ERICOPOLY

See, if you count only net downside exposure, then in December 2011 I had a 0% position in BAC. And if you count only net upside exposure, then my exposure was 100%. 0% notional downside, and 100% notional upside. What do you call that? What is the position weighting? Now, if you count the options premium as the actual position size, then it becomes misleading. A 10% position for one person (if entirely in options) could be another investors 50% position (in the common). Then the two people aren't communicating with each other on equal ground if one guy says he's in a 50% position and the other guy says he won't ever put more than 10% into it. They just aren't speaking the same language. So, basically, I think notional value (upside and downside) is an essential thing to mention when talking about weighting of holdings.

I guess it's harder to grasp than it looks to me. So I'll make it really short: You can have more upside notional exposure than downside exposure, without any net frictional decay from options premium. You can have upside-only positioning in some names (like BAC), which is paid for by taking downside-only positioning in other names (like SHLD). Just swapping risk back and forth. That's it! Nothing fancy, nothing insightful, it just is what it is. Yet how do you phrase your "weighting" of holdings? Are you talking only about net downside exposure from a given name, or are you counting upside exposure? That's all.

In general, this is a bad way to think about options, since it obfuscates the situation and thereby encourages cognitive biases. Typically, decomposing the position is much more useful than mentally co-joining positions. If selling a put on SHLD seems like a good idea, it should be a good idea regardless of whether BAC options exist. If buying puts on BAC seems like a good idea, it should be a good idea regardless of SHLD. If one of these two legs doesn't seem like a good idea on its own, then the aggregate position could be improved by removing the leg that doesn't seem like a good idea on its own. Obfuscating the individual trades is a bad idea because it can make you think, for instance, "that option was free because I got the purchase price from selling SHLD options". The option wasn't free, because you're still spending cash that you could have kept as cash. Decomposing the position lets you better determine whether each leg is good, without the unnecessary additional complexity of the combined position. (Unless, for instance, you believe that the two positions should be relatively correlated, like BAC and JPM. But I'm assuming that you're using SHLD and BAC for examples because you believe that they're relatively uncorrelated.) I don't see how we get from my post to the things you write in yours. You went off topic -- I never talked about a free option, nor did I hint at one (in fact I explicitly explained taking the option premium from SHLD puts to pay for BAC puts). However, you did, and then you offered the helpful suggestion of decomposition, which would be a nice tip if we were talking about free options, which we are not (you might be talking about that, but not me). See, you can have a rule that you'll never go over 10% for a position size. So you might be envisioning a portfolio of 10 equally weighted stocks. Naturally, this is in part to prevent a blowup from single-company risk. Yet you can "cheat" your way into much larger positions by doing what I said -- taking a 36% position in BAC common and hedging it down to a 10% maximum downside using puts (and spending one of your 10% positions on writing SHLD puts). Therefore, you can have a portfolio with much larger than 10% positions in names you have conviction on, without taking the accompanying single-company risk. And your portfolio may wind up with larger than 100% notional upside exposure without suffering any drag from net put options decay. Anyone can just buy a bunch of calls, but there is net decay. So if the stocks go nowhere, you can suffer permanent capital loss. This is not the case in what I describe above because the puts you write merely net out against the puts you purchase.

So you can be levered 2.6x on the upside, while having no leverage on the downside. Or you can be invested on the downside only 38.46%, while being invested on the upside at 100%. So this is why I'm saying it makes no sense to say "I'm 50% invested, or I'm 30% invested, or I'm 100% invested" without giving a lot more information to what you are doing and what companies you are invested in. After all, being 38.46% invested in high volatility companies like SHLD is exactly the same very similar to being 100% invested in companies with the implied volatility of BAC. You can swap the risk back and forth until they are logically equivalent position sizes. So implied volatility quantifies a price for risk -- then you can use that quantity of risk to "raise cash" if you use it to purchase puts on stocks that have lower implied volatility. Then you are effectively in cash (partially) while perhaps not being at all in cash.

You can write the at-the-money SHLD put and use the premium/proceeds to purchase the at-the-money BAC put (thus hedging your BAC common). You now have 10% downside risk in SHLD, 0% downside risk in BAC, and 26% upside concentration in BAC. That's what I meant. So if you can accept a 10% downside in BAC, and a 10% downside in SHLD, then you can go 36% into the BAC common and only have a 10% downside in BAC (plus a 10% downside in SHLD). You are really only 20% exposed to the downside (10% BAC + 10% SHLD = 20%), but you have 36% allocated to BAC. So do you call this 10% position weighting in BAC, or 36%? Are you 80% in "cash", or 64%? So quite literally, volatility and risk (even tail risk) are in the real world market closely connected. There is quite literally a market for volatility, and you can use that market to swap risk, so you can't say volatility and risk are strictly disconnected. Only if you refuse to use the tools readily available is that true.

It would be interesting to divert your shower water into a tank to be reused in the toilet bowl. We are literally flushing our drinking water down the toilet.

Actually, leasing out 200m retail sqft might take twice as long as leasing out 1m retail sqft. Depends if that 1m is less desirable than each and every location comprising that 200m figure. There are individual home sellers who have listings that sit on the market for a year ( in bad locations ), despite a million+ other house sales taking place during that time. So the total sqft probably is of far less importance than the locations of it.

A lot less time if that 68M is located in many separate pieces scattered throughout each and every retail market in the country. Compared to all in one retail market! That 68M figure probably sounds a lot more sensational than it really is.

It's not just about taxes. The outright explicit purchase of puts makes more tax-strategy sense than going with either the warrants or the calls (but both of those alternatives have implicit puts). I do not have any other income! This money is my entire bread-and-butter. I don't keep cash on the side. I can't let BAC slide to $5 again in the next super-worry of the market. So I have puts to ensure a given level of wealth. Lately I "raised a bit of cash" by moving up the strike prices of the BAC puts and writing a notional-value-offsetting set quantity of "somewhat" in-the-money puts on JPM and C. For example, today I wrote a few $52.5 strike C puts to pay for some $17 strike BAC puts. This gives me less "notional value at risk", but I expect C to close above $52.50 at expiry so I expect the cost to be zero despite lowering my risk. Anyways... too much info.

Realism is not optimism. You can get a high quality bank for 80 cents of optimal value, hold it for three years, and the earnings accumulated over those three years in effect means you bought it for 50 cents of the value you hold in three years. Now, is that not the same as waiting 3 years for the market to give it to you for 50 cents? So what if the market never does? You then sit in cash for 3 years and are faced with the same decision again. You have to be Johnny on the spot with your timing to get out of the market right before it crashes (within a year or two). Otherwise, getting the 80 cent values isn't any worse, and probably better over the long haul.

I think weightings is more complicated than it looks on the surface. You could have a 10% weighting in Sears, or a 26% weighting in BAC. For the same amount of capital at risk. Reason? The at-the-money $35 strike SHLD put trades at 26% of strike, and the $17 strike at-the-money BAC put trades at roughly 10% of strike. I think without looking at the options, it can be a bit misleading to announce what your limitations are for weightings. It is much more nuanced than it looks. Saying you have a 10% weighting limitation doesn't take into account reality. It doesn't really make sense. I don't understand fund managers who claim they have this limit of 5% to holdings, or 10% to holdings. You can see that 10% in one holding equates to 26% in another. Get it?

For my last 3 years of working, I commuted in a vanpool (about 7 riders). That was the best option I could find. Biking was too dangerous, and very unpleasant in Seattle weather. Public transit... ditto (no seat-belts in buses, standing in the aisles while (crowded) bus is moving, getting soaked in the rain when walking between bus stops).

Seems like they didn't spend much effort on this. Look at what they said for 2013 BoA -- $4.27 billion in 2013?

Or I suppose just clip a piece off of every green pepper -- then sell chopped green peppers by the pound. That might be easier. I think you'd want to ask what type of scissors -- some have wiggly edges for cutting irregular "lines". Some are better for cutting herbs versus crust. Some have rounded tips and aren't suitable for combat.

I would take a slice out of every pizza, cutting the remaining slices so that they fit back together in a perfect circular shape. Then I'd reassemble those slices I stole into new pizzas and sell them for money on the side. Or just sell pizza by the slice out of the back of the car.

Dear Prudence, won't you come out to play Dear Prudence, greet the brand new day The sun is up, the sky is blue It's beautiful and so are you Dear Prudence won't you come out to play Dear Prudence open up your eyes Dear Prudence see the sunny skies The wind is low the birds will sing That you are part of everything Dear Prudence won't you open up your eyes? Look around round Look around round round Look around Dear Prudence let me see you smile Dear Prudence like a little child The clouds will be a daisy chain So let me see you smile again Dear Prudence won't you let me see you smile? Dear Prudence, won't you come out to play Dear Prudence, greet the brand new day The sun is up, the sky is blue It's beautiful and so are you Dear Prudence won't you come out to play

Just one of many years, and of no particular importance relative to the future years.

Wow, and to think I waited for two years just to break that level.

True, but the argument Siegel presented is that the younger generations won't be investing in the same assets as they are sold fast enough, meaning the stock prices, which have been, to a degree, artificially propped up as a result of forced investment in retirement vehicles, may drop. This makes sense to me. Think of the number of people with Masters and Doctorates working as baristas with massive educational debt. Unless asset flows come from overseas, the largest companies may have a problem asset-price wise. Companies also repurchase their own shares, the buyers don't have to be baristas with debt.

Even a $30billion increase (for total of $38.5 billion) would only cost $1.84 per share (30% tax rate and 11.4billion shares).

On the conference call, in the Q&A, the management seemed to expect that the CCAR capital return request/approval would take into account their expected capital generation (with help from DTA) instead of looking at net income. So that's helpful.

Can you flesh this out in an example? Sure, just buy some $10 strike BAC puts and then put in a $10 limit order to purchase a corresponding number of common stock. Then you know that if the stock crashes to that level, you'll own the stock without any risk of further price decline. I know the puts cost money, but only 2/3 of it is mine -- the other 1/3 "belongs" to the IRS and California (the puts offset taxable dividends).

Buffett appears to be quite the fan of options, actually. BAC GS etc...

Because they are used for swapping risk. Loss averse people use them.

You can be very limited if you only invest in common stock (not using options). 100% investment in a single common stock can lead to the total loss you mention. Instead, using options, you can get at-the-money calls which represent a 100% notional upside position. But then you pay for those calls by writing puts on 99 other companies. You now have a portfolio of 100% concentrated upside in one name, but only 1% downside exposure in each of 100 different names. These Kelly formula discussions never deal with these real world strategies. It's all Ivory Tower stuff that leads to unrealistic fears about concentrated positioning. I think this strategy looks quite appealing, but during market corrections, correlations among the 100 stocks tend to become close to 1, so the downside may not be truly diversified. The point of diversification isn't to prevent the portfolio from declining in market corrections, it's to prevent you from single-company risk. So you don't wind up being 100% concentrated in JPM when the next London Whale comes along on a scale of 20x the size of the last one.