At the end of the day, argues Hong Kong-based research and money management firm GaveKal, there are only four ways to make money trading in the current market environment - and even these strategies are hardly risk-free. FT Alphaville summarizes the four strategies that were outlined in GaveKal's latest investment newsletter:
1. Run some kind of momentum trade: "The problem today is that, bar energy and maybe soft commodities, very few markets are showing signs of positive momentum... So right now, unless one is willing to take the plunge into the crowded energy and commodity trades, being a 'momentum-based' investor is not much fun."
2. Run some kind of return to the mean trade: "This typically means buying assets that are 'undervalued' and selling those that are 'overvalued.' But to do this with comfort, one needs a modicum of visibility on earnings growth and on where the cost of capital will settle."
3. Run some kind of carry trade: "Another way to make money in the financial markets is to borrow at low rates and lend at higher rates."
4. Run some kind of negative carry-trade: "Through 'negative carry-trades'... you pay a premium over time and one day (when you need it the most!) you get a massive pay-out. Examples of negative carry trades include CDS, puts, long yen calls, etc."
Of these strategies, it's interesting that strategy #4 (the "negative carry-trade") is really an options trading strategy in disguise. For example, buying out-of-the-money puts on a sector that's due for a steep reversal. In the past, this meant buying up puts on housing market or financial stocks far in advance of negative news.
NOTE: Please keep in mind that TradeKing does not specifically endorse any of the securities or trading strategies mentioned. Depending on your risk-reward profile, this trade may or may not be suitable for your portfolio. The stocks mentioned are for educational purposes only.
[image: Anatole Kaletsky, Chief Economist at GaveKal]
