Leveraged

The customary weekly RoundupI’ve hosted the Festival of Stocks #91 this past week. I hope you enjoyed what fellow finance bloggers had to offer for that edition.The Carnival of Personal Finance #155 was hosted by Moolanomy. I’ve enjoyed these posts in particular:The Knowing-Doing Gap @ The Financial PhilosopherStop complaining about Gas Prices! @ The Red Stapler ChroniclesThree Rules Of Levera

I have always been intrigued by the power of leverage. Using leverage means borrowing money to invest in something for the purpose of magnifying your profit potential.When you are right, leverage works in your favor. When you are wrong though, leverage could result in disastrous results and bankruptcy.An interesting leveraged instrument is SSO, which generates double the daily return of the S&P 500 through investments in stock index futures. If the S&P 500 rises by 1 %, SSO will increase by about 2%. The changes are never EXACTLY twice the rate of change for S&P 500 due to tracking errors.I gathered daily data for S&P 500 going back to 1950. I then calculated the returns for the 58 year period for twice the daily changes in the index. I didn’t account for taxes, commissi

Is the leveraged loan secondary market thawing slightly?  The syndication of Alliance Boots LBO related debt, which was originally offered in a bloodbath (something below 90% of par) the week the leveraged loan markets shutdown this summer, is being put back on the table.  JP Morgan, Deutsche, and slew of other lenders are retrying the sale of $16bn of loans related to the Alliance Boots LBO.  The banks made this decision after observing that the tone and pricing of the leveraged loan secondary market have been improving.  The banks are seizing on this opportunity to sell the debt to investors.  The banks wrote the bridge for the financing this summer and have held the debt on their balance sheets since the sale failed this summer. Remember KKR closed the acquisit

David Enrich and Serena Ng, Wall Street Journal, report that CitiGroup, which was sitting on $43 billion worth of leveraged loans at the end of the fourth quarter, is now on the verge of unloading about $12 billion of those leveraged loans and bonds in a deal with a group of private equity firms. Under the planned deal, Citigroup will sell the loans and bonds to buyout firms including Apollo

The WSJ Real Time Economics blog fans a chilly breeze of pessimism in it's reporting of a new paper [Leveraged Losses Lessons from the Mortgage Market Meltdown, 2008 U.S. Monetary Policy Forum, February 29, 2008 - New York, N.Y.] detailing projected shrinkage of $2 trillion which the banks are expected to take on, on account of mortgage losses, and the resultant havoc that will accompany this

I was just asked on LinkedIn, "How can social networking space be leveraged to create opportunities for Sales?"It is important to bifurcate (yes Maggie I used the word bifurcate) social networking between both those words “social” and “networking”. The social aspect of social networking is the ‘fun’ element. It is the keeping in touch with past colleagues, college friends and associates. It’s helping out one of your past coworkers who is looking for job and needing some added help in making introductions. When my high school was having a reunion (not saying how many years) we used social networking to track and find almost everyone in the class.What we are seeing in social networks is that ones’ “network” is getting too large so folks are creating groups of like-minde

If you are a forex trader considering one of these '400-1 leverage' offers, you should first know: 1. The rules of the game you are about to play. 2. About leverage in Forex and how it works, not for you, but for the broker. Here is how it works: Leverage can be beneficial but it can be your worst enemy. 400-1 means that US$1000 can control a $400,000 position say against the Yen. This is

If you are a forex trader considering one of these '400-1 leverage' offers, you should first know: 1. The rules of the game you are about to play. 2. About leverage in Forex and how it works, not for you, but for the broker. Here is how it works: Leverage can be beneficial but it can be your worst enemy. 400-1 means that US$1000 can control a $400,000 position say against the Yen. This is

If you are a forex trader considering one of these '400-1 leverage' offers, you should first know:1. The rules of the game you are about to play.2. About leverage in Forex and how it works, not for you, but for the broker.Here is how it works: Leverage can be beneficial but it can be your worst enemy. 400-1 means that US$1000 can control a $400,000 position say against the Yen. This is great but it also means that even a small move against your position can wipe your account clean. This is obviously very bad news for you but great news for the broker!Why Is It Great News For Them?Well, the first thing that traders must realise is that Forex firms make their own markets - they make the bid-offer price to clients. They use the assumption that as most highly leveraged speculators lose then it's good business to take the opposite position to them.This is done automatically, so when a client buys Dollars against the Yen, the broker sells short the Dollar. When the client covers the posit

My boy JL and I were discussing families last night. He’s single and he was staying with us overnight. He was privileged enough to witness both Lilly throw some hardcore temper tantrums as well as simple 21st century family insanity. Spending time with us as well as other friends with kids has helped make him understand [...]

You have heard the term many times. You have been told by those that recruited you that you will have this. You have been told by your enroller and upline you will get this. However, initially you don’t know what it is and you don’t know how to get. More: continued here

If you are a forex trader considering one of these '400-1 leverage' offers, you should first know:1. The rules of the game you are about to play.2. About leverage in Forex and how it works, not for you, but for the broker.Here is how it works:Leverage can be beneficial but it can be your worst enemy. 400-1 means that US$1000 can control a $400,000 position say against the Yen. This is great but it also means that even a small move against your position can wipe your account clean. This is obviously very bad news for you but great news for the broker!Why Is It Great News For Them?Well, the first thing that traders must realise is that Forex firms make their own markets - they make the bid-offer price to clients. They use the assumption that as most highly leveraged speculators lose then it's good business to take the opposite position to them.This is done automatically, so when a client buys Dollars against the Yen, the broker sells short the Dollar. When the client covers the positi

In a land far, far away rests a place where homes are bought with 20% down and mortgage rates hover around 8%. In this world, we also have moderate credit growth and a government making a decent... [[ This is a content summary only. Visit my website for full links, other content, and more! ]]

Investment Strategy: The portfolio strategy was developed around the use of the new leveraged ETFs (Exchange Traded Funds) that seek to double the daily performance of a particular index. The strategy is to create a diversified portfolio, which will lower the risk of the portfolio as a whole, all while maintaining the profitability of investing in an index. The goal of this portfolio is to allow a long-term investor to create a basket of securities that do not limit the upside potential of being invested in equities, while creating a cushion if the equity markets become negative. The main focus of the portfolio is for capital preservation, which is accomplished by investing in two asset classes that typically move inversely depending on the market conditions. Ideally, the portfolio would be rebalanced yearly to preserve the initial allocations. The yearly rebalancing will take profits on a security that has increased in value and add to positions in a security that have decreased

You can view the real-time holdings and performance of this strategy at http://stockalicious.com/stock_journal/553 Investment Strategy: The portfolio strategy was developed around the use of the new leveraged ETFs (Exchange Traded Funds) that seek to double the daily performance of a particular index. The idea was first presented in the blog post entitled “Utilizing Leveraged ETFs to Simulate the Performance of the S&P with Less Risk“. The strategy is to create a diversified portfolio, which will lower the risk of the portfolio as a whole, all while maintaining the profitability of investing in an index. The goal of this portfolio is to allow a long-term investor to create a basket of securities that do not limit the upside potential of being invested in equities, while creating a cushion if the equity markets become negative. The main focus of the portfolio is for capital preservation, which is accomplished by investing in two asset classes that typically move inve

If you are a forex trader considering one of these '400-1 leverage' offers, you should first know: 1. The rules of the game you are about to play. 2. About leverage in Forex and how it works, not for you, but for the broker. Here is how it works: Leverage can be beneficial but it can be your worst enemy. 400-1 means that US$1000 can control a $400,000 position say against the Yen. This is great but it also means that even a small move against your position can wipe your account clean. This is obviously very bad news for you but great news for the broker! Why Is It Great News For Them? Well, the first thing that traders must realise is that Forex firms make their own markets - they make the bid-offer price to clients. They use the assumption that as most highly leveraged speculators lose then it's good business to take the opposite position to them. This is done automatically, so when a client buys Dollars against the Yen, the broker sells short the Dollar. When the client covers the

As mentioned in a previous post about the performance of the Leveraged ETF portfolio, I am currently testing a fully diversified portfolio that should perform in any type of market. While the performance may be mute and more of an average, the risk should be a lot less than a pure equity portfolio. The performance is also magnified by the leverage aspect of the portfolio which will increase the total returns, but may increase the portfolio’s risk. I put together a portfolio of different ETFs and Mutual Funds and the composition is as follows: (Name - Ticker Symbol - Allocation) Direxion S&P 500 Bull 2.5x - DXSLX - 33.74% ProFunds Ultra International - UNPIX - 12.27% ProFunds Ultra Emerging Markets - UUPIX - 4.29% ProShares Ultra Real Estate - URE - 4.91% PowerShares DB Commodity Index Tracking - DBC - 6.13% Direxion 10 Year Note Bull 2.5x - DXKLX - 10.74% ProFunds U.S. Government Plus - GVPIX - 6.13% Vanguard Convertible Securities Funds - VCVSX - 6.13% PowerShares Listed P

It has been one month since I posted the Ultra-Leveraged, Speculative ETF Strategy on the site. I have actively been testing this strategy since I posted the idea. In the example, I had mentioned how we looked to take a bear market approach to the S&P 500 since it was approaching the 1999-2000 peak and the market has not corrected more than 4% in over three years. Here is the update as of March 7, 2007: On February 8, 2007 the following purchases were made in the $145,000 portfolio: Long SDS - Proshares Ultrashort S&P 500 ETF - Trading at $56.20 We take a $145,000 position in that ETF by purchasing 2,580 shares for a total cost of $144,996 Short SSO - Proshares Ultralong S&P 500 ETF - Trading at $89.47 We take a $145,000 short position in this ETF by purchasing 1,620 shares for a total cost of $144,941.40 Let us fast forward to the present day of March 7, 2007 and take a look at the portfolio’s performance. Long 2,580 shares of SDS - Proshares Ultrashort S&P 50

When I first introduced this strategy, I mentioned how it could have been used following the recession from 2000 - 2002. A new interest has been shown in this strategy following the 4% drop of the S&P that occurred in the month of February. Investors are finally realizing that they had taken on too much risk and now they are rebalacing their portfolios. Another new issue is how correlated the global markets are now, most investors thought that by investing in International companies that they were protected from negative news domestically, however, last Tuesday has proved otherwise. Over the past month the S&P 500 has declined 4%, while aggregate bonds has increase around 1.25%. If someone where to enter into the leveraged ETF strategy on February 1, this is what their portfolio would have looked like today, March 3, 2007. I will also provide a comparision of what your portfolio would have looked like if you were only invested in the S&P 500 ETF. $100,000 Leveraged ETF

For those of you who are risk takers, speculators, or just looking to make a quick buck, this next strategy may be for you. Going back to a previous strategy where we were utilizing leveraged ETFs to achieve greater diversification and less risk, we are now going to use those leveraged ETFs to massively leverage our portfolio. As of February 8, 2007, the S&P 500 is currently trading at 1444 and its index tracking stock the SPY is currently trading at 144.60. The market for the month of February has been on a tear and my belief is that we are about to experience a short-term pull back. There are two types of ETFs, there are Ultra-short, which go up 2% for every 1% loss in the S&P and there are Ultra-Long, which go up 2% for every 1% gain in the S&P. To idea of this strategy is if we are bearish on the market, we will buy the Ultra-short and sell the Ultra-long, giving us a 4x leveraged position without buying on margin. The opposite should be done for a bullish market

This strategy involves a relatively new investment product to the market known as Ultra shares, which mimic the returns of the underlying index times two. The idea behind the Exchanged Traded Fund (ETF) is that if the S&P 500 increases 1%, the ETF will increase 2% and vice versa for a decline. The worry is that people will use these ETFs as a speculative tool and since they are marginable, they can be traded with 4x leverage. Take for instance a normal ($100,000) portfolio, which is invested in securities that closely follow the S&P 500, so we will use the SPY (iShares S&P 500 Index Fund): We purchase 702 shares of SPY @ $142.45 = $100,000 Possible Outcomes: Market falls 15% = $85,000 Market stays the same = $100,000 Market rises 15% = $115,000 We can simulate this portfolio with the ETF, SSO, offered by Proshares, which is a leveraged S&P 500 ETF. We can purchase $50,000 worth of SSO to create a $100,000 exposure. Here are possible outcomes: We purchase 576 sha