I spent the morning doing administrative work for the newly acquired $25k I will be investing for my father. I also decided today to rollover my Roth IRA from PNC Investments into my own actively managed account. Those savings amount to about $9k.
My Roth IRA rollover has been approved and as of now I'll have to wait a couple days for the transfer of funds to take place. I had to go to PNC Bank today and liquidate the three mutual funds I had my savings invested in. I then sent an authorization form to my new discount broker allowing them to acquire my PNC funds. The remainder of the process should take 3 or 4 days.
My account for the Roth IRA will be a vanilla cash account. Regulations do not allow shorting so I plan on rarely making trades for this account. I'll mostly utilize ETF's and have a very value, long-term oriented approach.
And then there is the $25k investment account. I finished my application today with the same online broker I chose for my Roth IRA. I discussed the possibility of opening this account up with a separate online broker but decided against it after reading online reviews and talking to friends to actively manage money. This account is a margin account with leverage power of 4 to 1 for common stocks and 50 to 1 for foreign exchange. While I feel it is unlikely I utilize margin often I can forsee some potential uses, especially in foreign exchange. You also need a margin account to short stocks and buy puts.
I am excited to start trading. I waited for what seemed like forever telling the CEO of my former investment fund that stocks were expensive and I'd rather short than go long. I waited patiently. Now my worry is that opportunities are passing me by. Take for instance the following:
Last spring I mentioned to a friend of mine who trades equity options for a major Wall Street bank that buying VIX futures might make a good trade. Volatility was at historical lows; the VIX was trading at 12. While he agreed that it might make a good trade he said that VIX futures weren't actively traded enough for it be feasible for him. He had some liquidity issues that prevented it. Those would not have been the case for me. Well, what happened since then? The credit crisis. The VIX has since shot up and stands at 25. And I would not have had those liquidity issues.
That's just one example. Are there still a myriad of opportunities? Certainly. But do I think it's the kind of market where we can have another incident like John Paulson shorting subprime debt and making $2Billion dollars? Probably not. I read in Barrons today that consumer confidence in the economy is at 17 year lows. Even if the broader market is wrong about the extent of how much worse the economy will get there is massive psychological bearish sentiment. You can't bet against something like that and make serious dough.
