How to place crazy bets without the risk
Investors are afraid, and for good reason, the market outlook for the next few years has us all wondering where we all might be just a few years down the road. Economist predictions are all over the map ranging from depression-esque slowdowns to a huge market rally in late 2009. In this post I’ll describe how you can afford to take huge risks, without any risk. I swear its possible.
Luckily the credit crunch is pushing rates sky high for CD investors. Banking institutions that are better known for their credit cards are having a hard time finding money and capital, this is good news for our minor hedging bet.
Discover Bank better known for their orange circle and the Discover Card currently has some of the highest CD rates in the business. They can do so because they are re-allocating CD investments into credit cards which happens to be a great way to leverage money. All the while they maintain a perfect credit rating, their business is sound and in case all else fails they’re FDIC backed.
Now lets consider how we’re going to arrange this bet. Consider that you have $5000 to invest and want to make a guaranteed bet. You could put all $5000 into the CD and have $6000 when the CD matures, but we want more than just a 20% return, we’re going all out here.
You could put just $4170 into the CD and at the end of the 5 year term you’ll have $5004 back. Bingo, we’ve found how much we need to invest to insure a full guarantee.
With the remaining $830 we can take an obscene amount of risk. Buy anything you like as its guaranteed, perhaps bank on the rebounding financial industry and buy up some XLF. The financial sector has been crushed but there could be some huge profits on the rebound.
Or perhaps some USO, the oil industry isn’t faring well with $30-40 oil but we all know this could only be a matter of time.
Or if you’re feeling really lucky, go all in on an option play with ONE company either in XLF or USO. Its up to you want you want to do. Remember, you have very little risk, you’re full investment amount will be returned back to you in five years.
This can be leveraged up or down or extended or shortened to other time periods. This strategy is effective and will allow you to take big bets without worrying about your account balance. Go crazy folks, there’s some money to be made in these volatile markets.
Pretty good blog. Would you like to share some ideas on building a more mechanical system based approach? I am working on that through my blog The Compleat Trader. The original idea was to keep it more like “open source” but the response so far has been quite lukewarm, so am on the verge of abandoning the idea. But still, the approach of using Genetic Algorithms and ANNs is quite feasible.
Cheers.
gold & oil now, as the world comes off its massive margin call and the deleveraging subsides…reflating is the goal worldwide so look for rates to stay near all time lows, govt’s continuing the race to debase their currencies, massive, massive stimulus plans, because the only way out is to inflate our way out and of course it end up overshooting, in the meantime their will be lots of volatility but overall we are going up—pk