my modest savings into low-risk wealth sustaining products, sprinkled with a few hi-leverage controling derivatives bets. I plan on moving my speculative cash (about a third of my portfolio) into super aggressive bets slowly over the next two to three years.

Suggestions for the portrait on the $1M bill?

P-Diddy

CBOEtrader says

I plan on moving my speculative cash (about a third of my portfolio) into super aggressive bets slowly over the next two to three years.

That's a tricky business, because it's not likely to be predictable. On the one hand equities might end up an inflation hedge, in fact it could account for how high the market is now. But on the other hand, what if interest rates shoot up ? Most people assume they will, if inflation kicks in.
You end up with a opposing forces.

Just like with real estate, in the long run a good inflation hedge, but in the short run interest rates can take things the other way.

Just thinking about it makes me want to accumulate some "dry powder."

marcus says

what if interest rates shoot up ?

I was planning on buying some puts on treasuries as part of my derivatives package. Selling treasuries could work just as well there, but only if the dollars made in the trade retain some value. Buying gold calls would solve this problem as long as it is in a physically delivered product, not the GLD. Another issue there would be the US government outlawing gold ownership--thus calls in commodity companies is another potential bet.

It is a very tricky gig. I feel like we are in the eye of a storm, the second half of which should be far more extreme that the first. Anything can happen. My plan is to try to keep my finger on the pulse of market, wait for tremors, then place large bets that a few likely extreme (though opposite) events will happen.

I have been doing some research on the leveraged ETF's, such as FAZ. Since these products recenter their starting point daily, a market run in one direction creates an enormously magnified fat tail potential. This is associated with the leveraged etf "decay" effect. As the market moves up, the 3X short moves down 3 times as much and then recenters. As the market moves down the next day (to the same starting place as the day before), the 3x short will move up, but since it is starting from a lower point it doesn't quite reach its initial starting point from the previous day. It works the same for any leveraged etf, not just the shorts--therefore they are said to "decay" in a vacillating market. However, they also snowball in a trending market. A few calls in products like these would make a fortune in a multi-month market crash--but it very much depends on how the market moves to where it is, as opposed to normal options in which it only matter where the underlying ends up on expiration.

Interesting about FAZ. I sometimes miss my trader days. I was at one time a floor trader ( both the CBOE (oex) and bond options next door at the CBOT ). It's still in my blood, and small hobby.

I am going to look into FAZ. If it hss options like behavior, then that would allow for some pretty interesting albeit convoluted strategies with the FAZ options.

Maybe the opportunity will be in a sort of "spread," such as if commodities shoots up and bonds haven't dropped yet, or something along those lines. The cynic in me fears that it will be something so dramatic that the market freezes, the government steps in and then when things reopen, or get back to liquid conditions, it's a whole new game.

But if you are on the floor, then those illiquid conditions might be interesting for you.

Marcus, there's a high chance that we know each other. I spent years in the oex, as well as a short time across the street in the 5 year options pit.

At the very least we have spent a lot of time in the same places.

Get a room, you two! :)

Nomograph says

jkingeek says

Suggestions for the portrait on the $1M bill?

CBOEtrader says

P-Diddy

Forrest Gump

Betty White