I’m An Investor…Get Me out of Here

The reality TV show I'm a Celebrity…Get Me out of Here has been on British television since 2002 and reappeared (aired in 2003) on American TV last night.  I'm borrowing the show's title for today's post.

Can you imagine a trading room, decorated as a jungle, and populated with traders of various persuasions?  We follow the action for one week and each trader sits at a computer screen and trades as many hours per day as he/she wants to trade. 

No trading software is allowed.  This is down and dirty trader against trader.  All food is delivered, cots are available for sleeping.  Shower rooms and clothes changes are available as requested. 

The biggest loser (or smallest winner) for the week is kicked out of the trading room.  There is no voting.  The game continues until only one player remains. 

One additional rule:  To prevent absurd investments and wild gambles in an attempt to win, each player deposits $100,000 into the trading account before the contest begins.  No extra money is available.  Any player who loses the entire 100 grand is unceremoniously bounced.  Each keeps whatever remains of that initial deposit (plus all profits) upon exiting the contest.

The winner collects a prize that triples his/her final account value.  That's the incentive:  make a bunch, win a bunch.  The contest ends in eight weeks.

The players:

Father Ben: He wears and trades collars

Old Timer: A buy and hold investor for the past 40 years

Passive John: Owns only Vanguard 500 Index Fund

Penny Jones: She only trades penny stocks

Boston: Sells front-month SPX strangles

Birdman: Buys Russell 2000 Index (RUT) iron condors

Sedaka: Trades calendar spreads

Author:  Writes covered calls exclusively

Retail gal:  Only buys puts and calls. No hedging

The stage is set.  The battle lines are drawn.  Who's first to be eliminated? 

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2 Responses to I’m An Investor…Get Me out of Here

  1. GMG 06/02/2009 at 10:20 AM #

    The penny trader would probably have the shortest investment horizon (highest turn-over rate) since she’s trading more volatile securities. Studies have shown there is a very strong tendency toward chaotic movements (totally unpredictable IOW) on short timescales, so the odds are against a daytrading strategy. Plus she’ll be exhausted from all her trading, while the other players should have lots of time to relax. So I’d put my money on her going first.
    The risks facing the other players are an order of magnitude less.
    Market movement during the 8 weeks will lie somewhere on a spectrum from one single, strong up or down trend to overall-flat with lots of “noise”. In the extreme trend scenario, the odds are 50/50 for Old Timer and Passive John…since they are long only it will depend solely on whether the trend is up or down. Author will do slightly better since he has a small premium buffer. Retail Gal will win in this scenario if she picks the right direction and plays with high delta/gamma.
    At the other end of the spectrum – noisy and non-directional – the spread traders will have the advantage, and I think it will come down to either Birdman or Sedaka depending on which way IV moves during the 8 weeks.
    If the market is a mix of trends and non-directionality as it usually is, the spread traders should still have a statistical advantage over the long or short only traders, IF they build their spreads with enough wiggle room and exit before gamma gets too crazy.

  2. Mark Wolfinger 06/02/2009 at 10:54 AM #

    Thanks for the thorough analysis.
    Unfortunately I cannot build a portfolio for each and follow through to the end. We’ll just have to consider this to be the prelude to a story that has no end.