Altruists who don't care too much about risk (and young people in general) should plausibly use leveraged investing. What's the best way to get leverage?
- Margin borrowing seems like the default solution. I might try it if there's nothing better.
- Theoretically options could be used, but I'm unsure whether they work in practice.
- Supposedly futures offer massive leverage, but I haven't explored the details, and they seem hard to trade yourself. I'd like something I can just buy and hold for a long time.
- Something else?
Ideally, there should be a fund that you just buy into to get leverage, with someone else handling the details. But leveraged ETFs don't work because they're optimized for day trading and as a result lose money for buy-and-hold investors.
Buying calls is what this book advises, but I'm very skeptical because of all the studies suggesting that call-option returns deviate heavily from theoretical predictions. Maybe it's different for one-year calls than shorter-term calls, but I'm still nervous. Glad to hear your thoughts.
They deviate heavily in the thinly-traded, far-out-of-the-money regime. I don't see such evidence in the normal regime. I don't expect big divergences because they would lead to arbitrage opportunities. And what's more, if there is such a disparity, then you can personally make a lot of money from it.
(They are worse 1 year out than over shorter time periods.)
The easy way to verify this is just buying a call at $X and selling a put at $X. You will lose 1-2% of the value of the underlying asset (if you go a year out on the S&P500; the loss is mostly in t... (read more)