Margin lending questions

beamstas said:

CG is capital gains

Click to expand...

I knew it would be somthing obvious

Hardly anyone uses Margin correctly.

This thread is a perfect example.
Radge taught me how and many others and its not seen here.

I wont devulge his teaching unless he allows it or is willing to share it.

But needless to say---correct use takes away the Risk people needlessly place them selves in with margin---all types.

Well I hope Radge decides too post. I would like to learn how to properly manage a margin loan.

Another way to do it is

(very close but only approx values used)

eg anz pay a dividend of $1 per share fully franked. (They cut it to this todayand i'm not 100% sure what it is). so say $1.30 before franking

say ANZ is trading at $13.00

A NOV09 $13.00 PUT OPTION is 2.62 ($2620.00)

Borrow $13,000.00 and buy 1000 shares. Purchase the above PUT option with your own money.

Scenarios.

As of NOV09 (covers 2 bi - yearly dividend payments)

1.
ANZ trading at $13.00.
PUT is worthless.
With dividend money you received during the year purchase another put out till NOV10.
Loss will be the interest on the 13,000.00 which at 9% for 8 months will be approx $900.00 which is a deductable expense

By NOV 10 it will cost say another $1200.00 interest

Break even price will be ($13,000 +$900 +$1200)/1000shares = $15.10 at NOV 2010
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2. ANZ at $16.00
PUT worthless
share value - loan value = $3000.00
interst = $900.00

profit = $2100.00
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3.ANZ at $10.00

Exercise put and repay $13,000.00 loan.
With dividend money you purchase another put out till NOV10 .
buy 1000 shares at $10.00............
new loan balance $10,000.00
interest $900.00

Break even is ($10,000 + $900 +$1200)/100shares = $12.10 by NOV 2010

Some stock dont pay good dividends so it works better for some than others.

Some brokers let the option account "talk" with the margin account so you can borrow 100% of the share value and NEVER get margin called. The fianl advantage is in option 3 where you get to participate in the down side

Thanks Ardyne, I have never traded in options before, so I have a lot of research to do before I would consider that, but it looks like an interesting option to invest in options anyway

Anyone else like to share their experiences with margin loans or have any further advice on managing one?

Cheers.

tech/a said:

Hardly anyone uses Margin correctly.

This thread is a perfect example.
Radge taught me how and many others and its not seen here.

I wont devulge his teaching unless he allows it or is willing to share it.

But needless to say---correct use takes away the Risk people needlessly place them selves in with margin---all types.

Click to expand...

Haha, what a tease. :

if you have a 50% loan, you are basically just adding a multiplier to all your trades/investments.

Hence, your gains are 2x (minus interest/loan), and your losses are 2x (minus interest/loan) - pretty basic stuff.

So the real question is.... is your system going to be profitable? or are you just going to throw money into the market and diversify like crazy?

It seems a case of putting the cart before the horse; once you can prove a profitable system - then you can adapt the leverage to it.
eg, if you system experienced a 20% loss at any given time... then if you leveraged up 5x 80%, you would of gone broke.

you probably think a system can only experience a 50% drawdown, but look at;
FlightCentre $28 -> $4
Suncorp $16 - $4
Babcock&Brown $25 - 0.10c

even Wesfarmers [didnt they release a profit increase?] $40 - $14

Just something to think about,