CFD investing

[Cartman]

Yes, probably. The guy was wanting to invest in blue chip fundamental stocks, so I'm sure it's fine for him to start intraday trading forex. Yes, missed your point. Sorry.

ok -- im not gona get into another pointless brawl over semantics with clever people who appear not to read what people actually write ------- but correct me if im wrong ----

Itsmejasong was talking about over leveraging himself to the hilt on CFD's was he not?? --- Is that actually investing? ---- not in my world its not!!

and since when do Forex traders only trade intraday?? ----

id much rather see him blow a couple of $1000 accounts on FX and learn a lot about T/A, than put 50 grand of leveraged cash on shares in a CFD account ---

What do you think he should do ?? (serious question)

 

[CapnBirdseye]

With this equity I'm thinking of leavering it up using cfds to buy blue chip companies (WPL, BHP) at a margin of 10%.

I agree with the other posters here. Using highly leveraged CFD with limited exposure to losing in the past is asking for trouble. Trust me I know. Also trading CFD's can be quite stressful if you have a full time job. Current market volatility is not your friend.

Personally, actually my current trading strategy is looking at small/mid cap stocks that have taken a real hammering ands are now starting to recover. By learning some TA and how to scan charts there are some very good gains to be made, and quickly without leveraging. It's all about risk and money management.

Have a look at Kennas' morning posts. He's pointing out a couple of miners every day who's SP has doubled in the last month! You won't get that with blue chips. But you risk has to be managed in order to make your overall strategy profitable.

Good luck, and please stay away from CFD's for at least a couple of years! If you no get tempted and cant be pursuaded otherwise, start with your own cash, not the banks. If you do well enough, there is no need to borrow more, if you don't, then its a lesson well learned.

 

[Ardyne]

Would be nice to know how you guys are planning your portolios for the next 12 months??
if your using leverage what type and how much?

I buy bluechip shares that pay dividends as close as possible to an 18 month "at the money" put option. borrow the money for the shares and buy the option with my capital.

over the 18 months you receive most of the put money back so the main risk is interest. Beauty is you can participate on the down side

I bought 5000 ANZ this way at $20.50 in March last year. (Not so smart hey).
but I exercised my put. (paid back my loan money.) and re-bought them at $12.00. As of $17.20 I break even. AND my margin loan dropped from $100,000 to $65,000 so I'm looking to buy something else.

Also with an account where the options "speak to the margin loan" you NEVER get margin called as long as you have the puts.
Anyway its what I do.

Goodluck...and the CFD advice here is wise. Be vary wary

 

[Nero64]

Firstly.. CFD and INVESTING doesn't go in the same sentence

You can use CFDs to invest. Some providers allow you to buy CFDs using no margin, so there is no interest and you can change your stop price and set a limit as much as you want. Marketech used to offer this on small stocks.

I buy bluechip shares that pay dividends as close as possible to an 18 month "at the money" put option. borrow the money for the shares and buy the option with my capital.

Hey Ardyne, does the put option only get triggered when the share goes below the put price. What happens if it gets triggered and the stock jumps 100% if the company gets taken over. Do you have a stop with the put option. Do you only lose your initial layout?

 

[Ardyne]

Hey Nero
I BUY the put option so therefore I have the OPTION to sell my shares at the strike price for the next 18 months. It only gets triggered when it expires or I choose to execute it. If share price drops below the strike price I wait until I beleive the price has bottomed or if the reduction in my margin loan (selling at the strike price and then re buying shares at the new low)justifies the expense of buying the new option at the new buy price.


I see it as . I buy a $100,000 car...I buy insurance
I buy a house. I buy insurance
I margin loan $100,000....I buy insurance (put option)

Imagine buying a car with insurance that gives you a rebate (dividends) and if after a year it drops buy 30% you can sell it for what you bought it for ?

 

[mullys]

Hey Jason,
So far it looks like not alot of people want to give you any suggestions. You will loose all your money if you do what your going to do.
I would suggest before you loose it you should go spend $30 and buy Adaptive Annalysis by Nick Radge. He talks about CFDs in the first few chapters and how to use stops to minimise your loss. At least you will learn something if you try some of these methods as you go. Good luck.

 

[Kez180]

Great advice! Jump off that roof with the sheet as a parachute! Sail away! Whoohooo!

But could you imagine if that WORKED!

 

[cutz]

Hey Nero
I BUY the put option so therefore I have the OPTION to sell my shares at the strike price for the next 18 months. It only gets triggered when it expires or I choose to execute it. If share price drops below the strike price I wait until I beleive the price has bottomed or if the reduction in my margin loan (selling at the strike price and then re buying shares at the new low)justifies the expense of buying the new option at the new buy price.


I see it as . I buy a $100,000 car...I buy insurance
I buy a house. I buy insurance
I margin loan $100,000....I buy insurance (put option)

Imagine buying a car with insurance that gives you a rebate (dividends) and if after a year it drops buy 30% you can sell it for what you bought it for ?

G'Day Ardyne,

Sounds like an interesting strategy, what did it cost to buy 5 puts 18months out?

 

[Sicilian Trader]

With this equity I'm thinking of leavering it up using cfds to buy blue chip companies (WPL, BHP) at a margin of 10%.

itsmejasong,

(I just tried to PM you but dont have it activated)

ItsmeST. Jesus, you sound exactly like I did about 6 months ago.

Great advice on this thread btw.

Coming from someone who did exactly the same thing, MY ADVICE IS:

---- Wait on the sidelines and dont invest in CFD's (yet) ----

i was in the same position you were. this was my thinking and what played out:

- had some significant cfd's profits during november 2008,
- 25K equity, total p/folio 700K, made 10% (less interest) in 2 weeks (about 60K)
- thought i was gordon gekko (started wearing braces to work and bankers shirts)
- told all my friends about it because at this point i was a new market wizard, an overnight genius
- liquidated my entire portfolio with a 200%+ gain in just over 2 weeks
- started having feelings of grandeur
- was in the market for a house to live in at the time (with a 5 - 7 years time horizon)
- but thought to myself properties aint going up 25%-40% over the next year, why not buy the equivalent of a house in the market through 'cfd investing'?)
- Effectively I was going from a Gekko mentality to thinking I could be Warren Buffet by next summer
- so i threw in all of my equity + gains in cfds, leveraged to the f-ing eyeballs, close to $1m with cmc, some 1% margin requirements on some "high yielding blue chips"

guess what happened?

- had a 3-4% drop over a couple of days and handed 40K back to Trembling Hand and others like him in the market
- Most of my newly 'hard earned' cash was gone
- Liquidated everything, still took out 20K , so still had 80% return
- That was all in the month of November, havnt really touched a CFD since (not with anywhere near the same stupidity and ignorance)

I was VERY VERY lucky to get out the way I did.

the one realisation I had was that I was investing (gambling) on hope and NOT expectation. I had no edge and was a fool to think i could sit and wait for my $1m portfolio to double by 2011. I realised that making profits can be a lot more dangerous than making losses because of this feeling of invincibility (scary to think how quickly one can extrapolate their fictitous wealth). I also realised that I would be paying tax on my 20K, but if that was a gain made from gambling (which is what I was effectively doing) then no tax would be paid on it.

So i took a breather and I buried myself in books and in this forum, courses, simulator, back testing, only to realize that i knew NOTHING (nothing!) and how lucky i am to have avoided paying back money that I could have lost due to slippage (jesus, i get chills thinking about it)

Take you time, there are always opps for trading / investing , you just need to be ready and know where to look, markets wont go anywhere

Advice,
- become active on this forum, read as much as you can , there are some jewels of knowledge on here (free!)
- Agree with a previous post, buy nick radges book on adaptive analysis (the first 50 pages will be for you, read it 3 times)

Other books that have helped me given you are where i was 6 months ago (but may be a little early to read right now, maybe just for consideration) :

- Trading in the zone (mark douglas)
- Fooled by randomness (nassim taleb) or Black Swan (same author)

Good luck mate and be patient

ItsmeST

 

[itsmejasong]

thanks guys for all your input!! will study cfd trading ALOT more before I have a go.
Just wanted to say theres a good group of ppl here on ASF

 

[Ardyne]

Cutz, how are ya

Each option was about 3.2k each and covered three dividends which were

0.64 +0.72 +0.64 = 2k after franking . (maybe 2.7k before, not sure exactly)

I rolled down anz from $20.50 to $12.00 before the third dividend but the reduction in my margin loan was worth it. i plot it on a spread sheet to keep track of it all.

I recently rolled back up to $16.00 puts locking in the $4.00 move from up $12.00 and will roll up or down depending on the movement of the market. If anyone is interested in this strategy at all I'm happy to post my progress in a new thread since it doesnt really belong here. Biggest risk to this strategy is if the stock doesnt move up or down over the 18 months. Its a lower reward/lower risk type strategy. In my opinion anyway

 

[cutz]

G'Day Ardyne,

I don’t mean to sound critical, just stimulating discussion regarding stock hedging strategies but I think buying puts with 18months to go seems to be a rather expensive way of doing things, I can see your point of you insure house/car so why wouldn’t you insure portfolio but the premium on house insurance is a minuscule amount compared to the value of a home.

IMO on a stock like ANZ (has low volatility) if I wanted to hedge I’d go for a split strike synthetic short, i.e buy just OTM puts and sell some OTM calls to fund the put purchase, one month at a time.

Mind you this may be awkward to manage on a stock like Macquarie with has high volatility as it will cap your upside, I know all about this as I purchased some MQG stock recently but the management of the above strategy has become tedious, especially with the recent surge.

But if your method is profitable who am I to say.

BTW your suggestion of starting a thread RE hedging methods sounds like a good idea.

 

[Ardyne]

critisism will only improve what I do. Theyre probably are better ways to do it and the strategy is evolving over time but I comfortable with the risk profile this has. with what you suggest thats a possibility as i'm investigating moving from 18 month options to shorter term ones with greater deltas so I can roll up and down at smaller % moves in the stock price. I plan to sell calls when I get within reach of a certain profit target for each position.

I'm not looking for every last cent I can squeeze out of every roll up or down. I'm trying to get a delta of about 0.7(or is it 0.3?) on the rolls up and down. So if the stock moves $1.00 up i want to pay and additional $0.3 to secure the $1.00 move (giving me $0.7 locked in with the put). If it rolls down $1.00 I want to pay $.3 (or $300 for the option)to reduce my margin loan by $1000.00. If its at 0.65 and the charts look good I'll roll early to secure my profits...make sense ?

re home insurance. Remember I get a fair bit back in dividend which reduces the amount I've paid by expiry. I get your point though.