Stock Advice – How would you take advantage of the government investing in market cap-weighted stocks?

You’re making 3 very strong statements with that question. If they are all true, the answer is simple. If they aren’t true, and they probably aren’t, then it’s much more complicated depending on which parts are accurate.

  1. The Government Investing — That Implies HUGE pool of permanent capital is a buyer of something
  2. Market Cap Weighted Stocks, implies they are doing a cap weighted index
  3. Take advantage of – that implies you know it’s going to happen. Maybe you know the when, maybe you don’t but as long as it’s going to happen with like a 12-month period you have multiple millions of dollar profit information in your hands.

If all are true, the only question remaining is what security to target. Find out the universe of securities they are going to invest in, and find the security within that universe with the absolute highest beta.

You beg borrow and steel as much as you can, and you sell as many puts as is humanly possible and take that to your broker. Open up an account with the best margin rate you can get. Then, depending on the option chain, you figure out which is better to do. 1) buy call options based on your known information. i.e. is there an end date to their purchases? Or it’s never ending and on a schedule? You would buy options further out if it’s a scheduled program, and closer timewise out if it’s an infinite amount

Again, depending on the chain, it might be more profitable to sell puts and then do credit spreads on the call side.

Either way, a more practical piece of advice for your investing career is this: The more information you have for a given situation, the more leverage you should use. If you don’t have ant edge whatsoever, then you shouldn’t have leverage. In other words, being right (do to knowledge) allows you to do a lot of things that you wouldn’t otherwise do because …… being wrong is a type of education, and we know education is expensive.

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