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Martin Vlcek  

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  • Why Shorting Volatility Now May Be A Very Favorable Trade [View article]
    I should correct myself in the last paragraph that I am comparing SVXY and VXX, which are not leveraged, just inverse, and are the proper pair to compare apples to apples. UVXY is a 2xleveraged but has a confusingly similar name to SVXY, which is a 1x only, but inverse. Not leveraged.

    So again, the extra costs described in my comment make the arbitrage between long SVXY vs short VXX unprofitable, not between long SVXY and short UVXY. There is extra leverage decay in UVXY, so direct comparison is not appropriate.
    Oct 4, 2015. 01:25 AM | Likes Like |Link to Comment
  • Why Shorting Volatility Now May Be A Very Favorable Trade [View article]

    Thank you for your comments. Again, you are comparing apples to oranges. SVXY is not an "ultra". it is NOT leveraged. It is just inverse. Nobody is advocating buying an ultra here.

    I have a major issue with how many people including you evaluate short positions performance. Ignoring the costs of unlimited loss risk. You have to protect that. The constant rebalancing every 5% or 10% or whatever sounds nice in theory. But in practice it doesn't work that well and brings extreme inaccuracies and higher risk which again has to be adjusted for when comparing returns of shorting vs. long positions.

    And if you say you rebalance the short, do you also rebalance it the other way as well? When the short is moving against you? With your logic of comparing the short returns from charts, you should decrease your short exposure on VXX when it spikes. Do you do that in reality? If you don't then all theoretical chart return comparisons are meaningless. Because you are increasing your risk so the returns are achieved at the expense of higher risk. Thus incomparable with SVXY which actually has even lower risk than the original amount when SVXY falls.

    For example, how do you rebalance when the UVXY or VXX gaps 40% overnight and keeps falling, like many times in its short history, and pretty much also around August 24, 2015? Even if you have some market orders (you can have precise limit orders in that market direction you want, you can only have a stop order that becomes market, or a stop limit order at best. So on a day like that (50% move), you have "slippage" somewhere around 40% if you want to rebalance close to the closing price.

    Ignoring the impossibility in practice to rebalance makes any comparison with theoretical chart returns meaningless.

    "In the last six months ( closer to your timeframe)"

    No, that is not my timeframe because I was SHORT SVXY back then, from $95 to roughly $55. Then I switched to long SVXY at an average price of $50. So my 6-months timeframe will be the future 5 months and le last 1 months only. And the dynamic will likely be very different.

    Again, you are comparing only theoretical numbers, ignoring all practicalities as mentioned above, such as cost of options protection, or different risk that make risk adjusted returns different, huge slippage when rebalancing, all making the comparison meaningless. Further more, when you use option spreads, this comparison becomes even more blurred because when trading long SVXY, I am paying much less for the same dollar amount of downside risk limit and get much higher time value from selling far OTM calls while keeping huge upside potential up to the same upside dollar potential as when selling absolutely zero time premium on UVXY. I don't get those benefits with UVXY or VXX at all. Just the opposite.

    Also, you are ignoring short borrow costs of course. That's another topic for itself. So these options price differences and short costs make any arbitrage between long SVXY vs short UVXY unprofitable. Otherwise arbitrageurs would jump at the opportunity if it was so much more advantageous to short UVXY vs. be long SVXY. What you are saying is there is a huge market opportunity that nobody is seeing but you and all the quants that you so eloquently mention don't see that opportunity but you do? What are the odds? Good luck making money that way.
    Oct 4, 2015. 12:43 AM | Likes Like |Link to Comment
  • Was Friday's Rally A Fake Out? [View article]

    I very much agree that junk bonds are telling. High quality stocks may perform well but the market as a whole (indexes) will disappoint in the next few years. It will be a stock pickers market. Like it is always, but this time more so IMO. I see great long and short opportunities.
    Oct 3, 2015. 11:29 PM | Likes Like |Link to Comment
  • The 'Something For Nothing' Society [View article]

    That sums up my feelings about this article. I may not like the system but I have to understand it. It is not any desire by consumers to save, that drives the prices down. It is the basic supply and demand and the lack of author's ability to provide something unique which not everybody else can provide without much investment or education or skills or capital. Consumers are just acting rationally by choosing the lowest price for the same quality. If they see no added value, they are not willing to pay up, or pay at all. And they are doing the right thing and giving feedback to the author that should force people like the author to think about what added value she really creates by writing a thousandth article on this very same topic (not necessarily on SA but elsewhere).

    I've found a mere description of facts with a bit of ranting. Not even a basic understanding of the supply/demand and the problem of commoditized product/service with no added value. No solution suggestion, nothing of value.

    Ironically, I've found the comments of the readers more valuable than the article and I am glad I've read the comments. SA readers and commenters are creating this unique ecosystem which I am thankful for. Until the readers/commenters are not rewarded for adding this value, how can this writer expect these commenters to be willing to pay directly to her for the article?

    And why is there oversupply of almost everything and everywhere in the world now? It is because of the ultra cheap monetary policies that force interest rates to zero and make almost every project profitable, even if the project makes absolutely no economic sense under any normal healthy non-zero required rates of return. EU subsidies create the same problem of distorted and misallocated investments. China's state planning caused the same problems there just by other means. In sum, there is incredible oversupply of misallocated investments that are the real cause of the oversupply and deflation.

    And the ultra low interest rates are also causing the consumers to save more because with half the interest income or dividend from a dollar of investor's investment into stocks or bonds or treasuries, these savers need to put aside twice the nest egg they expected before in order to achieve the same monthly income in retirement. That's what's causing the saving mindset and crowding out any other spending or investing into the real economy.
    Oct 3, 2015. 12:12 PM | 2 Likes Like |Link to Comment
  • Why Shorting Volatility Now May Be A Very Favorable Trade [View article]
    "it is naive undertake shorting any leveraged product without re-balancing"

    Who says I am advocating such thing? It was just as part of the discussion of how to compare the returns because you didn't come up with any credible comparison of returns. And I disagree that rebalancing costs are just a drop in the ocean, if you use options and not just shorting. Guys, we are moving in circles. There are thousands of strategies and ways to make money in the long run and there is no one correct or incorrect way. Whatever works for you is good for you. Look at Soros vs. Buffett. Their styles and investment universe, position size, stop loss or no stop loss, holding timeframe, scaling into a rising position vs. doubling down on a loser, etc, could not be more different. Yet they both make money because they've found what works for them and stick to their rules. Let's just move on and focus on investing, ok?
    Oct 2, 2015. 10:31 PM | Likes Like |Link to Comment
  • Why Shorting Volatility Now May Be A Very Favorable Trade [View article]
    Dave Roberts,

    "it's never appropriate to compare a simple short with no rebalancing to an open-ended long of the inverse instrument"

    Exactly. That's what I mean. But that's exactly what Leopardtrader is doing by saying look, SVXY is up only whatever % while VXX or SVXY short is down this or that. You have to compare apples to apples and I think the only way to compare is to calculate a CAGR, for example a daily CAGR to find out comparable returns. CAGR takes into consideration rebalancing.

    I think we are moving in circles and picking on words. Let's just focus on investing and analyzing stocks. This current volatile market is full of undervalued and overvalued stocks. A stockpicker's dream while averages are going nowhere just zig-zagging erratically while the high quality stocks are being bought while low quality keeps falling.
    Oct 2, 2015. 10:26 PM | Likes Like |Link to Comment
  • My Best Trade Of 2015 So Far Was Not An Easy One [View article]
    Illuminati Investments,

    Thank you for your comments. I very much keep the risk of the cash and cash equivalents not being worth par in my mind. Even after the current buyback, there is still lots of cash/equivalents that can be of lower quality. Cash used in the tender was obviously the highest quality because it had to be physically paid out to investors for their shares. So what remains can only be same or worse quality.

    I will wait for a pullback before reloading in order to achieve better risk/reward.
    Oct 2, 2015. 10:13 PM | Likes Like |Link to Comment
  • How To Play The ASE-SPIL-Foxconn Triangle [View article]
    kun lin,

    Yes. Tender oversubscribed quite a lot, they likely feel support of other shareholders, or bet that the same shareholders will not sell/ exchange their shares at the low exchange ratio with Foxconn.

    I continue to hold the shares that have not been accepted in the tender.
    Oct 2, 2015. 02:56 PM | Likes Like |Link to Comment
  • My Take On Actions Semiconductor's Board, Management And The Tender Offer [View article]

    I agree that the activists my be sorry they didn't tender more, if we suppose they tendered any shares. They could have locked in gains and reloaded now at a much lower price.

    But look how negative the sentiment was. Take the two of us: You were in for a short trade only and didn't hold until the tender, for your personal reasons, such as you were satisfied with a smaller gain (it's still a massive annualized gain), and the risk/reward was getting lower. And I am sure many investors who initially wanted to tender, just sold at a profit before tender closure.

    I am another example why the tender was not oversubscribed. I had to sell part of my position to meet other needs - to increase my margin buffer because the markets were tanking and very volatile. So I wanted to increase the margin to be able to get some sleep and not watch the margin level every minute:). Call it irrational, but I believe many people may have done the same, just cut some risk because of the volatility.
    Oct 2, 2015. 02:54 PM | Likes Like |Link to Comment
  • SVXY Position Sept 19 2015 [View instapost]

    Thank you for your comments.

    Sorry for not explaining here. I posted this screenshot only as part of a larger explanation of my trades under the VXX/SVXY article where I described that they were created over a long time as part of previous trades and the most recent long volatility trade back a few months ago.

    I don't like to close options trades unless I have to due to wide bid ask spreads and to a lesser extent to commissions, so I simply added to that position according to my outlook. I realize the overall position could be replaced by a single long call option trade. Many parts of my position are actually $25 and $30 strike puts expiring in Jan 2016, so the effect is very similar to what you are describing. But I have some ATM calls as well as I don't want more downside exposure at the moment. If there ever was a chance the markets would disintegrate like in 2008/2009, it is now.
    Oct 1, 2015. 03:17 PM | Likes Like |Link to Comment
  • My Take On Actions Semiconductor's Board, Management And The Tender Offer [View article]

    This is a very illiquid micro-cap stock which can swing wildly, especially during turmoil. It is the last thing anyone would want to buy and hold going into a potential global downturn. A 30% drop of ACTS in several days shakes the weak hands and creates an opportunity to buy more for the strong long-term holders such as the activist investor. I also added to the position during the drop after trading out of it partly before. It was a nice opportunity to add.

    I believe the activist investors were the ones who were not fooled. Why would they bail out after 8 years of efforts that are just now starting to bar fruit? So they were the strong hands. They probably figured they would give the tender a shot but only at the highest price because as a separate event, that tender price had a very favorable risk/reward at the highest price for someone who was willing to hold for the long run after the tender anyway. If they were rejected at that price, they would not care as they wanted to hold for the long run anyway. I believe it was a sound logic. And that's the logic I used as well. And they know the price usually falls below the tender price after the tender is over, and there will be no strong catalyst for several quarters. So they know they will buy back part of the tendered shares after the tender at a lower price.

    Plus, buying back shares below perceived long-term value means the value of the remaining stake per share will be higher post tender. So the current post-tender price is arguably even more attractive. So why not hold.
    Oct 1, 2015. 02:04 PM | Likes Like |Link to Comment
  • My Take On Actions Semiconductor's Board, Management And The Tender Offer [View article]

    Thanks. Nice annualized return. I will hold the remaining portion for the long part of the thesis since it is so small relative to the original amount.

    I think it was three forces at play:

    Everybody thought the tender would be heavily oversubscribed, so it was like the two economists walking the street seeing the $20 dollar bill saying if it was real someone would have picked it up already.

    But then they raised the amount and the price range, that changed the probability of being heavily oversubscribed.

    Also, investors may be starting to believe some more pressure on the board is possible with the second year of buybacks now after six years of seemingly fruitless fight. Kudos to the activists.

    And finally, there was heavy general market pressure, so people probably raised cash for margins and didn't have as much "free" funds lying around to be tied for special situations like this.
    Oct 1, 2015. 10:32 AM | Likes Like |Link to Comment
  • Don't Buy Volkswagen Stock, Yet; Where There Is Smoke, There Will Be Fire [View article]

    That's the thing. My diesel car works perfectly too but it stinks really bad. I thought that it was just a stink but now I know it is also damaging my lungs and lungs of all people around me 30x more in some aspects NOx, etc. That's not a good feeling and I am really in doubt whether I will ever buy another diesel car. I mean it. But the Audi car itself works like a clockwork and has already 180,000 km. So I would buy a new Audi or VW car powered by gasoline or electric in the future.

    But the macro economy around the world is not healthy. I believe there will be oversupply of cars, so that's an additional risk to VW and other carmaker stocks at the moment.
    Sep 28, 2015. 10:00 AM | Likes Like |Link to Comment
  • Finding New Investment Ideas Through Top Portfolio Managers' Holdings [View article]
    Interesting article, thanks.

    The Klarman and Einhorn are some of my favorites. Buffett's size limits truly exceptional outperformance IMO.

    I would also add that the public 13F info of "gurus" sometimes contains only a very small portion of their overall portfolio because they disclose long positions only. So it is very dangerous to follow them without setting their investments into a broader portfolio perspective. For example, we have no idea if Klarman or Einhorn have some offsetting (or even dominant) short oil futures or short oil stocks positions. It is entirely possible that they are net short oil but their public records look like they are long.

    Or they are very long USD so the long oil stocks position is a partial imperfect hedge against the risk of the dollar weakening (oil rising as partly influenced by the USD level)
    Sep 27, 2015. 12:25 AM | Likes Like |Link to Comment
  • Why Shorting Volatility Now May Be A Very Favorable Trade [View article]

    You are avoiding my questions and arguments. Of course rebalancing is necessary, as with virtually any instrument. But when comparing returns for other instruments, do you also include rebalancing arguments? No.

    So back to my argument, SVXY outperforms short VXX or short UVXY in certain scenarios, and underperforms in others, if you ignore rebalancing.

    If you include rebalancing, the short interest fee, the cost of options, etc, these things should take care of most of the difference between nominal performance of the opposite instruments with the same leverage degree. Otherwise there would be an arbitrage opportunity.

    There is no perfect comparison when you include rebalancing as the results will depend on when, how frequently and by how much you rebalance. So you can't really make a fair comparison. If you think you can, then show me, please so that we can move on to other topics.
    Sep 27, 2015. 12:06 AM | Likes Like |Link to Comment