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Can leverage/options give positive expected value for the long term investor?

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  • #16
    Ayers and Nalebuff (Yale profs) suggested, and Bill Bernstein amplified, the idea of buying equities on margin in your 20's and 30's. Here's a succinct explanation:

    Nalebuff: Another way of saying it is, we believe in stocks for the long run, but most people, when they have lots of stocks, don't have the long run, and when they have the long run, don't have lots of stocks. People seriously underinvest in the market for the first 25 years of their working life.

    http://content.time.com/time/business/article/0,8599,1982327,00.html

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    • #17
      How are margin rates at Interactive Brokers so much less than those at Scottrade, Fidelity, etc? Anything to watch out for?

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      • #18




        How are margin rates at Interactive Brokers so much less than those at Scottrade, Fidelity, etc? Anything to watch out for?
        Click to expand...


        Yeah, its a no frills no customer service not quite intuitive platform to use if you're used to full service simple brokerages. They will also not give you any margin warnings, etc...they will just start selling your positions until maintenance margin is satisfied. They do however have excellent risk tools to allow you to see value at risk and a "what if" function to see where you can get into trouble so you can avoid them.

        Honestly, unless you're trading options or futures that would be highly unlikely.

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        • #19
          There are so many straw man attacks on the cost of leverage here and at bogleheads. https://www.cmegroup.com/trading/equity-index/files/a-cost-comparison-of-futures-and-etfs.pdf

          Not an endorsement that you should do it, but you don't buy a daily reset leveraged etf to achieve cheap leverage you buy futures. (Which I believe unlike options you can have in an etf -though don't quote me)

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          • #20




            There are so many straw man attacks on the cost of leverage here and at bogleheads. https://www.cmegroup.com/trading/equity-index/files/a-cost-comparison-of-futures-and-etfs.pdf

            Not an endorsement that you should do it, but you don’t buy a daily reset leveraged etf to achieve cheap leverage you buy futures. (Which I believe unlike options you can have in an etf -though don’t quote me)
            Click to expand...


            Yes, and historically it doesnt hold up as some of those links demonstrate. However, if you think options scare people than bring up futures, lol.

            A leveraged etf is not only "cheap" from a etf/leverage cost standpoint (if compared to margin like most would think it) but simple and requires little more knowledge. No one needs to break out their Hull and calculus books to feel comfortable.

            Some etfs even hold futures which even in the short term gives them and their options a better tax treatment than typical stocks or etfs.

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