Shorting a PP Asset in your VP. How To?

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ochotona
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Re: Shorting a PP Asset in your VP. How To?

Post by ochotona » Tue Apr 14, 2020 7:59 am

tomfoolery wrote:
Tue Apr 14, 2020 3:03 am
I believe the stock market will drop another 20% to 30% over the next 6 months. I want to speculate on this in my variable portfolio.
I replied over here:

viewtopic.php?f=10&t=8992&p=193793#p193793
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Re: Shorting a PP Asset in your VP. How To?

Post by pmward » Tue Apr 14, 2020 9:15 am

tomfoolery wrote:
Tue Apr 14, 2020 3:03 am
I believe the stock market will drop another 20% to 30% over the next 6 months. I want to speculate on this in my variable portfolio.

It feels silly to be long total stock market index in my PP and go short the same holding in my VP which are both held in the same brokerage account and only exist separately by virtue of me saying they are separate on my financial spreadsheet. If I die and the spreadsheet gets deleted, there's no indication to the outside world that I "intend" the two portfolios to exist separately within the same brokerage.

So, I have an idea. What if I short my PP holdings, pretending the PP and VP are two separate entities, which they are supposed to be anyway?

For example, suppose I had $500k and $400k was my PP and $100k was my VP. I'd be holding $100k total stock market index or SP500 index in my PP. Suppose I want to go short $50k in my VP.

I could "lend" $50k of my total stock index from the PP to the VP and provide an IOU for those exact number of shares lent. I then sell the $50k of stocks from the PP. In my VP, I can do whatever I want with the $50k cash, let it sit in cash, buy gold, whatever. But, if the stock market rises, I risk a "margin call" from the VP to the PP because the PP is money I can't afford to lose and am not allowed to rebalance from the VP.

In other words, two scenario examples:

Sell $50k of stock index. Sit on $50k cash instead. My PP is essentially $350k with a current value $50k IOU from the VP and my VP is $150k with a debt owed to the PP. Suppose the stock market doubles. The IOU isn't for $50k, it's for X shares of stock index. Since that doubled in value, the IOU is worth $100k. Assuming my VP only has $100k of actual assets in it, I am forced to liquidate my entire VP and use the money to buy back the stock index shares. Thus, my PP remained equivalent as if I never did this, but I wiped out my VP completely.

Or, I sell $50k of stock index and it loses 50%. Then whenever I decide to stop shorting it, my VP will buy back the now $25k worth of stock index funds and "transfer" back to the PP. My VP gained $25k and my PP lost $25k however my PP was going to lose that $25k regardless of whether I "shorted" stocks in my VP or not.

I find myself wanting to short the market as a whole and it seems silly to maintain $100k of stock index while simultaneously shorting $50k of stock index. This type of positioning adds counterparty risk and transfer fee/inefficiencies (buy/sell spreads).

The biggest risk seems to be of self-control, will I really limit my losses to the VP and not recoup money from the PP?
6 months is way too far out to be looking. If the market is going to drop again, it's going to do it in the next 1-2 months. All probabilities are that 6 months from now the bottom will be in (if it's not in already). So, be careful. I'm bearish on the short term myself, but the trillions they are pumping into the system could be enough to diverge the stock market from the economy. I mean do you realize how much a trillion really is? A trillion seconds is equal to 31,709 years. Congress has done 2 trillion in stimulus, the Fed has provided an additional 2 trillion (and counting), congress is looking at further stimulus... The Fed went around congress to purchase junk bonds, so what will stop them from doing the same for stocks? It is a lot of upward pressure they adding. It's not impossible that the bottom is in already. Just be careful is all I'm saying. If your going to short, wait for technical confirmation, stay short term, and keep a tight stop loss.
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Re: Shorting a PP Asset in your VP. How To?

Post by finster869 » Tue Apr 14, 2020 12:52 pm

How about using a covered call option strategy?
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Re: Shorting a PP Asset in your VP. How To?

Post by ochotona » Tue Apr 14, 2020 1:07 pm

finster869 wrote:
Tue Apr 14, 2020 12:52 pm
How about using a covered call option strategy?
Good idea.
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Re: Shorting a PP Asset in your VP. How To?

Post by ochotona » Wed Apr 15, 2020 4:05 am

tomfoolery wrote:
Tue Apr 14, 2020 11:33 pm
Covered calls seems like it eliminates the upside from my long equity position. Such that if the market skyrockets, I'm kind of boned.

Also, the other comments so far seem to be around whether doing this is a good idea or not. To be really clear, I'm not specifically limiting this to stocks. I'm considering a methodology to which to apply for any of the 4 assets in the future that I might want to speculate will drop in value in the short term.
It was done in 2010

https://mebfaber.com/2010/10/28/timing- ... bernstein/
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Re: Shorting a PP Asset in your VP. How To?

Post by Kbg » Wed Apr 15, 2020 7:41 am

I’m going to answer the question and ignore your portfolio mechanics.

There are a lot of things you could do to go short 50k

Buy puts, sell ITM calls, short micro futures, short 50k of stock, short 150k of stock in something else while keeping your position, buy an inverse etf, buy a leveraged inverse etf.

Each one of these has pros and cons, requires or provides different amounts of capital and are subject to your brokerage account permissions.

I won’t provide anymore advice unless I see evidence you’ve done your homework on an option. You should know what you are doing before you do any of them.
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Re: Shorting a PP Asset in your VP. How To?

Post by Cortopassi » Wed Apr 15, 2020 7:47 am

Kbg wrote:
Wed Apr 15, 2020 7:41 am

I won’t provide anymore advice unless I see evidence you’ve done your homework on an option. You should know what you are doing before you do any of them.
+1 million. Please know what you are doing.
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Re: Shorting a PP Asset in your VP. How To?

Post by Smith1776 » Wed Apr 15, 2020 8:05 am

There are several ETFs out there that do covered calls for you if you don't want the hassle of doing it yourself.
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Re: Shorting a PP Asset in your VP. How To?

Post by Kbg » Wed Apr 15, 2020 10:15 pm

Smith1776 wrote:
Wed Apr 15, 2020 8:05 am
There are several ETFs out there that do covered calls for you if you don't want the hassle of doing it yourself.
Covered calls are not shorting. They are fundamentally a bullish position with a cap on the upside. (Sorry if I missed a post...the covered call ETF post didn't make sense to me.)
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Re: Shorting a PP Asset in your VP. How To?

Post by Smith1776 » Wed Apr 15, 2020 10:17 pm

Kbg wrote:
Wed Apr 15, 2020 10:15 pm
Smith1776 wrote:
Wed Apr 15, 2020 8:05 am
There are several ETFs out there that do covered calls for you if you don't want the hassle of doing it yourself.
Covered calls are not shorting. They are fundamentally a bullish position with a cap on the upside. (Sorry if I missed a post...the covered call ETF post didn't make sense to me.)
Yeah no worries. Finster869 mentioned it briefly above.
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Re: Shorting a PP Asset in your VP. How To?

Post by Vil » Mon Feb 01, 2021 1:12 pm

ochotona wrote:
Wed Apr 15, 2020 4:05 am
It was done in 2010

https://mebfaber.com/2010/10/28/timing- ... bernstein/
Do you have any idea what's the logic that Meb applied for PERM TIMING ? Playing around (Pinescript on TradingView) with PP and as expected it's quite hard to achieve anything meaningful. Doing simple backtests with SPY/GLD/TLT since 2005 (I know I can go quite before, but I am just one lazy coder..) and especially in congestion areas around MAs we have pretty much whipsaws, if we prolong the lookback period.. you know better than me what happens. Curve fitting can go in vicious circle while doing such attempts (using (E/S/W)MA ribbons, etc., up to your imagination..). Tend to believe such timing is more of help in reducing MaxDDs, than anything else (as increasing alpha).

EDIT: As far as I understood from other resources (as its not really evident from Meb's post) he is using 10 month MA for filtering (10 M vs 200 D in order to have less recalculation points and less whipsaws). But again, nothing impressive, I guess it's once again all about the 'taste' of the investor

EDIT2: So, in general tend to agree with the following (taken from here):
The simple Faber moving average approach on its own does not seem to deliver much value above the profile of the traditional PP approach. However, combining a tactical moving average approach with simple volatility management delivers similar high returns, but without the major drawdown characteristics of the simple MA approach.

Sorry, if those things were posted here before, I just had a bit more of time now to dig into further. By the way gaining speed with Pinescript v4 coding, if you want any of already_more_than_50 of mine worthless strategies/backtests or indicators you can give me a sign, I will generously share ;D
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