hdt@sunybcs.UUCP (Howard D. Trachtman) (03/01/84)
"investments" such as commodities, stock options, penny stocks and the like and have done pretty well. I've been thinking of advertising it but unfortunately can't legally adverstise a track record. I'd be willing to give out my advise for free for a period of several months to people on the network. My question is seeing as how this might infringe upon commercial use of the network should I: 1) post to net.invest my selections 2) netmail my selections to intersted parties 3) Snailmail my selections to intersted parties 4) do nothing 5) your suggestions ? Howard Trachtman SUNY/Buffalo {allegra!seismo}!rochester!rocksvax!sunybcs!hdt hdt.buffalo@rand-relay
kjp@cornell.UUCP (Kenneth J. Perry) (03/09/84)
With regard to Howard Trachtman's "riskless" arbitrage opportunity (the one in his "newsletter" which claims a "guaranteed profit"): it just is not so. Trachtman asserts that, regardless of the price of IBM's stock on July 20, the portfolio of options he assembles guarantees a profit of at least two hundred dollars. This profit is assured ONLY IF IBM is selling for less than 110. For example, suppose IBM stock is selling for 130 per share on July 20. Then the put option Trachtman specifies (IBM 120 put) has no intrinsic value. Furthermore the spread between the two call options he specifies (long position in one IBM July 100 call; short in one IBM July 110 call) is worth only 10 points (that is, 1000 dollars). So on July 20, the portfolio which was bought for 1800 dollars is worth only 1000 dollars for a net loss of 800 dollars. Not exactly a "guaranteed" profit. In general, one should be wary of claims that "guarantee" a return on investment which exceeds the "riskless rate" (that is, the rate of return obtainable by an investor adverse to all risk of loss. The interest rate on Treasury bills or government-insured bank accounts are good approximations of the "riskless" rate). It is a fundamental tenet of finance theory that no riskless arbitrage opportunities exist whose return exceeds the riskless rate. Assuming efficient markets, if such a portfolio was shown to exist then everyone would buy it and the riskless rate would become the return obtained on that portfolio. The moral of the story is this: if an investment looks too good to be true, it probably is. Whenever you obtain a rate of return higher than the riskless rate, your investment must entail some risk. Some of us are willing to bear some risk in order to get a better return but one should never claim that none is involved.