No. of Recommendations: 0
Black,

For this experiment, I sold short the common, though for another experiment I'm running, I bought puts. The hassle with trying to use puts is, as you say, there are very few opportunities. At the time I was putting on that set of postions (pun intended), a Jan '13 expiration was as far out as I could go. Using the common gives me more flexibility.

As for numbers, I don't remember whether I posted them anywhere on TMF. But I did send them to a trading buddy, and they look like this. Across five long-short positions, my avg CY is 12.4%, and after two days, I was up on my shorts 8.9% and down on my bonds -6.5%, or net-positive by 2.4%.

Obviously, today's stock-price spring-backs are going to erode my gains on the shorts, and today's continuing falling bond prices are going to exacerbate my losses on the long leg. But these experiments aren't meant as quickie trades. They are long-term investments in every sense of that word. Fundamentals, not technicals, are what's going to make me my money, and the fundamentals of the issuers suck. You really don't want to be owning these bonds unless you've got more price protection than the mere promise of maturity.

The thing that is annoying is that these type of positions should have been put on months ago, because their risks would have been far less. But experiments are experiments, and I don't really care if I make or lose money. What I'll learn from running them is where their true profits are, and good info can be expensive in the short run, though very cheap in the long run, which is why I spend on R&D.

Charlie
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