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.
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 the dividends you won't receive), and then receive a payoff equal to the change in that asset's price. So you are basically borrowing at 1-2% interest. If you are more careful about the analysis and the procedure, you can get quite close to market interest rates.
This loss is the sticker price, it doesn't depend on any not-immediately-verifiable claims about option pricing.
(I don't recommend investing in the S&P 500).
Do you mean in my "Do Call Options Have High Expected Returns?" piece or elsewhere?
What are worse? Theoretical predictions?
Why not? Shouldn't all capital markets have about equal expected returns? Or do you mean that some markets have higher returns due to higher systemic risk?