Slope of Hope Blog Posts
Slope initially began as a blog, so this is where most of the website’s content resides. Here we have tens of thousands of posts dating back over a decade. These are listed in reverse chronological order. Click on any category icon below to see posts tagged with that particular subject, or click on a word in the category cloud on the right side of the screen for more specific choices.
Reining In The Risk Of A Triple-Leveraged ETF
The Downside Of Leveraged ETFs
Leveraged ETFs can add some excitement to a
portfolio: bet right on underlying index, and you can earn double or
triple the returns of that index. The downside of leveraged ETFs,
though, is their potential downside. Consider one of the most
widely-traded leveraged ETFs, the Direxion Daily Gold Miners Bull 3X
Shares (NUGT): we're just about six weeks into 2013, and unhedged NUGT
longs who bought the ETF at the beginning of the year are already down
more than 29%, as of Tuesday's close (unhedged longs, that is, who didn't use stops. A quick search of Social Trade shows that the last Sloper who wrote about buying NUGT prudently used a stop order).
Too Expensive To Hedge Against A >20% Drop With Optimal Puts
As
we noted in a recent post, hedging a security against a
greater-than-20%
drop can offer a reasonable compromise between limiting downside risk
and lowering the cost of hedging. Unsurprisingly for such a volatile ETF
(as of Tuesday, the 52-week high
and low prices on NUGT were $26.69 and $7.62, respectively), its
puts are expensive. On Tuesday, NUGT was too expensive to hedge against
a greater-than-20% drop using optimal puts*. That's because the cost of
hedging it against a greater-than-20% drop over the next several months
was itself greater than 20% of position value.
The Brokenhearted Sloper
What’s Ahead for the Slope of Hope
For a number of weeks now, I've been hinting at the big improvements and changes ahead for Slope. As much as I enjoy giving surprises, I thought I'd spill the beans to some degree tonight and let you know what is slated for next month.
By the end of next month, Slope will be entering its 9th year of life (incredible, isn't it?) As the blog has grown, and as I've developed "side" products related to it, the content, experiences, and opportunities have seem increasingly fractured. I thought it was high time to start with a totally clean slate and re-launch the blog with a number of important principles:
Integration: First there was the blog; then I made my own comments system; then I made the Q&A forum;
then I went off and created SocialTrade; then there was Slope+. There are just too many parts out there, and they are clumsily integrated. That's about to change. You're going to find everything under one roof, and not only are things going to be better-integrated, but opportunities for more sophisticated integration are going to be there for the future.
Premium: At the beginning of 2012, I decided to offer a premium version of the site, and I faced a "make versus buy" decision. For reasons I don't really need to go into here, I decided to "buy", and let's just say it didn't work out the way I had hoped. I am therefore in "make" mode, and you Slope+ users will be hearing from me soon.
Control: On the same point, I also decided to outsource the site, which is also very uncharacteristic to me and a decision I regret. The way I'm doing things now, it's all going to be under my control. I am too much of a control freak about any product I make to have it any other way.
Focus on Community: Slope is about Slopers. By way of our terrific comments system, and a long history together, we have built the most vibrant (and talkative) financial blog on the Internet. The new site is going to have an intense focus on this aspect of Slope; you, the Sloper, are at the center.
Design: I'm the first one to admit that both Slope and SocialTrade are kind of ugly, and I've engaged the services of a high-end design firm that's putting together a beautiful new site for us all. I'm really looking forward to it!
And so, having said all that, trust that I am hard at work (and actively writing checks left and right) to create an entirely new Slope. I think you're going to like it, and it'll be here, Lord willing, next month. If you have any especially important requests for what you'd love to see, let me know, and I might be able to make it happen for the launch.
Warning Signs — And Ways To Hedge — For High Yield Investors
Warning Flags For High Yield
In a Slope post Wednesday morning (“An Interesting Divergence“), Tim highlighted a comment by Dollar, citing a market technician who warned that the price action of the junk bond ETFs HYG and JNK, relative to SPY, could signal a stock selloff ahead. Also on Wednesday, over at the CFA Institute website, fixed income manager David Schawel argued, essentially, that high yield bond price action offered warnings of its own for high yield investors. Schawel focused on two specific risks for high yield:
– Valuation Risk. Schawel quoted Loomis Sayles Bond Fund manager Dan Fuss on the state of high yield:
High yield is as overbought as I have ever seen it. This is absolutely, from a valuation point, ridiculous.
Incidentally, Fuss made a similar point about the bond market in general to Bloomberg recently, saying that bonds were more overbought than any time in the last 55 years (Fuss has been in the industry for 55 years).
