Jeffrey McLarty

Friends, kindly answer the following, I’m curious:

1. What is your minimal acceptable rate of return, annually, pre-tax? (for those who don’t know, a MARR is what you would use to discount your own cashflows.  That is, what is money worth to you?)

2. In the following statement, what is X, Y, and A, B?

“I think, for the general public, it would take a new, green, fund runner X years returning greater than Y percent per year (after fees, and pre-tax) for most people to invest with him. And A years at B percent for me to invest.”

You don’t have to read on…in order to answer.  My answer is below.  Also, sorry, I’m going to get Disqus soon.

Personally, I’d never put anybody else in charge of my money - but if his track record was greater than 35% in bear and bull markets for +5 years, I’d be trying to learn from him, and considering investing.  I think the general public just wants a lack of volatility, as well as a good track record, I’d guess it would take +14% for 5 years for the general public.

I’m going to be ripped away from being able to spend ~10 hours / day on the stock market, in July.  I’m looking for a way to concentrate less on the markets, and still see higher than my MARR (minimal acceptable rate of return), 18%.  I believe I’ve found my strategy that I’m going to put to work, and test out. 

I’ve been really looking, and considering the permutations of a buy-write strategy combined with a derivative market making algorithm using SSO (double long the S&P). By the numbers, and using the last 25 years as history, it looks really easy to make +20% (almost guaranteed), and likely to see rates consistently as high as +35% annually.  Since it’s a buy-write, it’s by definition, less volatile.

Eg.

Let’s say I spend $50K, leveraged 1:1.2, so @ $66.40, I can buy 900 shares (1.2 x $50K = $60K to spend)

Wait patiently at the ask, trying to sell the $69 September calls for $7.70.  Given the average year the S&P has returned +10%, for the last 25 years, in the long run, it’s likely to see a 2% rise in 6 months, and the shares get called away.  (2% on the S&P will yield approximately 4% on SSO).  If that happens, the profit is $10.30 per share, or $9270.  After subtracting interest to borrow the leverage, it yields a return a little under 17% in 6 months.  Add a market making algorithm to capture the spread on the calls, and it bumps up the return quite a bit.  Then annualize  it, and…well…wow.  Of course, the last 6 months, this strategy would have been brutal, but the covered calls would have cushioned the losses greatly to a little less than brake even - hopefully.

Thoughts?