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Pragmatic Capitalism

Practical Views on Money, Finance & Life

From one alpha junkie to another

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The UK passes a non-binding resolution to exit the EU which will play out over the course of several years. I see the market tank, and the vix spike. I buy some broad market etf’s and sell calls against them for a high premium. Things calm down, and I make a big profit in just a few days on both the etf, and the hedge.

You saw the etf’s break not too long ago, and bought well under NAV. There are always opportunities. Why are you giving up on being an alpha junkie? If you are willing to sit on your hands, and simply watch, opportunities present themselves a couple of times per year. You have an advantage knowing how the monetary system works, how the stock market works, and you have an advantage knowing that future stock market returns look nothing like past stock market returns. Why give up on the easy money?

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Posted by laskerfan12
Posted on 06/29/2016 6:52 PM
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Yeah, I still take advantage of obvious dislocations. But those are pretty unusual. My strategies don’t focus on generating alpha now. They focus on implementing practical allocations for people. Of course, I am trying to generate alpha to some degree. I view all portfolios as active so anyone who deviates from global cap weighting is saying they can generate more alpha than that portfolio. But it’s not something that’s necessary. I am much more concerned with building the appropriate portfolio as opposed to the optimal portfolio.

I’ll always be looking for opportunities, but I don’t construct my strategies on the ability to find those rare opportunities….

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Cullen Roche Posted by Cullen Roche
Answered on 06/30/2016 11:24 AM