Over the weekend, I read this article about Andy Zaky, a well-known aapl (bull) analyst who raised $10mm and lost all of it. This is not unique, as traders/funds all over have fallen on the aapl road-kill highway. Nonetheless, Zaky is unique because he often lost money when aapl was going up and going down.
Quote for the article:
"...the fund missed both of Apple's big 2012 rallies -- in April when it hit
$644 and in September when it hit $705. Zaky lost nearly nearly 50% of
the fund's capital in one month (March) by buying bearish put spreads
just before the stock rose 10%..."
(Source: http://tech.fortune.cnn.com/2013/03/04/apple-zaky-bullish-cross/)
This is from the same analyst who often forecasted earnings better than wall street analysts for many years. It was this ability that drew investors and commentators'-awe. He was spot on for so many years - what happened?
The short answer: he went all-in on one derivative position (aapl calls). The long answer - he confused predictions with the ability to manage money. And he wasn't the only one, with up to 700 newsletter subscribers which paid up to $200/month (same article). It's never just about hit-rate - it's how much you make when you are right and how much you lose when wrong (simple probability no?). The problem is correct calls are what make the headlines (and dare I say get you investors?).
An institutional level equivalent could be Paulson & Co. - he made 1 giant call correct and investors flooded in. The result? $15 billion of gains in 2007 were nearly overwhelmed by roughly $13 billion of losses 2011 (I did assume net flows of 0 that yr). Paulson can still claim +10% etc. time-weighted returns, but dollar-weighted, e.g. how much money investors have actually made? I think it is far less (dare I say negative?).
This is not an indictment of either person/firm- they have definitely made a real impact in the world (far more than I) and may continue their profits. I do believe, however, that investor focus on % correct and famous calls are not good predictors of fund performance. what do you guys think?
Disclosure: no position in aapl
(icon source: http://roypetitfils.com/2011/06/it-shouldn%E2%80%99t-be-that-way/)
Great point that goes overlooked. Monetizing your thesis is just as important as actually nailing it, though there's plenty of leeway there and getting the call right is kind of first and foremost.
You just gotta be right during the period of time that you invested.
You buy low and you sell high.
Why is a dumbass analyst trying to trade options....Options pricing is all about volatility. There is nearly no time I can see where trading options for a long/short idea would be the right play, in short, fucking retarded. If you don't have the basic math skills to understand volatility you will be this guy.
Hope every IBD monkey learns a lesson reading this.
For leverage?
I think you've just seen why you don't play options to leverage a long/short idea. You're making huge assumptions if you think the position's leverage outweighs the amount of risk you've taken on. You now have to be right within the expiration time frame. Also the contract is going to have a time value that is decaying as the days go by which impacts even how much you could gain in a trade before expiration.
+1
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