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Investing / Trading Thread
Have a bit of free time lately and finance/quant-related material studied. If anyone would like to know more about shares and options trading (the latter for generating relatively risk free income with defined risk or leverage) in their spare time, I'd be happy to help out.
I've quite a bit of experience trading options/volatility on the US exchanges as a hobby. For the longer term, shares/index funds.
I've quite a bit of experience trading options/volatility on the US exchanges as a hobby. For the longer term, shares/index funds.
1
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Hi, I hate to be that guy. (Kidding, I LOVE to be that guy), but don't do that.
(a) don't offer to give even generic financial advice to internet strangers. That's an excellent way to get into all sorts of trouble. Especially if you use phrases like "relatively risk free income". Double especially not on Achaea's forums, that's just dragging them into it; and
(b) as an individual playing with quant/volatility strategies, you are always, always, the dumb money at the table. You can make a profit for a while, sure. Even permanently if you're lucky enough but generally speaking (judged across all the people doing it) you're just giving money to hedge funds. I had another section on how index funds are fine (and NOTHING ELSE), but deleted it because that'd be breaking my own advice
(Background: fifteen years practicing financial services law).
Reporting in the hope of a lock. I'm well aware that you probably think I'm an asshole right now, but I've seen real people get in real trouble, so I'm being an asshole with good intentions.
You're probably right about these forums being inappropriate, given the thin line between education and an advisory role. I've had several people ask me about trading advice in Achaea over this year, so didn't see the harm in bringing a topic of interest here.
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I'm aware that law =/= trading, but most of my clients are traders of some kind or another, and you're a fairly shitty lawyer if you don't understand the area you practice in. I'm also aware that I'm never going to change your mind on (b). There is a massive industry dedicated to persuading non-professionals that they can profit, and there is a massive psychological incentive in believing that you are smart, and not lucky. I'm just a dickhead on the internet, I can't fight those things.
You are, though, very wrong. The system is, in a whole heap of ways, designed to screw people like you and reward institutions. Individuals playing the market are mugs. Sometimes, they're lucky mugs, but they are, nonetheless, mugs. You are entirely right that hedge funds are (generally) a bad investment, but you missed my point. My point is that hedge funds are great for THE PEOPLE WHO RUN HEDGE FUNDS. And it's those people that you're funding (the generic you, meaning the class of people like you, not you specifically as an individual) not, necessarily, the investors in hedge funds.
It's excellent that you know about alpha, beta, theta and all the other Greek guys, and it's great that you look at graphs with ratios in but there are guys employed by institutions who do that for a living, and can move quicker than you. Every time. There is no arbitrage you can spot, that hasn't already been spotted. There is a vanishingly small possibility that you do this better than whatever algorithm is playing against you, because you have a new view of the market or whatever. In which case, you would be well on your way to your first billion, instead of posting on the website of a roleplaying game.
I'm fairly evangelical about this, because, yes, people can make their own decisions, and you're very welcome to do what you want with your money. Encouraging other people to do the same though is not nice. It's no better, and in some ways it's worse, than encouraging people to play roulette. The house always wins.
The main point though was to drive home that you should never give (or be at risk of being seen to give) financial advice over the internet, and I'm glad that even if you ignore the rest, you might listen to that. It's important.
The broad generalization that you're "always" designed to lose money to bigger organizations just because you're smaller makes no sense, given that it's almost a zero sum game and massive organizations like Goldman Sachs have reported massive trading losses recently - that money goes somewhere.
Given your 15 years in the financial law industry, that would have seen you through the financial meltdown in 2008, where the banking institutions and quite a few hedge collapsed. You would have likely dealt with clients that lost their shirts and got burnt. I respect that. Though, if you understand what you're doing, that sort of meltdown is the sort of scenario "good" traders dream of and wait for years for to make incredible returns. I'd much rather have the power to do that than just sit on the sidelines.
Edit - I mostly short far OTM bull put spreads on indices in this bull market - defined risk/theta decay if it paints a clearer picture of what I'm doing.
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Thanks, that's a constructive reply. I don't think we're talking from opposite sides of the coin. I don't act for "bad" traders or investors at all, my clients are all blue-chip institutions. It's just that acting for them, and working in the industry for however long, has given me a very cynical (but, I think, accurate) view of how the market works. The market works for the people it's designed to work for, it doesn't work for day traders or people like them. It's not really that I'm questioning your education, it's more of a question of you believing that that education can be profitably put to work by trading. It can't. The people who make money (and again you understand that I'm talking on a market as a whole approach - obviously some day traders make money) are those who can implement that knowledge effectively. And that's speed, it's breadth of research, it's access to information. You lose out an all three.
There is no way in your position, none, to take a piece of information from an economic or other model and reliably apply it to the market to make money. That is a categorical misunderstanding of how the markets work.
Similarly, to address some of your other points, I agree this isn't a size issue. It's an issue of institutional/professional money, and the rest. You can be small and institutional/professional, but you probably can't be you-sized. You need resources, technology etc. and that costs money that I assume you aren't spending. And there are people much bigger, and richer than you who fall on the "bad" side of the divide. There are pension funds, and insurance companies with multi-billions to invest who get screwed all the time. Finally, when Goldman Sachs reports a loss, that doesn't mean the day traders win. You need to look at the market as a whole. Some institutions win, some institutions lose on an annual or whatever basis. But the institutions, as a class, always win. That's not you.
I'm also giggling at the 2008 reference. Here's the thing: none of my "clients" lost their shirts, if by "clients" you mean the executives who comprised my clients. Now THEIR clients (the pension funds, the insurance companies, the retail investors) they lost plenty. Most of MY clients? Walked away with all their money and spend all their time skiing and yachting. I've said it a million times to people I have to talk about this to: if you aren't incredibly angry about how that all played out, you aren't paying attention. And yes, market dislocation is a massive opportunity - that has nothing to do with my points, and actually reinforces them. You see yourself as part of the market - you aren't. You're fodder.
I'm glad you brought up the point that education doesn't necessarily lead to profitability either, that's a fallacy. Big, quantitative funds do lose from time to time too. Though, these funds usually take on larger risks to generate bigger profits. Information and technology are a must as well but standard platforms like ThinkOrSwim provide everything you could possibly need.
I'm aware of the financial mechanics/outcomes behind the 2008 collapse too, I'd be fuming mad if I had a stake in anything back then though the signs were pretty obvious. Big banks are probably the most evil organizations in the world and it's disgusting the way it was handled. They should have been broken up but unfortunately, big money connected to banks control politicians via lobbyists and ultimately, the USA/world and the general public is too powerless and likely always will be, to do anything about it
As a background, I deal with a combined capital of roughly 1/4th of a million, not large by any relevant stretch but extract ~2-3% profit consistently each month (so far) just from shorting put spreads or rarely, iron condors and wait for them to expire worthless. I believe in compounding returns and rarely buy lottery tickets (aka going long on options), unless I'm confident of a direction. I'm not a day trader either, commissions would eat me alive. I short options and wait for them to expire worthless from theta decay but I do keep an eye on positions or watch for opportunities.
I'll likely never be able to change your mind that trading can be profitable either as a small player, given that you've mainly dealt with big clients and have seen how they handle things but there will always be two sides of a coin.
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Hes not a hedge fund manager leaking information to make people big money. He is offering his knowledge to anyone interested in the topic. This is the internet, we share stuff like this all the time.
Add a disclaimer that any information isn't guaranteed blah blah, and I don't see an issue. If someone comes into this thread thinking they're going to be given a blueprint on how to make money, that's their own dumbass fault.
edit: I saw several posts and was expecting some AMD hot-takes, or some new biotech startup, or something to do with the massive green rush in America. Disappoint
Penwize has cowardly forfeited the challenge to mortal combat issued by Atalkez.
Hence: I do feel strongly though about encouraging relatively distant internet acquaintances to play the market. For most people playing as individuals (and without the level of capital you have or the experience you have) is just a really easy way to lose money. People won't understand the strategy, or they'll get overconfident, or they'll just get unlucky and they won't have the capital to withstand the loss while they build back up again. Be careful with it, is all I'm saying.
And I feel even more strongly re the internet financial advice thing, but I'll take that up as a response to @Austere who is being wrong on the internet, and I just can't let that stand.
One final thing re 2008 though, it's really, really, really easy to say "the signs were pretty obvious" and, in retrospect, they were. But it's easy to say you would have bucked the conventional wisdom when you didn't live through it. The economic incentives to not buck it, the social, career, incentives were all incredibly powerful. Further, none - N O N E - of the structural issues that enabled the crash have been fixed. They're all still there. The complete and utter failure to engage properly with the causes of the crisis is, from an inside perspective, absolutely mind-blowing. It's absolutely going to happen again. In a few years, there will be another equally obvious in retrospect crisis that everyone also doesn't see coming. Don't be over-confident is what I'm saying I guess. Hindsight is 20/20 and all that. And not to sound like a grizzled twat, but until you've lived through a big down-market, you just aren't a complete player. For every 1 person who sees the actual crash that happens in advance, there are 999 who didn't. It's good statistical modesty to assume that you're part of the 999, and not the 1.
Really appreciate you engaging with the argument though, and nice that I think we ended up agreeing on 90% of it.
Okay, but first you have to write me a poem.
Violets are blue,
Help me get my money from this diamond mine
And I'll make you rich too
In contrast to @Exelethril's post, I agree with none of this.
He's offering financial advice. In many countries in the world, that is a regulated activity. The sheer fact of offering financial advice without appropriate status is, potentially, a criminal offence. Worse, the financial advice is posted on the internet, accessible to any person anywhere. Congratulations: you just submitted yourself to the authority of every regulatory agency in the world. The old head of our regulatory practice was a crusty old fucker who knew everything about everything and his favourite observation was "The internet is an amazing invention, it offers you the opportunity of breaking the law in every jurisdiction simultaneously". This is often an exaggeration - in financial services it is too, but not by much.
Aside from the question of whether the act of offering financial advice is unlawful, you are potentially assuming a duty of care to the recipients of your advice. Someone implements your recommendations and loses money? You can get sued. It was also done on IRE's website - should they have monitored the thread to remove it? Probably not, but they could easily get dragged into it because any time you have the chance to sue a corporation that's richer than the actual wrong-doer, you should.
Now people generally wouldn't bother if this was poster AwezomeTIpzter234892347 posting from a Russian IP, but I know what @Exelethril looks like, and I know where he lives. I know that IRE have his personal information and access (presumably) to his credit card information. That's a nice juicy target for someone litigious. Disclaimers are great, but they don't really help you with this stuff. "This is the internet" and therefore nothing is real, and nothing matters, and the law doesn't apply is almost always true, right up to the point where it isn't true and then things can get really unfun really quickly.
I don't disagree with your conclusion that "that's their own dumbass fault" but that's a moral issue. And I could take issue with it - I think when someone encourages someone to do something in the knowledge that they are unlikely to be able to do it well, and therefore likely to suffer loss that they do have a moral obligation, in the same way that predatory lending is a bad thing - but it's secondary to the legal issues. And yes, the legal issues are fantastically unlikely to come home to roost given how big the internet is, but it's not impossible. And it's much more likely in the financial services space than any other, I think.
Yep, the structural issues are still there and I think it's absolutely insane that the Trump administration is trying to repeal the Dodd-Frank law and slightly less about the Fannie Mae/Freddie Mac conservatorship issue given what happened in 2008. There's just way too much unregulated greed in the system. I'm rarely confident when I take a position in something either, hence the hedges and high probability, limited profit positions - I just don't trust the market. Though, I am secretly hoping for a financial meltdown, just to watch the sparks fly.
I think you're right about this thread being awkward on these forums too. Definitely don't want my fellow players landing in hot soup. I was really bored/sick on a Sunday night with nothing better to do.
Thanks for the discussion too, it was really engaging hearing things from a financial lawyer's perspective and I definitely agree with a lot of your points.
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I think the answer to that is totally unclear. But financial advice isn't telling someone what to do, it's advising them what to do which is much softer. My concerns around the post were (a) there's an appeal to authority and knowledge - holding the advisor out as "expert" in some way, (b) this part "options trading (the latter for generating relatively risk free income with defined risk or leverage)" is particularly problematic as it implies advising on a defined, relatively narrow strategy and sets out some attractive features of the same (the lawyer in me winced heavily at the phrase "relatively risk free income", and (c) it's initiating a conversation predicated on the provision of knowledgeable financial advice rather than a generic discussion about the financial markets or a natural evolution of an obviously social conversation.
I could have fun arguing both sides of it (and, of course, it totally ultimately depends not on that first post, but on whatever would have happened after it - that's where you'd really answer the question), but it's not an area where you should be comfortable with inclarity. If you aren't sure if you're providing financial advice to strangers on the internet, then you're already on the wrong side of the line.
Last post was @Krypton if that wasn't clear.
@Exelethril - that all sounds super sensible, wish you all the best with it. Dodd-Frank is interesting - as is AIFMD (the kind of equivalent in Europe). I'm about as far left as its possible for a corporate lawyer to be politically speaking, but I am not a fan of those laws. They were a looooot of extra regulation for very little benefit. There's some good stuff in there, but mostly it's just regulation for regulation's sake. Laws passed so that politicians can claim to have addressed the financial crisis. It's a much bigger deal IMO that the Trump admin is looking at removing the fiduciary rule. That is just awful. Again - if people understood half this stuff, they would grab the pitchforks.
If I was in charge, I would have jailed a few bankers. That would have had a huge, salutary effect as a starter. Then I'd have done a much tougher version of the Volcker rule (banks who actually make up the banking system shouldn't get to play on the market). Then I'd have passed some kind of remuneration clawback rule for investment professionals. The economic incentives for investment professionals are to inflate the bubble market because they can make a huge amount of cash doing so, and they never lose that cash when the bubble pops. Plus sorted out the ratings agencies. And a bunch of other stuff that never even got seriously talked about. Dodd-Frank is kind of useless, some handy systemic risk/consumer protection type stuff aside.