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Jay Pestrichelli and Derek Moore are back to walk through several examples of how we hedge concentrated stock risk. Various techniques like direct hedging, covered calls, volatility selling overlay, and more are talked through. See how it would play out with stocks like Conagra, Apple, and Proctor and Gamble where they explain targets and outcomes when hedging was needed and when it wasn't. What a...

ZEGA Financials' Jay Pestrichelli joins to discuss how risky single stocks are and how we have developed a system to hedge that risk. Some people want to hold concentrated stock positions due to tax consequences and are reticent to sell. See how using a hedging strategy can help manage risk, schedule diversification, and use hedging profits to buy more shares otherwise known as the hedger's opport...

You might have read that covered calls are a good way to hedge. They do have utility for investors, but they are not an optimal hedge. Understand how they only minimally reduce the downside while reducing the upside. Plus, see how low interest rates have undermined call premiums.     What are covered calls? How much do covered calls hedge the downside? How do covered calls cap upside moves? Exampl...

Recently I found several different research pieces showing how at the very lows of the Great Recession in 2009 the percentage of funds in money market funds was at its highest. In 2009 the fund flows to bonds were greater than the previous 5 years combined. So why with equities so cheap did people stay in cash or bonds? Wouldn't they want stocks when they were cheaper? This highlights how investor...

You here quite a bit of talk about the top 1% of wealth in the media. But what if it was easier than you think to land yourself into the top 10% of wealth in the United States and across the world? Derek Moore takes you through the numbers explaining what asset levels it takes to get into various percentiles of net worth and runs the numbers on what type of assumed growth rates and contributions i...

Post corporate tax cuts of 2018, share buybacks have been talked about both in positive and negative lights. Some think companies should use their free cash flow differently. But how do share buybacks benefit shareholders by boosting earnings per share? Key  Takeaways: What are share buybacks? How share buybacks increase earnings per share or EPS Similarities between dividends and share buybacks H...

No one likes paying capital gains tax (although better than losses). Yet what if you were paying on gains only due to inflation where your purchasing power didn't grow? Recently some U.S. Senators wrote a letter to the Treasury Secretary Steve Mnuchin urging him to consider indexing capital gains for inflation. What would that mean for individual investors?     What would it mean to index capital...

Debit and deficits continue to be in the news. This includes funding levels for public state pensions. But what does it mean to be underfunded or overfunded? What discount rate or investment return assumptions are they using and are they realistic? Derek Moore discusses and simplifies what makes up this discussion and ways that they could get on track.   What makes a pension underfunded? Are inves...

It seems like lately there has been more an more talk about interest rates moving closer to zero in the U.S. So which bonds will move the most when rates move lower (or higher)? Derek talks through various types of bonds and how they are different plus see how to tell how much a change in rates can hurt or help investors holding bonds. We even touch on bond convexity!   How do interest rates chang...

Companies can issue debt via bonds to raise capital. But how can you tell whether they have too much debt issued? What are some key ratios to look at to evaluate for yourself? Derek Moore explains how interest rates effect the cost of capital (WACC) and how to see when a stocks debt is maturing and what interest rates they must pay. And what are Zombie Companies?   Interest Coverage Ratios Debt Ra...

Commentators on CNBC are always opining about whether a market is overvalued or undervalued. But how would you look for yourself to make your own opinion? In this episode Derek Moore reviews the S&P 500 Index earnings per share, forward earnings estimates, PE Ratio, Forward PE ratio, and more. Plus, a review of what composes earnings per share growth including margins, share count, and revenue. Le...

Lately commentators have been trying to predict the next recession. But what would you look at to try and tell for yourself what the numbers are? In this episode Derek Moore reviews the 5 areas that the NBER per their site uses to develop their criteria to call recessions.     What is a recession? NBER historical list of recessions Real GDP Growth Rate Real Median Income Growth in the U.S.   Unemp...

How risky is just holding a single stock in a portfolio? Often either through company stock grants or holding company shares for very long periods where it has appreciated investors may wind up holding either a single stock or just a few. This creates single stock risk and has both systematic stock risk and idiosyncratic stock risk. Derek Moore reviews how the volatility via the standard deviation...

Derek Moore explains the theory of time decay in options otherwise known as options theta. How does the erosion of time decay benefit option sellers? Plus, how much do position decay from day to day. How much of a factor is theta time decay relative to other things like volatility and underlying price movement? And how does options time decay work over weekends and long holiday weekends with regar...

Derek Moore and Jay Pestrichelli team up once again to discus how probabilities are used to understand where to sell short options to generate premium. Discussed in this episode are who is on the other side of the short volatility trade, how changes in implied volatility impact expected multiple standard deviations of expected movement, and how value at risk VAR impacts option premiums. Plus, they...

Jay Pestrichelli once again joins host Derek Moore to discuss all things hedging and options. This week they talk through some surprising data Jay compiled that shows markets are within 3% its all-time highs 36% of the time. Many people like to try and time the market thinking markets are too high. Another data set shows often markets never get a pullback during bull runs. Plus, Jay and Derek test...

See what factors determine how an option is priced. Whether on a stock index or underlying stock, time, implied volatility, interest rates, dividends, and distance in or out of the money all play a role. Known as the Black-Scholes model, Derek breaks down the inputs and which ones are more significant not only to option premium levels but also changes in price.   Explaining the option greeks Delta...

There are now over $12.5 Trillion dollars outstanding of negative yielding bonds. That's right, theoretically you are paying some country to lend them money. In reality you don't write a check twice a year. The idea of a negative yielding bond may not make much sense. Derek Moore will explain how negative yielding bonds work and how much more sensitive (and therefore risk) they are to changes in i...

Want a Bond refresher? Derek Moore talks about how bonds work, what effects prices and rates, and how to look at corporations and their debt.     How do bond ratings work and what do they mean? What is the interest coverage ratio? What is the corporate debt ratio? Differences between government and corporate debt How interest rates effect bond prices What is the yield to maturity? What is the yiel...

Broken   Pie   Chart   |   Episode 31 With   Derek   Moore   Is The Federal Reserve Really That Bad At Long Range Economic Forecasts?   Show   Summary:   In this episode Derek Moore discusses how the Federal Reserve economic survey projections have been off, especially for long run economic forecasts. He also clarifies the difference between the Fed Funds Rate, Discount Rate, and IOER or Interest...

In this episode Derek Moore helps to clarify the difference between a real return (adjusted for inflation) and a nominal return. This is especially important when looking to increase your purchasing power. Plus, Derek simplifies the difference between taking a simple average and a geometric average. The difference may surprise many people.       What is a real return versus a nominal return? What...

Jay Pestrichelli is back to join Derek Moore in a discussion around options. Particularly myths around options investing. Why we don't do individual stock analysis and picking. How someone with low-cost basis in a concentrated stock position can hedge. And are coconut's more dangerous than sharks?   • Why use Broad Index Exchange Traded Funds for diversification • Why we don't do complex individua...

Often investors notice that after an earnings announcement a stock has the potential to move depending on the news. But what type of volatility or movement was expected before the announcement? Using implied volatility, we can look at how option premiums are pricing in potential expected moves. Derek Moore explains how the numbers work and how you can see what a one standard deviation expected mov...

Lately things like the Universal Basic Income (UBI) and Social Security are debated on TV. Commentators throw around numbers and whether a program can be paid for. Plenty of debate on each side but why not understand for yourself where all these numbers are coming from. In this episode Derek Moore covers what makes up the Federal Budget, Tax Revenue, Interest Payments on Debt, and how much somethi...

Derek Moore and Jay Pestrichelli are back with part 2 of their discussion around the myths prevalent in the 60/40 portfolio. This week they highlight how bonds with low yields may have even more potential interest rate risk than investors think. Plus, they elaborate on why some diversification strategies fail touching on increased risk of the All-Weather Portfolios and Risk Parity Strategies. Fina...