Stocks and Trading Thread - Channeling your inner Mono

[alfred russel]

I agree, but there are a few cases derivatives can be thought of as investments.

Maybe the most generic example is corn. Farmers need to have some certainty that they can make a profit before they invest in growing a crop, so they want to lock in a future price. Buyers (especially end consumers) have less need and desire to lock in a price. So excess demand for futures exists among the farmers, which should depress the futures price. In this type of case, a person selling the futures (to the farmers) can think of it as an investment.

(at least in the past, there have been some studies indicating that for agricultural products the markets functioned in this way)

[Monoriu]

Options do have advantanges. 

- it requires very small amounts of capital, usually much smaller than buying stocks.
- the potential gains can be very large, relative to the starting capital. 
- it is quick.  Options can be paid out in months, weeks, and days.
- for retail investors, it is usually difficult to find a way to profit from a falling market.  Options and futures enable us to do so.

A lot of people who cannot afford to buy stocks turn to options.  To buy a single lot of shares of the largest developer in Hong Kong costs more than US$12k.  That's more than a lot of people can afford.  But only a few hundred US$ is needed to buy an option contract on the same company. 

[DGuller]

I agree, but there are a few cases derivatives can be thought of as investments.

Maybe the most generic example is corn. Farmers need to have some certainty that they can make a profit before they invest in growing a crop, so they want to lock in a future price. Buyers (especially end consumers) have less need and desire to lock in a price. So excess demand for futures exists among the farmers, which should depress the futures price. In this type of case, a person selling the futures (to the farmers) can think of it as an investment.

(at least in the past, there have been some studies indicating that for agricultural products the markets functioned in this way)

I would argue that in this case, you're not investing, you're market-making.  In theory this shouldn't even be possible, but practice is less liquid than theory.

[Monoriu]

The learning curve on options is steep.  I took a whole course on derivatives in university, but when I read the options tables in the newspapers I am completely bewildered.  Terms like implied volatility etc are very difficult to understand in the first place, and I personally don't understand their implications.  It'll take a huge effort on my part before I'll begin to get the mechanism on how options work in practice. 

[alfred russel]

I would argue that in this case, you're not investing, you're market-making.  In theory this shouldn't even be possible, but practice is less liquid than theory.

Wouldn't putting your capital to work in a market-making enterprise be an investment?

[DGuller]

I would argue that in this case, you're not investing, you're market-making.  In theory this shouldn't even be possible, but practice is less liquid than theory.

Wouldn't putting your capital to work in a market-making enterprise be an investment?

I guess it is investing, but in a somewhat different category.  I view market-making as closer to arbitrage, a guaranteed profit from market inefficiency rather than a calculated risk.  It's not something that can be done by any Joe off the street.

[alfred russel]

I guess it is investing, but in a somewhat different category.  I view market-making as closer to arbitrage, a guaranteed profit from market inefficiency rather than a calculated risk.  It's not something that can be done by any Joe off the street.

There is still a high risk. If there is a rational expectation that the orange crop will sell at $100 a box, the agricultural community may have to lock in a futures price at $95 because few people have an incentive to sell them the futures without an expectation of profit. But just because you sell a bunch of futures that have an expected gain doesn't mean that you won't lose a fortune if there is a bumper harvest and the price goes to $30 a box.

[Tamas]

Mehhers. I have opened my trading account, will transfer the money today, but crap: my original plan was that I would start with small amounts per share (fund), like 1k$. however, the minimum fee for american exchanges is 20 bucks, so that would be a 2% loss just by buying the stuff 

Will probably end up doubling that amount, but then I will postpone the buying of the cross-market fund (that seems to be a less than sure bet right now anyways) and concentrate on the high risk stuff.

I know that gold is more than risky now, but as I said, I want it as a tool to bet on / defend against the weakening of the dollar. Question is, what should be the other pair, something to fly with an optimistic economy. Some general emerging market ETF is what I am thinking. 

[alfred russel]

Mehhers. I have opened my trading account, will transfer the money today, but crap: my original plan was that I would start with small amounts per share (fund), like 1k$. however, the minimum fee for american exchanges is 20 bucks, so that would be a 2% loss just by buying the stuff 

Will probably end up doubling that amount, but then I will postpone the buying of the cross-market fund (that seems to be a less than sure bet right now anyways) and concentrate on the high risk stuff.

I know that gold is more than risky now, but as I said, I want it as a tool to bet on / defend against the weakening of the dollar. Question is, what should be the other pair, something to fly with an optimistic economy. Some general emerging market ETF is what I am thinking. 

Emerging market ETFs on american exchanges sounds like the way to go. Pay 1%-2% of your investment in fees to a foreign bank every time you make a move, for the priviledge of investing in your own economy.

[Tamas]

Mehhers. I have opened my trading account, will transfer the money today, but crap: my original plan was that I would start with small amounts per share (fund), like 1k$. however, the minimum fee for american exchanges is 20 bucks, so that would be a 2% loss just by buying the stuff 

Will probably end up doubling that amount, but then I will postpone the buying of the cross-market fund (that seems to be a less than sure bet right now anyways) and concentrate on the high risk stuff.

I know that gold is more than risky now, but as I said, I want it as a tool to bet on / defend against the weakening of the dollar. Question is, what should be the other pair, something to fly with an optimistic economy. Some general emerging market ETF is what I am thinking. 

Emerging market ETFs on american exchanges sounds like the way to go. Pay 1%-2% of your investment in fees to a foreign bank every time you make a move, for the priviledge of investing in your own economy.

its more complicated than that

there are emerging markets with potential, unlike Hungary

[Tamas]

http://www.thestreet.com/story/10676708/1/old-guard-etfs-hemorrhaging.html

Comment on the stuff in there plz.

edit: I wonder if the QQQQ and similar "oldies" are indeed such dead dogs.

[MadImmortalMan]

Short cover rally today. I took the opportunity to close a bunch of my positions and put my cash on the sideline.

[The Minsky Moment]

http://www.thestreet.com/story/10676708/1/old-guard-etfs-hemorrhaging.html

Comment on the stuff in there plz.

edit: I wonder if the QQQQ and similar "oldies" are indeed such dead dogs.

SPY's problem is that IVV does the same thing, and has a lower expense ratio.  SPY recently improved its ratio and they are now about even but IVV has the momentum. 

QQQQ is IMO rather silly; it enjoyed favor in the dotcom era as a way to speculate on fashionable tech stocks, but I can't think of a legit portfolio purpose for it now.  For a US passive ETF, the expense ratio is a bit high.

[Monoriu]

If I look for an ETF, I'll want these things -

- low expenses
- liquidity, i.e. I can get in and out easily
- the dividends are distributed to me
- that the fund invests passively, i.e. closely tracks established indices instead of trying to beat the market
- low minimum investment threshold
- operated by gigantic firms (too big to fail)

[Tamas]

What is the general take on India's economy?

The couple of opinions I have read on it seem to think that they weren't really affected by the depression, and they have a very domestic economy (do they?).

The two related ETFs did quite well last year, so maybe it is crazy but they seem to be a good "buy and forget" kind of investment.