Now, take a look at this, taken from http://www.aima-canada.org/doc_bin/AIMA_Primer.pdf

Now notice…

-Buying Calls on stuff you hope will go up, is not a strategy. Sooner or later, the capital you trade with, will go to zero.  Promise.

-Holding stocks forever is not a strategy to earn absolute returns. Nor a way, to “beat the market”.  Nor a way to run an entire portfolio. A lifestyle maybe, but not a way to generate positive returns on an absolute basis.  And its absolutely certain, that you will not post returns, above the market you’re investing in.  Unless YOU are Warren Buffett.  And even Warren himself, could be called a hedge fund manager specializing in distressed securities.

- Notice the top segment breakdowns.  Lets assume the ones assigned more capital, are more certain to generate positive returns.  Now, think about the strategies that are feasable to operate by retail investors, working a 9-5.

Relative Value Arbitrage – No way.

Event Driven – Good Luck.

Equity Hedge & Global Macro – Now these, are doable.  Notice the word HEDGE in the descriptor.  That means balancing a few long ideas with a short idea.  Selling some of the upside, to protect on the downside. I could go on…but…  Its worth pointing out, that in 1990, Global Macro funds, made up 71% of the Hedge Fund Market.

Now perhaps its these two strategies, that retail should lean towards, after getting torn apart in 2008.

And look at that, my above assumptions about where the money is, is proven true! Its almost like I know what I’m talking about. Take a look below…

I will sell, the right, but not the obligation, to buy my 568 sq foot condo, in one of the most central places in Toronto, for $275K, in 3 years from today, in exchange for $21K in cash today.  Considering futures (pre-sales for 2011) are selling for approximately $300K today, it may or may not, be a good deal.

I will also buy, the right, but not the obligation to force the sale upon somebody, for $240K, in exchange for me paying them $2K.  This may be worth it to you – is it? 

This $21K, and $2K, is derived from my intrinsic expectations for what the market could potentially do, as well as a binomial method.  In the first case, the money is worth more to me to have the cash, rather than the potential.  And in the later, the $2K worth of insurance, is worth it. 

Measuring the implied volatility, this is works out to 7.5%.  Way cheaper, than any stock which usually clips between 25% and 45%, and it’s not rare to see IV approach the double digits on say – a pharmaceutical company, where perhaps the implied volatility is in fact worth it.

Before you comment, you must understand, that this is an offer, it is the bidders responsibility to assess the value for themselves.  That is, REALIZE: the market is not guaranteed to move in ANY direction, or ANY magnitude.  If you think it is – slap yourself.

Long HEK from $8.27 and $9.95.

Long TEX from $44, $50 and $52.98.

Pollution and energy are two big problems, combine that with urbanization and CVA is likely to prosper. I think FAN, and TAN, are both good bets. Good banks will be fine, and it’s time to start buying value. Mind you, 300 out of the 8000 will fail, or more, but the rest will be ok and prosper on the new standards and previously failed bank clients. PHO has too many starting points to ideas for stocks…I still haven’t found the best ones. Combining the emerging growth with rising middle class, and world water problems HEK is likely to prosper. Urbanization has many vehicles, but right now I like TEX…can’t get enough cranes, etc. Crop yields are amongst the few things in the world that have risen nearly linearly for decades, that’s a good thing for planet earth and investors. Isn’t it ironic how every country in the world seems to have +5, 6, 7%, 2,2000,000% inflation…and the US is only just now starting to count it. Rising middle class in other parts of the world, SDA is likely to prosper. I also see CL doing well for the same reason. I like the new AFK/PMNA/FRN ETFs too, these are where tomorrows money will come from, get long these names and short the S&P, dollar for dollar.

This market has me second guessing myself, and every move I make. I’m not alone, that’s why it’s been volatile, and that’s why it’s will keep being volatile. Learn to Buy-Write. Short-to-Own.

Disclosure: I put my money where my blog is, when the timing is right.

Check this out:

Now I’m no expert, but get long Obama, get long McCain that seems like a 3% yield arbitrage. One of them is going to win.

Stock Market participants are more likely to dig these insights:

I took the data from their “probability of a US recession in ‘08″, made a moving average, then took a derivative and smoothed that out too, then mapped it to the S&P.

It’s interesting to observe the causality get weaker as the contract gets closer to expiring.

Check out the earlier surges in the derivative, they appropriatly correlate, a bit at least, to the market then a reversal in the derivative means a local max or min – in some cases – in the S&P…it’s a stretch.

How do I get long Prediction Markets? I want to invest, in the actual exchange. What a cool system, I am enthusiastic about it’s growth and want to see it succeed.

Speculation ramped up on Friday, as investors hypothesized that the GSCs would need help, thus hurting credit rating of the U.S. As such, TBT had nearly it’s second highest trading volume since it’s launch. PST actually did set a record for trading volume, since it’s launch.

Interest rates are bound to tick up…I mean, they almost have to.

I have to give a hat tip to Joe Dowling, for pointing these vehicles out on twitter, I didn’t even know they existed before Friday. I did something impulsive and after only an hour or so reading about TBT, Dan Conway can contest, I bought some…early in the day. Every conversation I’ve had with Joe, he has left me with nothing but a good impression of intelligence. Plus, I think he’s likely the second richest guy I’ve ever talked to. So yeah, I have no shame in cherry picking his ideas, making some money, and learning along the way. The way I see it, win or lose, I’ll either pay tuition to the market, or make some money. I’m young, and need to learn. I applied the exact same logic, that new derivative traders should use – you learn allot faster with skin in the game. Maybe this is reckless, I dunno. I know I learned really quick when my first derivative trade fell 100%, and my next one doubled, that was almost 4 years ago – I have no regrets over losing ALL the cash on that first trade.

Disclosure – like this matters…I AM short 20+ year Treasury Index via TBT.

This study is done by a company, I own shares in, Sandvine. They are basically trying to help ISPs, prioritize packets and handle traffic on their networks, in the face of difficult bandwidth trends (Online video/media, P2P file sharing, etc.) The company’s revenue has been explosive quarter over quarter, with a stall in last two quarters. The stock chart is ugly, but I think it will be a great 10 year story. After buying this stock over a year ago, I went to my first annual share holder meeting, in May. I left the meeting more than doubling up my position.

They announce earnings early Tuesday A.M.

Long Sandvine.

It has become, a deal stock.  Everybody talks about it, everybody has traded it, everybody has a story about making huge bucks or losing some coin (mainly the shorts). 

See, same applies to GOOG.  Remember when GOOG announced, everybody had ZERO expectations, people were buying puts, and selling calls, scared it was going to tank…and then…and then…they blew away every-body’s guesses out of the water.  That’s all they are, guesses.  Look back at the twitter tape, there was only one bull in my twitter circle, who was long and proud.  Me.  Andy wrote a straddle, and got owned. See, you can look at the chart and see the pansies and bears sold all their shares or went short ahead of the CC.  That’s causality at work.

The market anticipated so much bad news, it priced it into the stock.  This happens, especially to deal stocks.  You know the ones, AAPL, GOOG, RIMM etc.

This is how you tell a deal stock, from not a deal stock:  Find an idiot, and ask them, if they know what a PE ratio is.  If they don’t know what a PE ratio is, you can use them as a test subject for your stock.  Ask them what the ticker is for company ABC.  If they know it, it’s a deal stock.  If they don’t, you guessed it, not a deal stock.

It’s also why, you don’t always have to chase smart money, you can chase dumb money too.  Deal stocks, they go up, higher and faster than anybody with a brain could anticipate. Because these are the only stocks idiots know about.  Idiots find out about them, and think, ‘maybe it’s going to keep going up…I better buy some’.  Self fulfilling prophecy.  So, there are more buyers for those stocks as opposed to the other, non deal stocks.

HEK is not a deal stock.  Will it one day be a deal stock, I hope so, but doubt it.  Because deal stock buyers, laugh in the face of multiplier expansion.

I am going to be off playing Tycoon in Toronto tomorrow…so I’m going to predict, my prediction.  Since RIM has become a deal stock, it’s going to go the opposite direction of the color it trades tomorrow.   If we see red ahead of the CC, look for springboard action in the AM, and get long at the end of the day.  If we see green, well, look out below.  Unless the chart looks like something leaked, don’t be stupid here.

I’m long either way, and I know I’ll do something dumb if I watch in real time.  I’m long, and I plan to hold right on through the worst of any possible sell off.  See, see right there, what I said, that’s me worrying.  A little light in your head should go off – that’s a bullish tell, that I’m worried about a sell off.  I don’t know anything anymore than the next guy does.

But I do know, markets are causal.  Fickle too.

Yes I am however, long a bunch of deal stocks…trying to quit…but they are just such quick fixes, you know?

All from shorting puts, for less than a month.

Which is why, I started http://FivePerFive.wordpress.com …read my logic on the ‘about page’.

And this doesn’t even include my buy-write retirement account where I was short puts to aquire RSX, and never got hit…or wrote out of the money $36’s holding HXU.to

booyah baby.