ERICOPOLY

Okay, you probably thought of this one already: 1) write the at-the-money put to collect the so called "wasted" premium 2) hedge with short SSF I'll bet there is a reason everyone doesn't just go out and do that... the problem is that you can take a loss on that SSF short position in excess of what you get from the option premium. Now the option premium doesn't look that expensive in hindsight. I think to create the same trading value from an SSF as you get with a put, you need to buy out-of-the-money calls to hedge your SSF short position from going the wrong way on you. But that requires paying some premium for the call... so it's not clear to me that the SPY puts are that expensive after all.

NYSE:FFH -> FRFHF

I don't understand why futures are better. Can you explain? I've never even looked at them so anything you give me is valuable. Even if the market doesn't pull back and instead goes up 30%, is it still cheaper? I guess I have already talked about why I like the SPY puts... something better is certainly worth knowing about.

I hold the TIPS directly -- I wanted to make sure that I didn't buy TIPS with CPI adjusted gains already priced in (deflation could knock out those gains) -- I'm all about upside without downside. The ones I hold are 10yr TIPS that were issued in July 2009. CUSIP: 912828LA6. They appreciated 2.32% thus far -- I bought them on Sept 28th. They do have some downside... but over 10 yrs the yield will easily make them whole even in the very unlikely event of zero CPI gains over 10 yrs (in a pig's ass).

It might be time for the pet rock analogy again: Government taxes everybody and has $10 to show for it. Then the Government wants to "stimulate" the economy so they buy a pet rock from me for $10. This pet rock I dug out of my garden, and it produces no utility. It just sits on Obama's desk and keeps the wind from blowing away some paper. Now, some would say that the money was spent on nothing productive, that it was a destruction of the country's wealth. Now, I'd have to disagree with that statement, because I'm happy to now hold this "destructed" wealth. Nothing was destroyed... rather, wealth was transferred from the taxed masses to... me. Now, if the money was not taxed but rather was printed, then this is inflationary because it did not produce any productivity gains. Meaning, there is more money out there now but no additional productive assets. Perhaps this is a good policy for fighting deflation, but in a neutral environment it would tend to excite inflation. The government... if it could instead buy a road or a high speed transportation network from me instead of a pet rock... well then it would be boosting the efficiency of the country. And when you boost the efficiency, you then drive productivity gains. That means that doing something meaningful with the printed dollars is less inflationary than doing something stupid like buying pet rocks. Am I wrong? Maybe, I'm not an economist and would love to hear why this is wrong.

Kindle's are different from netbooks in that you can sit outside at high noon on the beach in full sun and still be able to read the words on the screen. LCD screens are backlit and wash out in direct sunlight. To the contrary, you can't read a Kindle in the dark and they BENEFIT from full sunlight -- in this regard they are literally no different from a printed page. Yes, the battery life is a novelty but that's not what make the Kindle a far superior book substitute. I have been using my Kindle since March 2008... love it.

Nope, no margin interest. You never borrow any money. The reason why I said to sell the ETF shares and write more puts if you get assigned is that... otherwise you are paying interest. I think of deep-in-the-money puts as float (after all, puts are just insurance on equities). And float can hurt you if you investments go down. However, that's why it's not safe to be levered... but levering into TIPS I don't think is too naughty.

I bought more at-the-money SPY puts this morning (boosted the number of contracts by 50%), and yesterday I bought some SPY June 80 puts (notionally hedging 20% of my current net worth). The goal of this is to be able to buy more without fear after the pullback that I think is coming. And I'm levered anyhow, the leverage will pay for these puts if the V shaped recovery happens. My net worth is levered by 30% but at-the-money puts protect 66% of my net worth. So now I will start talking my book and acting really bearish I suppose ;D

I already do it in my taxable account, I use TIPS to back up the 2012 $40 strike WFC puts that I wrote. You see, right now the "would be" dividend is accruing to book value at WFC. But I get 5.5% annualized "dividend" from WFC puts in the form of volatility decay and TIPS yield. Maybe more if I get CPI increases from the tips. So far I'm gaining intrinsic value at an 11% annualized clip just from that alone! But that's not all, it's also a floor wax... I mean, it also has capital gains up to $40. Now, I leveraged myself with this and bought SPY puts Dec 2011 to hedge. The SPY puts cost me 8% per annum against the notional amount they hedge. So I feel clever but we'll see how it actually turns out. A tax-free account would be gravy.

a few questions. 1. why only an IRA? why not do this in a taxable account? Is it just because of the taxable events associated with TIPS? 2. I don't quite understand how low risk this is.. How far in the money would you go? The further you go, the larger the spreads, so there's slippage, plus the higher the likelihood that you get assigned the shares.. which comes to my next point.. 3. Say there's another crash and your stocks drop 50%. You're on the hook for 50K worth of stocks right? So what you're saying is that in that case you'd either use margin or sell half your TIPS and buy the stock? Is that right? 4. What about your comment regarding beating the S&P? I'm trying to wrap my head around that. How would this beat the S&P? Maybe my brain just isn't working right, but can you walk me through it... Thanks. Let's use the example of your goal being to beat the S&P500 over a 10 yr period. Okay, assume you do this today when the SPY is at 109.61. Step 0) Start with 100% cash in the account Step 1) Use 100% of the cash to buy TIPS (Fidelity allow me to margin 10:1 for TIPS, so margin risk is minimal) Step 2) Leverage the account by writing the 180 strike SPY put for 72.40, enough contracts where taking the underlying would tie up your cash 100% if you were to have just gone 100% SPY back in "Step 0" Forget about margin calls. You can margin spy at like 4:1 before getting called and you can margin TIPS 10:1. So no margin call risk to speak of. Even if you did get called in some bizarre scenario, it's not like TIPS are an illiquid security, just sell them. Amd who cares anyway if you get assigned? Just sell the assigned SPY shares and write more puts. The point isn't to make money. The point is merely to beat the S&P500. Isn't that how most money managers think? Do they care if they make you money? Some do of course, but most just brag about how much they beat the S&P500. And this strategy is guaranteed (I think) to beat the S&P500 on a going forward basis if the CPI rises as some predict it will. Should the CPI not go up at all.... well, you still get income from the TIPS and you still get a little bit of volatility decay. The S&P500 isn't yielding much anyhow.

I am in tears hearing this. Dammit, those bastards! I don't have an IRA account yet, but I was planning on doing it soon. This puts the brakes on that idea. But anyone it seems could start a hedge fund that beats the S&P500 employing this strategy. Hah hah... beating the S&P500 is such a f**king joke it seems, yet people try so hard and can't do it.

The interactive brokers IRA accounts are rather interesting -- they let you use margin. You can write deep-in-the-money index puts covered by TIPS. I think that ought to beat inflation! Eric- Can you elaborate? You're writing in the money puts on TIPs? Are you covered by shorting? I've been writing calls on the 30 year treasury bond futures (betting rates don't go back below 3.85%). The code in IB is ZB. If the contract goes above 122 or 123 I would write out of the money calls. I have been mulling over a strategy for an IRA that would provide "real" capital gains (without dilution from the nominal kind). Say you have $50k in the account 1) Write very deep in the money puts on an equity that you deem safe (maybe on an ETF like SPY, or maybe KO,PG,JNJ... whatever) with $50k of shares underlying 2) Buy $50k worth of 10 yr TIPS There are no borrowing costs. Deflation can only knock the value of TIPS down to their original issue principle value, but that principle value rises with CPI measured inflation. So you earn: 1) volatility decay (even deep-in-the-money puts have some volatility) 2) interest on TIPS 3) capital gains from rise in shares underlying the puts 4) rises in the CPI from TIPS adjustments Another advantage of writing deep-in-the-money puts is that you get a huge amount of cash that can be used to raise your margin equity percentage. TIPS require very little margin equity. Rising inflation expectations shouldn't kill TIPS bonds the way normal 10yr Treasuries would get killed. They ought to rise but maybe I don't understand it properly.

The most dangerous time for a country with 5 yr fixed rates must be when rates are near all time lows and prices have already risen to account for it. Significantly higher interest rates... can people afford the rate reset? Unlike the U.S., where the mainstay of the mortgage market is the 30-year fixed mortgage, the most common mortgage product in Canada is a five-year fixed rate mortgage (with a 25-year amortization period).

There is the matter of what you are left with. Govt stimulus dollars spent directly on necessary improvements to transit systems leave us with a lasting improvement to drive economic efficiency over the longer term. Govt stimulus dollars spent on booze/hookers/boomboxes do not.

The interactive brokers IRA accounts are rather interesting -- they let you use margin. You can write deep-in-the-money index puts covered by TIPS. I think that ought to beat inflation!

Or into TIPS.

I think it matters a lot what type of CRE loans we're talking about. For example, I feel more comfortable with loans secured by apartments. I feel uncomfortable about loans secured by shopping malls. Wells has a nice pie chart on page 22 explaining their CRE portfolio allocation: https://www.wellsfargo.com/pdf/invest_relations/presents/nov2009/baab_110609.pdf

I thought about buying a second home a year ago; fortunately I looked harder at VRBO.COM and that talked me out of it. Just rent a place for 3 months. Eric does that refer to vacation homes in general or just vacation homes in Vancouver. Vacation rentals in Vancouver do not work all that well from what I can see from the owners perspective in some markets however it appears that they can work fairly well. In fact rentals in VCR do not work at all. I have a friend who is renting a new condo and at market rents his landlord is generating a 1/2 of 1% cash on cash return. I don't know his situation but I figure if he only wants a place for a few months a year it's a good way to go. They have worldwide listings. Definately worth checking out for anyone who wants to go someplace for several weeks/months and doesn't want to be skewered by hotel prices. The houses on there are unbelievably cheap to rent by the week/month vs your typical hotel rates is what I mean.

That's not bad. I didn't tell the whole story though as to why I chose the Dec 2011 puts. The story explains why I could just hold them to expiration without it really being any kind of drag -- in fact, I'm going to change my story and just plan to not try to sell the puts at all. First, I went to 130% notional long in my portfolio 1) 20% increase from buying FUR: I think we have a fair chance of astute investors finding a favorable buyer's market for CRE. 2) 10% increase from buying WFC calls: WFC volatility dropped off so I bought back the $30 strike puts that I'd written and wrote $40 strike 2012 instead. I also bought some 2011 WFC calls $15 strike. I didn't change my FFH weighting, which is still 50%. So now I've levered myself by 30% but hedged it with a 40% put on the market. TAXES: 1) FUR is held in IRA/RothIRA accounts so yield compounds without tax. 2) FFH is held in taxable, but is 25% in the form of shares and 75% in the form of 2011 calls 3) WFC calls held in IRA/RothIRA, $40 written puts held in taxable 4) SPY puts held in taxable Due to my use of options, the leverage does not cost me anything (no interest costs). The SPY puts cost me 16% of notional (8% per annum). So basically, the hurdle rate is 8% per annum, but I have more put protection (40%) than I have long over-exposure (30%). I am betting that the 40% short position is ample protection against the 30% additional long position. Now, we've seen certain issues fall much farther than the market, and given that I've got FUR and WFC there is reason for concern (strong names but standing near ground zero for a massive CRE debacle). That's why the 50% FFH position is nice -- in the early 2009 crash FFH merely declined in step with the market, and this time around it starts off with a lower P/B. Additionally, the WFC calls with a $15 strike will show an increase in volatility premium as WFC declines (another hedge). Finally, due to my use of calls and written puts I have a large cash position, my margin equity percentage is 100% so I don't need to distress over that. Much of that cash is allotted to 10-yr TIPS for yield and CPI hedge. CRASH: Should the market crash in a major way, I do not want to be selling the SPY puts and paying tax. Instead, I would rather keep the puts in place and buy some shares of whatever is cheap. I will be able to allocate 10% without getting into a net leverage situation, but I would be happy to allocate 30% and be net leveraged by 20% if the market really coughs up the value. Also, the volatility premium I paid will disappear as the market declines so selling the puts won't give me a full hedge against market decline anyhow! So, I voted against selling 2011 puts after a market decline. NO CRASH: I believe each holding I have will earn more than 8% per annum over the next two years, and I get a tax loss for the SPY puts when they expire. So I think my 40% position will be covered by gains on my 30% position overallotment without being a drag. Everything I have in my portfolio is a long term position now. I have peace of mind this time around. My portfolio in it's present form generates enough income to fund my family's annual spending. So I don't need to sell anything at distressed prices in order to eat. That will make the next crash easier to handle -- that was one thing that made the last crash a little concerning for me as the "what if" scenarios wouldn't leave me alone.

I thought about buying a second home a year ago; fortunately I looked harder at VRBO.COM and that talked me out of it. Just rent a place for 3 months.

I bought hedges last week -- something I never did before. Dec 2011 at-the-money SPY puts. They expire in 24 months, will decay relatively slowly for the first year, I will likely close them out a year from now. I am doing this because of: 1) warnings of an impending CRE debacle 2) warnings of dollar carry trade unwinding My hedge is 40% notional of my net worth. I also pick up some hedging by proxy via my 50% FFH position. I was one of the people who poo poo'd the impending financial bubble crash pre-2007. I was lucky that some responsible people at HWIC hedged on my behalf. Now I'm going to be a big boy and take care of myself going forward. I aged a decade over the past two years.

I have IB, and had them complete a "northbound transfer." All that does is makes the FFH shares I have show up as FFH.TO instead. It cost $11 for them to do, but I know FFH.TO is marginable right now day 1. Your advice is invaluable. Thank you very much!

I have my 2010 & 2011 FFH calls with Interactive Brokers now. That went pretty smoothly -- I initiated a partial ACATS transfer on Monday and it was completed on Thursday, yesterday I exercised some of the 2010 calls. I assume they will become FFH-U shares, given that they are currently USD shares on the NYSE. The only open question I have is whether FFH-U will be marginable from the start, or whether there will be a lag before Interactive Brokers updates their list of marginable Canadian securities. So that's why I'm waiting to exercise the rest of them. Also, as for the off-topic discussion, it looks like the private lending department at Wells Fargo will give me a home loan based on my assets... as long as I transfer my brokerage assets to Wells Fargo. Jeez... I guess I have to smile and say "you guys are good".

"What would you do if you had a million dollars?" "I would relax... I would sit on my ass all day... I would do nothing." "Well, you don't need a million dollars to do nothing, man. Take a look at my cousin: he's broke, don't do shit." That movie was terrific by the way... especially for a tech worker.

Only 2 million? That's a butt load of money to most people. I would retire on that amount if I had it right now. I think it boils out to 60K/year for 25 years. Well, yes, I suppose it is however a point was made about $50m or $1b inheritances making it easy for people to do nothing. It only takes $2m to ruin a young person's life.