SteveToan
December 13th, 2009, 01:52 PM
How to make money in the market? Never own a stock.
Like Woody Hayes said when asked why Ohio State seldom passed the ball ; “only three things can happen and two of them are bad”.
This is about how I feel about buying stock. The process of buying a stock requires the investor to reach into his pocket pull out money, risk that money, all on the hope that whatever the assumption they made is fulfilled. Whatever they bought has to go up to make money. It has to increase in value at a rate greater than what one could earn in a riskless cash transaction (t-bills).
Our belief is that the probability of making a consistent above average rate of return with low risk can be achieved by selling premium on underlying assets that have a definable risk, reward from the outset. Our decisions as to what positions we want to engage in are based on the fact that we get to use other people’s money in the hopes of keeping all or part of those funds. We know that historical data shows us statically that selling premium offers us an edge. Couple that with fact that our exercise strike price is usually more than 10% out of the money with a short time horizon and we believe we are really stacking the deck in our favor. Of course we have to make some assumption as to the directional potential of the underlying asset. That is the secret formula that finishes the process. This process put us in a position to make money if the underlying asset stays the same in price or moves up or down. We do not have to be right on a directional assumption, we just don’t have to be terribly wrong. And even if we are wrong our risk is defined or limited to less than traditional types of investments.
-- Steve
Like Woody Hayes said when asked why Ohio State seldom passed the ball ; “only three things can happen and two of them are bad”.
This is about how I feel about buying stock. The process of buying a stock requires the investor to reach into his pocket pull out money, risk that money, all on the hope that whatever the assumption they made is fulfilled. Whatever they bought has to go up to make money. It has to increase in value at a rate greater than what one could earn in a riskless cash transaction (t-bills).
Our belief is that the probability of making a consistent above average rate of return with low risk can be achieved by selling premium on underlying assets that have a definable risk, reward from the outset. Our decisions as to what positions we want to engage in are based on the fact that we get to use other people’s money in the hopes of keeping all or part of those funds. We know that historical data shows us statically that selling premium offers us an edge. Couple that with fact that our exercise strike price is usually more than 10% out of the money with a short time horizon and we believe we are really stacking the deck in our favor. Of course we have to make some assumption as to the directional potential of the underlying asset. That is the secret formula that finishes the process. This process put us in a position to make money if the underlying asset stays the same in price or moves up or down. We do not have to be right on a directional assumption, we just don’t have to be terribly wrong. And even if we are wrong our risk is defined or limited to less than traditional types of investments.
-- Steve