Booms, Busts, and Recoveries Message Board

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Strategies & Market Trends : Booms, Busts, and Recoveries

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To: Seeker of Truth who wrote (53833)	9/29/2004 9:46:37 PM
From: Taikun	Read Replies (1) of 74559

Malcolm, Actually I use margin up to an additional 20% of my NAV and sleep well. I prefer to use margin to buy high yield CRTs since the income easily covers my margin costs. Statistically speaking, the biggest selloffs in the market have been about 24% (9/11) and 28% (Black Monday 1987) and since margin is quite available on CRTs (Interactive Brokers is giving me up to about 1.7x NAV in margin at CDN$ Libor of presently 2.032% plus 1% margin=3.032%) the net position after tax is quite positive. I feel that going into margin up to 20% gives me enough room for error. In a big enough selloff my portfolio would be supported by a few low cost (ie bought when the VIX is low)OTM index puts anyway, and even after accounting for them, the margin income less margin costs and cost of index puts would still leave the account net positive. In a really bad selloff the counterparties to the index puts might default anyway, but then again my brokerage might go bankrupt and there would be weeks of paperwork before I saw any cash again, so I'm fine with up to 20% margin. David

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