Gyroscopic Investing

Kbg wrote:

Sam Brazil wrote:

slk23 wrote:How would one rebalance with futures? Is it possible to trade fractions of a contract? I assume not, which means trades are in approx. $100K blocks.

Also, the 20%-30% max. DD stated earlier for the PP sounds high. 1980 had the largest DD that I'm aware of: 20% according to http://www.peaktotrough.com/hbpp.cgi. Even 2008-2009, when things got very ugly, wasn't too bad: 14% according to http://www.etfreplay.com/combine.aspx.

For Gold, each e-micro MGC contract is like $13k, about 1/10th of GC normal gold futures contracts. So that makes for very granular control of gold.

For Stocks, if you went long ES ($104k/contract today) and short NQ ($89k/contract today), that leaves you net about 14k increments for you to play with. You could do it with the Dow or Russell instead for different combinations.

For long bonds, UB is about $192k/contract today and you could short ZB which is $172k/contract today, netting out to 20k increments to play with.

If you've got portfolio margin, I'm assuming that hedging in this fashion wouldn't reduce your buying power by much. Or even if you didn't you'd wind up with something like 10x leverage instead of 20x, but I'm too lazy to do the math.

Sam...freaking awesome idea. I always am amazed at the thoughts others have that simply never occur to me. Obviously not a perfect match but definitely worth spending some time studying. Off the cuff, the Dow and the SPX minis might be a closer hedge and the spread is roughly 14k as well.

slk23 wrote:Interesting idea to short the smaller contracts. However, aren't some of them fairly low volume with large bid/ask spreads? I've read that's the case for the smaller gold contracts, for example. I think I'd feel more comfortable staying with the very liquid full size contracts, filling in where needed with the VTI, GLD, and TLT ETFs.

I've been playing with a paper trading account at IB. Using ES, GS, and UB futures contracts with VTI, GLD, and TLT ETFs for balancing does work quite well but since the futures contracts are large it requires a fair amount of capital to guard against a draw down inducing a margin call.

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I suppose one could be long the full size contracts and short the high liquid ETFs in order to reduce overall portfolio size. That would avoid the less liquid gold mini/micro contract.

Sam Brazil wrote: For Gold, each e-micro MGC contract is like $13k, about 1/10th of GC normal gold futures contracts. So that makes for very granular control of gold.

For Stocks, if you went long ES ($104k/contract today) and short NQ ($89k/contract today), that leaves you net about 14k increments for you to play with. You could do it with the Dow or Russell instead for different combinations.

For long bonds, UB is about $192k/contract today and you could short ZB which is $172k/contract today, netting out to 20k increments to play with.

If you've got portfolio margin, I'm assuming that hedging in this fashion wouldn't reduce your buying power by much. Or even if you didn't you'd wind up with something like 10x leverage instead of 20x, but I'm too lazy to do the math.