Lend Academy Network Forum

Lending Club Discussion => Investors - LC => Topic started by: Bohb Daishi on March 06, 2014, 12:45:55 AM

Title: Another Whale in the Sea
Post by: Bohb Daishi on March 06, 2014, 12:45:55 AM
Someone just bought up every note in the past-due market that were listed at >93% discount. It completely cleared out my "fire sale" inventory. If you want to sell your bad notes, do it now before the whale goes away.
Title: Re: Another Whale in the Sea
Post by: lender_john on March 06, 2014, 10:44:19 AM
Someone just bought up every note in the past-due market that were listed at >93% discount. It completely cleared out my "fire sale" inventory. If you want to sell your bad notes, do it now before the whale goes away.

Looks like they took at least a dozen of mine as well.
Another dozen just missed the cutoff...

Title: Re: Another Whale in the Sea
Post by: Keltset on March 06, 2014, 11:28:27 AM
I had a very large number of my listed notes go pending as well... I love it when it rains profit :)
Title: Re: Another Whale in the Sea
Post by: ggnoob1337 on March 06, 2014, 12:37:11 PM
Thanks for the heads up. Had a note with no payments since it was issued (on month 5 now) so I figured I'd lower it a little more and it just sold.
Title: Re: Another Whale in the Sea
Post by: Bohb Daishi on March 06, 2014, 01:33:40 PM
I had a very large number of my listed notes go pending as well... I love it when it rains profit :)

Selling notes at >93% discount "rains profit" for you? Surely, you must be joking. I mean, you can make a few pennies when the whale is around by front-running them. But I would hardly call that "raining profit".
Title: Re: Another Whale in the Sea
Post by: Keltset on March 06, 2014, 03:43:50 PM
I had a very large number of my listed notes go pending as well... I love it when it rains profit :)

Selling notes at >93% discount "rains profit" for you? Surely, you must be joking. I mean, you can make a few pennies when the whale is around by front-running them. But I would hardly call that "raining profit".

Most of mine were highly discounted, but not to 93%- and yes when I have notes come into my portfolio, make a payment, and sell all in a very short period of time netting netting double digit returns during that timeframe; I do call that raining profits. I also consider higher than normal loss mitigation raining profits as well as it does highly increase the overall return. I have gotten very lucky this quarter- to bad I could not count on these numbers forever; although I do look forward to seeing what a longer term normalized return looks like using my strategies.
Title: Re: Another Whale in the Sea
Post by: rawraw on March 06, 2014, 08:38:12 PM
Your strategies will likely revert to the mean as Folio gets more efficient.  Enjoy the 1890s of the stock market while it lasts
Title: Re: Another Whale in the Sea
Post by: Fred on March 06, 2014, 10:32:24 PM
Trading FOLIOfn notes is like trading equity options; similar risk-reward profile, except that the theta is non-negative.
Title: Re: Another Whale in the Sea
Post by: bobeubanks on March 06, 2014, 11:13:11 PM
except that the theta is non-negative.

Why wouldn't theta be negative? Barring new information, notes become worth less with time just like options. 
Title: Re: Another Whale in the Sea
Post by: core on March 06, 2014, 11:48:03 PM
Why wouldn't theta be negative? Barring new information, notes become worth less with time just like options.

You must be talking about late notes?  Current notes become worth more with time (accrued interest) until the next payment hits, which I suppose would qualify as "new information".  Even after the payment posts, your investment may still be worth more because longer good payment history generally fetches a better price.  I'd say it depends what you're sitting on.
Title: Re: Another Whale in the Sea
Post by: Fred on March 07, 2014, 12:45:31 AM
except that the theta is non-negative.

Why wouldn't theta be negative? Barring new information, notes become worth less with time just like options.

Ceteris paribus, option's theta is deterministically negative with the passage of time.

Ceteris paribus, Folio note's theta is positive due to accrued interests -- as core also suggested.

As traders, we play the Folio game not in the deterministic field, but in statistical arbitrage one.
Title: Another Whale in the Sea
Post by: Jmar42 on March 07, 2014, 01:27:22 AM
Do they have last sales real time on an api?
Title: Re: Another Whale in the Sea
Post by: bobeubanks on March 07, 2014, 01:28:32 AM
Ceteris paribus, Folio note's theta is positive due to accrued interests -- as core also suggested.

Theta, for options, simply captures the time decay and nothing else. Accrued interest on a note is part of the value of the note, and is thus much more akin to the price of the underlying stock for an option than theta.

Ceteris paribus, the value of an option decays as a smooth line to zero. Ceteris paribus, the value of a note decays the same way, though with a sawtooth pattern instead of a smooth line as interest accumulates and is paid. Theta describes the rate of overall decline pattern. I.E., the value of a note is more complicated than the value of an option, but theta is negative for both.
Title: Re: Another Whale in the Sea
Post by: Fred on March 07, 2014, 02:08:00 AM
Ceteris paribus, the value of a note decays the same way, ....

Care to elaborate more?
Title: Re: Another Whale in the Sea
Post by: Bohb Daishi on March 07, 2014, 02:59:34 AM
I love it when it rains profit :)
Selling notes at >93% discount "rains profit" for you?

Most of mine were highly discounted, but not to 93%- and yes when I have notes come into my portfolio, make a payment, and sell all in a very short period of time netting netting double digit returns during that timeframe; I do call that raining profits. I also consider higher than normal loss mitigation raining profits as well as it does highly increase the overall return. I have gotten very lucky this quarter- to bad I could not count on these numbers forever; although I do look forward to seeing what a longer term normalized return looks like using my strategies.

My comment was directed more to the specific strategy of buying notes at -95% and re-selling at -93%. Yes, the strategy can provide double-digit returns if it is properly executed. But to make even just a few bucks a day, you would have to push huge volume - something the market simply does not support. And if you execute this strategy by manually purchasing/selling, a part-time job at McDonalds might provide more income.


Ceteris paribus
Ceteris paribus

Quando nos satus in loquendo Latine? For past-due notes, the theta is in fact negative. Every day that a payment doesn't come in, the note is worth less.
Title: Re: Another Whale in the Sea
Post by: core on March 07, 2014, 03:23:28 AM
Ceteris paribus, the value of a note decays the same way, ....

Care to elaborate more?

Yes I'm eager to hear this explanation as well.  A current note does not "decay" in value.  As payments get made, sure the par value of the note is less but the cash you received does not just vaporize.
Title: Re: Another Whale in the Sea
Post by: Rob L on March 07, 2014, 04:37:44 AM
Looks like an apples to oranges comparison. Notes behave like an underlying, not an option. I find it hard to force fit any of the greeks to them, with the possible exception of rho.

As an underlying, notes do have an option embedded within them; the pre-payment option. Dr. Friedman's NTANSTAAFL implies  that the interest rates we receive are higher than they would otherwise be were it not for our implicit sale of this option when we buy a note. That option's value does decay with time (to the lender's benefit). Since the lender is short this option you could actually claim a negative theta on that.
Title: Re: Another Whale in the Sea
Post by: Fred on March 07, 2014, 11:01:09 AM
My comment was directed more to the specific strategy of buying notes at -95% and re-selling at -93%. Yes, the strategy can provide double-digit returns if it is properly executed.

Nice! And, hello competitor. :)

What's the time horizon for an average trade?  3 days?  The annualized returns could be in the 4-digit territory.
Title: Re: Another Whale in the Sea
Post by: bobeubanks on March 07, 2014, 11:11:55 AM
Ceteris paribus, the value of a note decays the same way, ....

Care to elaborate more?

Yes I'm eager to hear this explanation as well.  A current note does not "decay" in value.  As payments get made, sure the par value of the note is less but the cash you received does not just vaporize.

Yes, I am talking about par value. Once a payment is made, that cash is irrelevant to the par value of the note. Payment history is still relevant, but as far as time decay of value those payments are not.

You aren't going to pay the same for a note with a year to go as you would for a note with a month to go, right? If you are going to make analogy to option pricing, theta is negative.
Title: Re: Another Whale in the Sea
Post by: Bohb Daishi on March 07, 2014, 12:35:14 PM
My comment was directed more to the specific strategy of buying notes at -95% and re-selling at -93%. Yes, the strategy can provide double-digit returns if it is properly executed.

Nice! And, hello competitor. :)

Not really anymore. Ever since they shut down bankrupt note trading, the market for this strategy has dried up significantly. Even then, the strategy would only make like $20-50 a month. There's a reason why this is the only strategy that I have openly shared in these forums - I save a lot more time (and even a little money) by encouraging people like you buy my trash notes at a better discount than I would otherwise get if I fire-sold them. Helps reinforce and even raise the price floor in the market.  8)

But every now and then some big whale comes along and gobbles up all the notes. This forces you to either purchase at otherwise profitless price levels hoping the whale sticks around long enough to front-run them, or to completely get out of the market until conditions change. Welcome to the world of trading, my friend. Fun fact: this is one of the most common strategies used by trading firms today.