View Full Version : Survey: Do you think futures,options,stocks is+ev?

01-03-2002, 11:43 AM
1: yes or no and why

2: which is best and why?

Thanks for all responses.

01-03-2002, 05:56 PM
Stocks are positive ev in general, but at current levels are probably still overpriced.

Futures on equities are essentially the same as the underlying and allow for a leveraging effect.

Options are completely different and are fundamentally a bet on volatility. Typically historical volatility is lower than implied volatility which means that on average you will lose money on an option straddle.

01-07-2002, 12:27 AM
Stocks are EV for obvious reasons. Stocks will always go up because the economy is always growing over any significant period of time and that means more money into the market driving up prices. Futures and options aren't quite as clear. People forget that these were originally created purely for the hedging oportunities they create. They later became the place the biggest gamblers love to converge. After all when you order up contracts of pork bellies you really will get pork bellies if you don't close out your position. Add on top of this that its a zero sum game with the amount won by one person lost by another. When you add commissions it becomes a very difficult proposition. What happens is the people with the biggest resources (money) tend to have the EV in the market at the expense of the smaller fry that are more affected by commissions and have less room to make bad bets. Further the bigger players are generally more informed and can use much more complicated models to come up with their moves. One way I have always believed was EV+ is writing the bets. Selling the calls has long been a good way to gain cash flow and a small edge, with obvious risks that keep most from doing it. Once again a case where those with the money have the edge, those without it are mostly kidding themselves.

01-07-2002, 10:29 AM
I seriously take issue with your assertion that stocks always rise in the long run.

This may be true, but not in any way that is relevant to an investor.

What is relevant is, will stocks rise from the current price, given that you have the money to buy them, and given that your act of purchasing them has created a print at a higher price than where ther would have otherwise traded?

The only reason stock "always go up" is because people always just don't quite have the money to buy them today, but will at some future date.

The only way stocks can be undervalued is if someone manufactured stock in anticipation of a greater availability of money to invest in stocks than we find ourselves with. Or, if you pay more for a stock than it costs people to make stocks - because more money became available to buy stocks, faster and sooner then expected, you will lose money, as the supply of stock catches up.

By the way, what I just said is accurate! But it is still meaningless jibberish, to the extent nobody will understand what I meant:(


01-07-2002, 10:45 AM
You may be able to make money buying stocks in the long run.

You may also be able to make money going to work each day, or starting a lemonade stand.

But to say stocks offer an easier score than anything else an individual might do with his time or his money is misleading.

In fact, given that the stock market should be fairly priced by people who have absolutely no skills, no time, and no alternative uses for their money competing to buy it - their opporunity cost is zero - chances are if you can apply an ounce of labor to your capital, or make any kind of "choice" about where to invest, you can do better than the stock market.

But that's all a simplification.

I just didn't want to be accused of saying either that wealth/entropy doesn't exist in the human experience, or that it exists everywhere but in the stock market.

The point is, the stock market is no money machine.

Also, I am not aware that duration swaps - whereby you turn purchasing power or claims on human labor in one time frame into currency in another time frame - are inherently costless or profitable. Beyond the point of diminishing marginal returns, and given a duration-extension capacity which is fixed in the short term, investment might actually be a costly process, wherein you are competing against people who are willing to spend two apples today to get one apple 10 years from now.


01-09-2002, 04:21 AM
I agree with you and completely understand you, its just this is addressing the EV question. Stocks will certainly go up in time, enough to make them good investments or better alternatives to other investments is another issue. We must not forget that stocks aren't gambling or investing instruments, they are real claims against the businesses that make our economy run. As long as that economy grows, by default, stocks will grow too. Only if all the total growth in the economy was due to private individuals and companies, and not the public traded companies, could you find it possible for them not to go up. So unless you are predicting say a 30 year depression or period of zero growth, stocks simply by what they represent have to go up or else people are just total idiots. Lets not also forget that in this age of globalization and scale, companies are more and more becoming public or becoming part of public companies and its public companies that mostly have the scale and expertise to grow faster than the overall economy itself. This fact will probably drive stock prices up for quite some time above the economy's growth rate, but this is an issue that is something that has to be looked at over decades, not over the 90-day horizon it seems most investors value now.