Alternate Strategies

[Cortez]

Assuming the TSP board gets their way and we are handcuffed to roughly one TSP move every 10 trading days on average, what alternate strategies would a serious market trader use that could generate greater returns.

FuturesTrader has suggested and I have considered on my own the following arbitrage strategy.
This is my version:
1. Fund TSP only to gov't matching point.
2. Take a 1 year TSP loan (total cost is under $300 per $10,000 borrowed)
3. Sell index credit spread options far out of the money to take in 3.5% target gain per month (expect 10/12 winning months and stop two strikes away from short strike to be hit 2/12 for breakeven or a small loss)
4. Repay TSP loan - I am not sure what is best structure to repay (possibly from lower interest savings account or close out expiring CD's and divert into G fund which has similar yearly % return. This keeps the $10,000 compounding the 3.5% target monthly gain.
5. After loan is repaid, wait out the 60 day waiting period, rinse and repeat.

Any considerations or observations regarding this as an investment strategy designed to outperform playing within the confines of TSP?

 

[FUTURESTRADER]

Assuming the TSP board gets their way and we are handcuffed to roughly one TSP move every 10 trading days on average, what alternate strategies would a serious market trader use that could generate greater returns.

FuturesTrader has suggested and I have considered on my own the following arbitrage strategy.
This is my version:
1. Fund TSP only to gov't matching point.
2. Take a 1 year TSP loan (total cost is under $300 per $10,000 borrowed)
3. Sell index credit spread options far out of the money to take in 3.5% target gain per month (expect 10/12 winning months and stop two strikes away from short strike to be hit 2/12 for breakeven or a small loss)
4. Repay TSP loan - I am not sure what is best structure to repay (possibly from lower interest savings account or close out expiring CD's and divert into G fund which has similar yearly % return. This keeps the $10,000 compounding the 3.5% target monthly gain.
5. After loan is repaid, wait out the 60 day waiting period, rinse and repeat.

Any considerations or observations regarding this as an investment strategy designed to outperform playing within the confines of TSP?

looks good, Cortez...You know 3.5% monthly gives you a 51% APR return, so I'm willing go WAAAYY out of the money, and sell more and smaller spreads, to take 2% monthly. I.e., sell 5 December 1130 and buy 5 1080 for $.50. Lots of different strategies. I'm still developing them, but this seems like a very low risk play so far. Of course the Vix has been way up. When or if, it gets back down to 9 or 10, the strategy may not work. I got beat up pretty good back then, but then again I was letting my 'Broker', and I use that term with a good bit of disdain , do the trading.

 

[Cortez]

looks good, Cortez...You know 3.5% monthly gives you a 51% APR return, so I'm willing go WAAAYY out of the money, and sell more and smaller spreads, to take 2% monthly. I.e., sell 5 December 1130 and buy 5 1080 for $.50. Lots of different strategies. I'm still developing them, but this seems like a very low risk play so far. Of course the Vix has been way up. When or if, it gets back down to 9 or 10, the strategy may not work. I got beat up pretty good back then, but then again I was letting my 'Broker', and I use that term with a good bit of disdain , do the trading.

I would expect volatility to remain greater than the levels it was prior to FEB '07 in the upcoming year. Depending on the market conditions, you could sell credit spreads on both the call and put sides and increase your return percentage from 2% to 3% as an otm call spread pay less. I personally have been selling credit spreads in my ROTH IRA. I got stopped out in NOV with a 1% loss after getting greedy and selling the 1450 / 1400 on SPX for a 14% return (.70 on 50 pt spread). I have not entered a DEC spread trade as I am concerned about a strong downward drop or gapdown but am considering a directional put trade upon a weakening of a rally to the 20 dma and downward trendline on a hourly chart of SPY using a tight stop just above the highs of the runup with a target below 1450.

 

[FUTURESTRADER]

I'm looking for another shoe or two, to drop as well. More likely to sell against the market. Up day, sell call spread, down day sell a put spread. Market goes down faster than it goes up, get a better premium for puts further away. I haven't tried a group of 75 pt spreads. Haven't tried one, but I'm tempted. I've been selling back the bought postions in the spreads for
$.05, then selling a naked $.30 in the last 4 days before expy, beating out the 5 day margin call.

 

[ChemEng]

3. Sell index credit spread options far out of the money to take in 3.5% target gain per month (expect 10/12 winning months and stop two strikes away from short strike to be hit 2/12 for breakeven or a small loss)

If you can gain 3.5%/month using TSP dollars, why arent you doing it now? Why even wait until they put restrictions on TSP trades?

 

[FUTURESTRADER]

If you can gain 3.5%/month using TSP dollars, why arent you doing it now? Why even wait until they put restrictions on TSP trades?

I am doing it now..but still paying off an old TSP loan Trying to scrounge up about 5K to pay it off. I was also playing along with ebb for that emotionless effortless 30%

 

[budnipper1]

I would expect volatility to remain greater than the levels it was prior to FEB '07 in the upcoming year. Depending on the market conditions, you could sell credit spreads on both the call and put sides and increase your return percentage from 2% to 3% as an otm call spread pay less. I personally have been selling credit spreads in my ROTH IRA. I got stopped out in NOV with a 1% loss after getting greedy and selling the 1450 / 1400 on SPX for a 14% return (.70 on 50 pt spread). I have not entered a DEC spread trade as I am concerned about a strong downward drop or gapdown but am considering a directional put trade upon a weakening of a rally to the 20 dma and downward trendline on a hourly chart of SPY using a tight stop just above the highs of the runup with a target below 1450.

If you can gain 3.5%/month using TSP dollars, why arent you doing it now? Why even wait until they put restrictions on TSP trades?

I think you answer is highlighted in red above.
​

 

[Bullitt]

Sounds like a plan... on paper. If it were that easy, I'm sure the idea of taking loans and arbitraging it would be well publicized and preached by retirement wizards. Actually, isn't the borrowing of cheap money to reinvest in 'low risk' avenues the reason why we're in this subprime mess today?

I'm not doubting it can be done, I'm just doubting that this is a good plan for everyone.

 

[Tempest]

Distressing. Borrowing out of their retirement to play the stock market.


Don't do it.

 

[Birchtree]

I once wanted to borrow some money from a credit union back in the early 1970s to buy stock. I was told they could not lend me money for that purpose - so I borrowed to buy a washer and dryer combination and bought the stock regardless. I made enough money to pay the credit union back and still purchase my washer and dryer. Luckily I've reached the point where I can raise a hefty sum with a phone call. That's a nice feeling.

 

[FUTURESTRADER]

Sounds like a plan... on paper. If it were that easy, I'm sure the idea of taking loans and arbitraging it would be well publicized and preached by retirement wizards. Actually, isn't the borrowing of cheap money to reinvest in 'low risk' avenues the reason why we're in this subprime mess today?

I'm not doubting it can be done, I'm just doubting that this is a good plan for everyone.

certainly not for everybody...'spend your time before you spend your money'
Just put in an order to sell 4 dec S&P 1150 puts and buy 4 1100 puts. for $.50 each. The spread (1150 - 1100) is 50 points (1150 selling for $1.00 and the 1100 I'm buying for $.50) and the premium I'm trying to collect is $.50 for each of the 4 spreads. That $.50 is multiplied times 250 which represents 250 shares of the Dec S&P 500, which is down 20 pts @12:14 est, @ 1428. My account is only $9149. Comission is $37 per spread. I collect $88 for each spread. x 4 = 352. 352/9149 = 3.84%. So I'm betting (just like insurance companies bet you wont make a claim) that the S&P 500 won't go to 1150 by december expiration, which is december 21st. So it's a race the 1150 AND the 1100 will bothe increase in value as the market drops closer to 1150, but time decay is on my side(the 1100s are insurance for me against the 1150s, without BUYING the 1100s, the 1150s would be 'naked puts')

 

[Tempest]

I once wanted to borrow some money from a credit union back in the early 1970s to buy stock. I was told they could not lend me money for that purpose - so I borrowed to buy a washer and dryer combination and bought the stock regardless. I made enough money to pay the credit union back and still purchase my washer and dryer. Luckily I've reached the point where I can raise a hefty sum with a phone call. That's a nice feeling.

So you laundered the money.

 

[FUTURESTRADER]

certainly not for everybody...'spend your time before you spend your money'
Just put in an order to sell 4 dec S&P 1150 puts and buy 4 1100 puts. for $.50 each. The spread (1150 - 1100) is 50 points (1150 selling for $1.00 and the 1100 I'm buying for $.50) and the premium I'm trying to collect is $.50 for each of the 4 spreads. That $.50 is multiplied times 250 which represents 250 shares of the Dec S&P 500, which is down 20 pts @12:14 est, @ 1428. My account is only $9149. Comission is $37 per spread. I collect $88 for each spread. x 4 = 352. 352/9149 = 3.84%. So I'm betting (just like insurance companies bet you wont make a claim) that the S&P 500 won't go to 1150 by december expiration, which is december 21st. So it's a race the 1150 AND the 1100 will bothe increase in value as the market drops closer to 1150, but time decay is on my side(the 1100s are insurance for me against the 1150s, without BUYING the 1100s, the 1150s would be 'naked puts')

doesn't look like I'm going to get filled

 

[FUTURESTRADER]

doesn't look like I'm going to get filled

doh!!..scratch that..just got filled @ 4:26 pm est..1150s @ .80 and 1100s @.30...3.847%

 

[FUTURESTRADER]

Sold a naked 1610 call yesterday for $.30. That will give me a net after comissions, 4.47% from nov 16th (nov expiration) to dec 21 (dec expiration) IF the s&p 500 doesn't threaten 1610 to the up side or 1150 to downside by dec 21. Will be 20.04% since inception of strategy in july 07. Avg 4.01%/month. Still some time before dec expy and I still have a good bit of margin left to increase that 4.47% to over 5%!