I want to start trading in derivatives

Now, what news on the Rialto?
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Parodite
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I want to start trading in derivatives

Post by Parodite »

It seems cool to me to start trading in derivatives. Could use some cash. Is this possible at all if you have zero capital to start with? Seems to me all I need is borrow money and invest in the right type of derivative trade. Preferably not derivatives with any underlying asset, but derivatives of.. well.. derivatives in the from of a bet on derivatives. A special type of derivative.

To successfully bet on any bet, with a maximum disconnect from "real economy". To use an analogy, I'd like to understand and hence learn predict, to a sufficient degree to be highly profitable, the community of gamblers and Ponzi schemers in the derivatives market. My target would be the desperate addict high risk gambler, because his/her behavior seems easiest to predict. And bet on those who already are successfully milking that market making big profits. In short, I want to bet on near-certain losers and near-certain winners at the same time. Can this be done? Again, I have zero capital money to start with.

The reason I want to start up such a business.. is that soon socialist Europe will go down the drain and I want to organize my own social security simply by making loads of money, harvesting some rich cream from the financial system before it collapses, as all Ponzi bubbles do in the end. The moment before collapse, seems to me the most fertile.

Any informed advice is most appreciated.
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Nonc Hilaire
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Re: I want to start trading in derivatives

Post by Nonc Hilaire »

Parodite, I had no idea you lived in Colorado!
“Christ has no body now but yours. Yours are the eyes through which he looks with compassion on this world. Yours are the feet with which he walks among His people to do good. Yours are the hands through which he blesses His creation.”

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Parodite
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Re: I want to start trading in derivatives

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Nonc Hilaire wrote:Parodite, I had no idea you lived in Colorado!
I'll move there in spring, why not. The name rings something nice.

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Mr. Perfect
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Re: I want to start trading in derivatives

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P, based on our previous exchanges this seems like a terrible idea. Your knowledge of derivatives based on those previous exchanges is zero at best, and your ability to learn about them seems to be less than zero. Derivatives are essential to modernity and are essential to economic function and behave in very specific ways. The market would look at you as the sucker bet the way you're approaching this. Most people that make money off derivatives do so on the bid ask spread volume and not appreciation.

It seems like you want to trade derivatives to makes some kind of political point, which seems like just another bizarre way to lose everything you have.
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Parodite
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Re: I want to start trading in derivatives

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Mr. Perfect wrote:P, based on our previous exchanges this seems like a terrible idea. Your knowledge of derivatives based on those previous exchanges is zero at best, and your ability to learn about them seems to be less than zero. Derivatives are essential to modernity and are essential to economic function and behave in very specific ways. The market would look at you as the sucker bet the way you're approaching this. Most people that make money off derivatives do so on the bid ask spread volume and not appreciation.

It seems like you want to trade derivatives to makes some kind of political point, which seems like just another bizarre way to lose everything you have.
Meistro P. You misunderstand. I don't deny derivatives help economic growth and stability... you know... the good types of derivatives that are traded in plain day light and by responsible people that know what they are doing; who make a bet and have enough real money in their own pockets to back up for possible losses. That's a normal and healthy casino rule too. But they are of no interest to me. Might as well grow and sell potatoes.

Good derivatives lubricate market liquidity and spread risk as a form of insurance. Not sure there are other ways to insure against risk that one could consider more effective and reliable long term.. but I'll leave that for you to have an opinion about. It is not what I am after. I'm more interested in the 700+ trillion under cover toxic dump of bets that went wrong.. where derivative traders sell as much as possible dog lavender to the next sucker Ponzi-wise... underground and/or above where the debt bubble grows out of control and is about to pop when TARP runs out of ink.

Sure I'm new to this, and I try to learn. From what I got reading myself around, the thing that could be the thing for me is spread betting.
Pros
◾Spread betting is easy to understand in comparison to other competing financial derivatives. It is often said that financial spread betting is simpler than say CFD trading.
◾Spread betting has relatively small capital requirements with many providers allowing clients to open accounts with a deposits as small as £100.
◾Small upfront costs, with margin requirements being typically around 10%.
◾Financial spread bets give you the potential to make money from both rising and falling markets. An advantage that spread betting has over traditional share trading.
◾Profits from spread bets are tax free (in the UK), unless you rely solely on profits made from spread betting to support yourself. This is due to the fact that financial spread betting is considered a form of gambling.
◾The ability to trade a wide range of different financial instruments from a single account.
◾Extended trading hours and huge range of financial markets means that you can trade 24 hours a day during the week.
◾Spread bets offer the possibility of unlimited profits with only limited losses.

Cons
◾There are certain costs associated with financial spread bets, unlike traditional share trading all spread bets have expiry dates. When keeping positions open beyond their expiring date you incur certain rollover costs.
◾No dividends or interest, but you can benefit from price movements associated with such events or announcements.
◾Losses cannot be offset against capital gains, as can be done with both traditional share investments and with CFD’s.
◾Due to the fact that spread betting is a form of margin trading, it is possible to lose more than your initial deposit. This isn’t a worry associated with many traditional financial products.
◾Spread betting is not geared towards long term investment, due to the various costs involved in keeping a spread bet open for an extended period of time.
◾There is also the possibility of unlimited loses and only limited profits, when taking a short position.

While Spread betting has a number of benefits it also involves significant risk. This significant risk means that financial spread bets are not an appropriate product for the majority of investors. Those looking to engage in financial spread betting should make themselves well aware of the risks involved before beginning trading. If you are unsure whether financial spread betting is suitable for you, seek the advice of an independent financial adviser.
Given the mentioned negatives and risky nature, it seems to me necessary and possible to lower that risk using some of the other available derivative tools where in fact I transfer the risk I take to another sucker down the underground Ponzi chain. Just combining dog-poo with some other swappin' cat-sh*t and spraying it with some sexy fragrances. Reality is perception and faith.

And remember: Jesus payed all my debt already, so what can go wrong? The new Ponzi I want to create (am trying find a name... maybe Goldy-Sex Jr. or some..) will lead me directly to Him! I am a believer Mr. P... I am. ;)
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Re: I want to start trading in derivatives

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I've been "spread betting" for 20 years, and tbh it is a second level trading position not a beginner.

You have wasted so much of your life worrying about things you don't need to worry about. Derivatives have been traded off exchange for thousands of years. It is not the problem. The problem was the underlying market was a gov't bubble, the kind you specialize (a little bit of capitalism a little bit of socialism) in and are currently blowing up again. The derivatives that failed there only failed because of the underlying market. They were used to insure your subprime mortgage gambit. No different than all the insurance companies that would go bankrupt if a supervolcanoe went off and destroyed a whole region of a country. A secondary event, not primary.

If you want to trade derivatives the first step is always covered calls and selling puts to acquire stock. If you are any good at that you can move on to spreads.
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Typhoon
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Re: I want to start trading in derivatives

Post by Typhoon »

ILMN. February puts?
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Re: I want to start trading in derivatives

Post by Heracleum Persicum »

Typhoon wrote:.

ILMN. February puts ?

not wise at all

ILMN has monopoly and headed to at least 200+ (had already a split 2 for 1)


Mostafa Ronaghi Senior Vice President and Chief Technology Officer, the guy who invented this all, is an IRANIAN


Nobody can withstand ILMN

I posted about ILMN here yrs ago .. some guys bought ILMN @ 3 pre split ;)


.
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Re: I want to start trading in derivatives

Post by Typhoon »

Heracleum Persicum wrote:
Typhoon wrote:.

ILMN. February puts ?

not wise at all

ILMN has monopoly and headed to at least 200+ (had already a split 2 for 1)


Mostafa Ronaghi Senior Vice President and Chief Technology Officer, the guy who invented this all, is an IRANIAN

Nobody can withstand ILMN

I posted about ILMN here yrs ago .. some guys bought ILMN @ 3 pre split ;)

.
Sell ILMN puts, not buy.
May the gods preserve and defend me from self-righteous altruists; I can defend myself from my enemies and my friends.
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Re: I want to start trading in derivatives

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Mr. P. seems to suggest that the OTC (over the counter, ie not via a monitored exchange with clearing house) "below the radar" bubble of 700+ trillion derivatives only exists to cover for the debt bubble that socialists caused in the financial industry, as a means of insurance. So it seems we don't need to worry about the debt bubble, the 700+ trillion derivatives bubble will take care of that! :D

This is the positive thinking I like. Every disaster has a silver lining, just waiting to emerge after the dust has settled. Creative destruction is reaching new heights here. And Jesus said it; no matter the debt, it has been taken care of. It is removed from the balance sheets. There is nothing to worry about.

As has been written, there is a time to create.. and to destroy. Those are the ways of God Awmighty. What ways? He does not like monopolies competing for the highest seat of powah! There is but one monopoly, one Throne and He is sitting on it. What destroys emerging monopolies competing for the Throne? It is either a love that shares.. or it is a monopoly that will self-destruct ultimately collapsing under its own selfish weight.

So I would argue that contributing to the debt bubble, the derivatives bubble or both.. is a very ethical thing to do as it speeds up the inflation of the bubble and bringing closer the creative destruction when it pops. When you create you do Gods will, when you destroy you do Gods will as well. It doesn't matter.
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Re: I want to start trading in derivatives

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Parodite wrote:As has been written, there is a time to create.. and to destroy. Those are the ways of God Awmighty. What ways? He does not like monopolies competing for the highest seat of powah! There is but one monopoly, one Throne and He is sitting on it. What destroys emerging monopolies competing for the Throne? It is either a love that shares.. or it is a monopoly that will self-destruct ultimately collapsing under its own selfish weight.

So I would argue that contributing to the debt bubble, the derivatives bubble or both.. is a very ethical thing to do as it speeds up the inflation of the bubble and bringing closer the creative destruction when it pops. When you create you do Gods will, when you destroy you do Gods will as well. It doesn't matter.
I think the god you are referring to is Shiva the Destroyer and Renewer. :lol:

Not God as pointed to by the Bible.
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Parodite
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Re: I want to start trading in derivatives

Post by Parodite »

Alexis wrote:
Parodite wrote:As has been written, there is a time to create.. and to destroy. Those are the ways of God Awmighty. What ways? He does not like monopolies competing for the highest seat of powah! There is but one monopoly, one Throne and He is sitting on it. What destroys emerging monopolies competing for the Throne? It is either a love that shares.. or it is a monopoly that will self-destruct ultimately collapsing under its own selfish weight.

So I would argue that contributing to the debt bubble, the derivatives bubble or both.. is a very ethical thing to do as it speeds up the inflation of the bubble and bringing closer the creative destruction when it pops. When you create you do Gods will, when you destroy you do Gods will as well. It doesn't matter.
I think the god you are referring to is Shiva the Destroyer and Renewer. :lol:

Not God as pointed to by the Bible.
SHIVA seems indeed doing a better, consistent and more balanced job! JHWH also has his moments aside creating things. Kill the people of Jericho! Drown the world! Kill the nonbelievers! Don't kill or be killed! :shock:
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Re: I want to start trading in derivatives

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According the Anagram oracle:

derivatives :: vivid eaters
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Re: I want to start trading in derivatives

Post by Doc »

http://www.bloomberg.com/news/2014-01-2 ... tives.html
Buffett Makes Millions Selling 500-to-1 Monkey-Linked Derivatives
By Matt Levine Jan 21, 2014 5:14 PM ET

How many pictures does Bloomberg have of Warren Buffett doing sportsy things? The answer might be two.

Much as bankers are in the business of putting cheap funding to work, bloggers are in the business of putting cheap irony to work, and one of the cheapest of ironies has long been that Warren Buffett (1) has called derivatives "financial weapons of mass destruction" and (2) has been known to dabble in the occasional high-proof derivatives trade himself. Selling long-dated S&P 500 puts is perhaps the best-known example, though he'll buy big chunks of bank warrants too if the situation calls for it.

And in that vein, this Wall Street Journal item is a delight: Buffett's Berkshire Hathaway Inc. is insuring a $1 billion prize that Quicken Loans has offered to pay to anyone who can pick a perfect NCAA basketball tournament bracket. Because oh, sure, derivatives are evil, but let's bet a billion dollars on an essentially random outcome!

The first thing to talk about here is pricing, because it's fun. If you were Berkshire, how much would you charge for this $1 billion policy? The answer to that starts -- though it does not end -- with the related question, "what is the fair price of this $1 billion policy?" The answer to that question is $1 billion times the probability that someone will actually win the contest.1

My Bloomberg View colleague Kavitha Davidson says that the odds of picking a perfect bracket are about 1 in 9 quintillion. That's just the odds of a random bracket winning, though, and would only be the true odds if the NCAA tournament were decided by a series of unbiased coin flips, which would make for very boring television. (I would watch!) More reasonable guesses -- cutting out brackets that have 16 seeds winning or whatever -- range from 1 in 772 billion to 1 in 128 billion. Odds of 1 in 128 billion imply a fair price for Buffett's billion-dollar policy of just under a penny.

But you can improve on that a bit further. Here is a claim that "favorites historically win about 72% of the time, which would yield a probability of perfection of one in 970 million," which sounds like the odds of a perfect all-favorites bracket but whatever. Or consider that last year's winners of the ESPN Tournament Challenge had 9 and 12 errors. One quick way to put an upper bound on the price is to imagine a contest made up only of people who were that "good"' at predicting the tournament, and asking what their odds of being perfect are. The odds of a bracket with no more than 12 errors being perfect are about 1 in 4,000.2 That implies a fair price of around $250,000.3

So we get a fair price bounded by (nothing, $250,000). Which, compared to a billion dollars, is a pretty tiny range: Let's just call the fair price $250,000. On top of that fair price you need to add some profit, and that profit probably needs to be pretty hefty, for obvious reasons. Nobody likes to sell teenies: A trade with a tiny profit and a large but improbable potential loss will just look like a squicky situation, at its fair price, so you gotta charge more for it. This is mostly a matter of risk aversion: Losing a billion dollars is more than a thousand times as bad as making an extra million dollars is good, even if you're as big as Berkshire Hathaway. It raises uncomfortable questions on earnings calls and so forth.4

Figure Berkshire should get paid a couple of million bucks on this, which squares with reports that it previously insured a billion-dollar contest run by Pepsi that had 1-in-1,000 odds (fair price of $1 million) for "a seven-figure premium."

Now let's ask this question: What would you say about a bank that did a derivatives trade where it took on $1 billion of risk in exchange for a payment of a few million dollars? What if that risk was binary risk generated by a random number generator? The NCAA Tournament is not strictly speaking a random number generator (though it's close!), but that billion-dollar Pepsi contest was literally for matching a random number. Drawn by a monkey. Really, a chimpanzee would pick the number. On television, apparently.

Imagine the outrage you could get with a story titled "Goldman Sachs Makes Millions Selling 500-to-1 Monkey-Linked Derivatives"!5

Of course there are differences. For one thing, Berkshire is leveraged, but not nearly as leveraged as the big banks. (Though there is leverage built into this trade: I assume that Berkshire is not holding $1 billion in assets against its potential liability here.6 ) And its funding is considerably more stable than theirs; even if Berkshire loses a billion dollars on this trade, it's not going to suffer a crippling run on its funding. Also the "weapons of mass destruction" crack was in the context of highly popular, correlated trades that created systemic risks. The NCAA tournament doesn't correlate to much.7

Still though. An increasingly important story in finance is the growth of "regulatory capital relief" trades, sometimes referred to as "capital arbitrage" trades. The "arbitrage" is that banks are required by very fiddly Basel rules to hold certain amounts of capital against certain types of risks. If they can sell off the risks that are inefficient under Basel rules, and get back other similar risks that are more capital-efficient, then they are happy. On the other hand, no bank would take the other side of that trade, because other banks are subject to the same fiddly rules. But non-banks might. Hedge funds and asset managers and pension funds that are subject to different rules might well feel frisky enough to offload some of your regulated risk. Insurance companies have long had a profitable line doing just that; reducing banks' capital requirements is pretty much what brought down AIG.8

But you have to have a certain daredevil attitude to sit down opposite a global investment bank and say, "oh, sure, you can pay us to take on the risks your regulators think are too risky for you." If Berkshire is any indication, these days there's no lack of that daredevil attitude.

1 Not true! The prize actually pays out in 40 annual installments of $25 million, so you have to discount that back to present value. (For reference, Quicken offers the option of taking a lump sum payment of $500 million, which I guess is around a 4 percent discount rate.) So the real answer is around half the answer in the text, but that's close enough.

2 That is, just 2^12. The odds of a bracket with no more than 9 errors being perfect are 1 in 500. I owe this argument to Timothy McKenna on Twitter, though I am probably mangling it.

3 Really $244,140, or $1 billion divided by 4,096. If you use the discounted value the fair price is $120,000, give or take. If you use the 1-in-500 odds then the fair price is around $2 million. Etc.

4 Also, though, just like compensation for your time. You gotta go to a lot of committees to take on a billion dollars of risk, so you gotta get paid for all that work. On the other hand, you might knock a bit off the price for marketing purposes, since this trade is getting a lot of free publicity, and I guess the next company that wants to do a silly overpriced prop bet will call Berkshire first.

5 Ooh, that gives me an idea. (The idea is the headline of this post obviously.)

6 I casually assume it reserves in a straightforwardly actuarial way, that is, based on the fair price of the thing. Which is roughly zero.

7 Though I'm sure that come March there'll be articles to the effect of "the stock market goes up 2 percent more on average when teams with blue uniforms win" or whatever, that seems to be a thing.

8 That's a pretty amazing slide deck, by the way. It actually says "Regulatory Capital Corporate Transactions" in the headlines.
"I fancied myself as some kind of god....It is a sort of disease when you consider yourself some kind of god, the creator of everything, but I feel comfortable about it now since I began to live it out.” -- George Soros
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Re: I want to start trading in derivatives

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Parodite wrote:Mr. P. seems to suggest that the OTC (over the counter, ie not via a monitored exchange with clearing house) "below the radar" bubble of 700+ trillion derivatives only exists to cover for the debt bubble that socialists caused in the financial industry, as a means of insurance. So it seems we don't need to worry about the debt bubble, the 700+ trillion derivatives bubble will take care of that! :D
No, you need to worry about the bubble. The derivatives are secondary. Non-bubble derivative markets have been humming along without incident for centuries.
This is the positive thinking I like. Every disaster has a silver lining, just waiting to emerge after the dust has settled. Creative destruction is reaching new heights here. And Jesus said it; no matter the debt, it has been taken care of. It is removed from the balance sheets. There is nothing to worry about.

As has been written, there is a time to create.. and to destroy. Those are the ways of God Awmighty. What ways? He does not like monopolies competing for the highest seat of powah! There is but one monopoly, one Throne and He is sitting on it. What destroys emerging monopolies competing for the Throne? It is either a love that shares.. or it is a monopoly that will self-destruct ultimately collapsing under its own selfish weight.

So I would argue that contributing to the debt bubble, the derivatives bubble or both.. is a very ethical thing to do as it speeds up the inflation of the bubble and bringing closer the creative destruction when it pops. When you create you do Gods will, when you destroy you do Gods will as well. It doesn't matter.
This has nothing to do with reality. Non bubble derivative markets hum along without any problems.
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