Global Indices

I normally devote most focus on domestic markets but while checking the performance of global indices (Link to the BBC article I read) yesterday I was somewhat surprised by the extremely poor performance of the Indian stock market (BSE SENSEX). The index as a whole is down 24.6%, making it one of the worst preforming markets of 2011. An even more alarming fact is that the INR (Indian Rupee) has become 17.5% weaker against the dollar in 2011. Making the real rate of return of the SENSEX -42.1% a quite astonishing move downwards. In 2011 Indian companies earned 1003 points on the SENSEX, which is 7% of the index value. Since most companies in the SENSEX do not pay dividends (Yield of 1.2%) a majority of these earnings were retained and improved shareholder equity by 5.8%. Therefore as its stands today the SENSEX is a jaw-dropping 47.9% lower than at the beginning of the year.

Remember cheaper does not always mean better, nor does it mean that the SENSEX will recover in 2012, but it is certainly something investors should keep in mind. One of the most accredited experts on valuation Aswath Domodaran (Link to his blog) has said that situations such as these provide opportunity. His rational being that there are fundamentally sound companies traded on the SENSEX that obtain a majority of their revenues globally and are therefore largely protected from the general state of the Indian economy. The stock of these companies however is exposed to the wrath of the general SENSEX index. Meaning that the stocks of these companies goes down with the SENSEX which reflects the state of the Indian economy, when in fact these stock are for the most part independent of the Indian economy and are exposed much more on the global economy. Over the next few months I will try to identify some of these companies and may take positions in them.

Welcome To Op Ex Derivatives

There is no question that investors in today's markets are partaking in some of the most volitile markets in the last century. With the advent of high frequency trading and other computer based trading systems financial markets are facing unprecedented volume. The fact is much of this volatility and increased risk erodes initial capital, and even professional investors that have brilliant minds and extrodinary tools at their disposal are unable to beat the broad market indices.

There is hope for the individual investor in the form of derivatives. If used correctly derivatives help pass of the risk prevalent in equity investments to another party while locking in gains for the investor. In this blog I will seek to find strategies and trades that allow the individual investor to use derivatives the their advantage in the never ending pursuit of beating the market.
Through my years of investing experience, I have found passive derivative strategies to be the most successful long term. This includes writing covered calls, buying puts for protection purposes, and occasionally trading in put and call spreads. This blog will focus on these strategies. Investors should always keep in mind that 75% of options go un-exercised at the date of their expiry.