7 ms·

Let's say there is a big crash coming, where would you put your money for a safe bet and for a speculative bet (and please don't say bitcoin) ? During the crash

Let's say there is a big crash coming, where would you put your money for a safe bet and for a speculative bet (and please don't say bitcoin) ? During the crash of 87, it seems like you could still get a good fixed income yield. Parking it today for 1.5% just doesn't seem that valuable.

Lost_BiomedE 9y ago
Safe bet: cash. Speculative bet: put options.
- AnimalMuppet 9y ago
  It seems to me that holding the stock but buying put options is not speculative; it's merely buying insurance. Why do you regard it as speculative? Or were you referring to selling put options?
  - vtange 9y ago
    Put options lose value over time. You are speculating on the near-term risk of stocks losing value - effectively trying to time the market/predict the weather. Selling put options is a bet that the put options will expire worthless, which is a bet that stocks will continue to go up/not fall. I honestly believe the insurance analogy for options is misleading. The value of an option is quite literally the difference in value between selling the stock at market price and at the option strike. As a stockholder you don't save yourself as much from buying put options regularly as you would from say getting a surgery covered with health insurance.
  - Lost_BiomedE 9y ago
    Buying naked puts. It is like shorting but very leveraged and must be timed.
    - eru 9y ago
      I wonder if you turn writing naked puts into something like value investing? Figure out from fundamental what you think is a decent value for the stocks in question, then write puts for that strike price.
      - Lost_BiomedE 9y ago
        I do something like what you are saying but with selling covered calls while I am long a stock. A quick search online will show you strategies like this. It is not uncommon for more active equity traders. I mostly play long cycles in the equity market instead of trading. When I do trade equities, I play one or two stocks that I know their behavior intimately. My very active trading is mostly in futures and currencies.
        eru 9y ago
        Yeah, thanks to put call parity a covered call and a naked put are basically the same thing. (I wonder if it's in some more general sense similar-ish to lending out your long equity to short sellers?) Having said all that, I'm an indexer at heart, and working for Bloomberg I'm not even allowed to trade the more interesting stuff.
drcode 9y ago
I've been wondering the same thing- The best I can come up with is a ratio (depending on risk tolerance) of treasury bonds, an index fund, and non-fiat currency substitutes (gold and/or crypotocurrency) Complain about Bitcoin and their ilk, but they could (in theory at least) offer some protections against stock market crashes and/or high USD inflation.
- zzzzzzzza 9y ago
  "but they could (in theory at least)", uhm, what theory is this? No seriously I would like to hear the theoretical basis for this assertion (though I think you are totally wrong as well).
  - technofire 9y ago
    Well, one theory is that the valuation of bitcoin is largely unrelated to the systematic overvaluation of companies that ostensibly would be the reason behind a crash. Thus when the market start revisiting its value of stocks, this doesn't affect the value of cryptocurrencies.
    - jedrek 9y ago
      Yeah, cryptocurrencies have their own overvaluation issues.
  - moduspol 9y ago
    I'm not OP, but I think it's likely that in another 2008-style recession where the risk is systemic, the value of Bitcoin is likely to rise as people seek something that can be traded easily yet is not tied to fiat currencies likely to pull each other down (e.g. USD and Euro).
  - nnfy 9y ago
    Like any market, cryptocurrencies have value because of the collective valuations of large numbers of individuals. The simple fact that people like GP exist, and that there have been enough of them to propel the market cap of BTC et al. to billions, suggests that people like GP will continue to exist if the economy crashes. In fact, if the economy were to crash, it would only take a handful of high volume BTC purchases, I'd bet, to cause another spike in price as people see an opportunity to shelter their finances. Yes, it is high risk, but you're not just throwing away your money. BTC is much like gold in this manner - to the lay person, there is little value in the commodities other than as a store of value, which becomes more and more appealing as price continues to rise. Look at gold. Markets do not always appear to be rational.
ericb 9y ago
> Parking it today for 1.5% just doesn't seem that valuable. Another way to think of it is that you are taking one bucket of money that you're parking and making a bet against stocks, or even asset values in general. You can consider your return for that part of your portfolio the inverse of the market performance. Ex: stocks drop 30% and you buy in at that point, then that is the practical return for that bucket for the year.
lmm 9y ago
There are more people looking to invest more money today, so supply/demand means you won't get as good a return. In '87 access to capital was more valuable, so you could get paid more for it.
- aswanson 9y ago
  Thats one thing that hasnt been studied enough, I suspect. Huge amounts of capital from 401ks alone may have more effect on the market valuations than actual value creation. There is just so much money chasing a return, increasing constantly.
  - pm90 9y ago
    This might be an unpopular opinion on this forum, but one of the best ways to reduce the money supply seems to be more taxation right? This is why I don't get why Republicans seem so hell bent on tax cuts... we already have so much money going around. Better take it out, fund healthcare and education and reasonable welfare systems.
    - RobertoG 9y ago
      If you fund healthcare and education you are putting the money out again. -When you tax and spend, you are redistributing, but the final quantity is the same. -When you tax but don't spend, you are reducing demand in the economy by making worse the people with money. -When you don't tax and don't spend in public services (austerity), you are reducing demand in the economy by making worse the people without money. That should explain the Republican position. Anyway, there are different "kinds" of money, and only one "kind" is reduced or created that way.
      - pm90 9y ago
        Great comment. I guess I should have clarified my statement since I meant redistribution, when talking about taxing and spending on healthcare/education. I guess the argument on the merits of redistribution is the fundamental difference b/w democrats and republicans.
JohnJamesRambo 9y ago
Look at bitcoin again.
aphextron 9y ago
>Let's say there is a big crash coming, where would you put your money for a safe bet Treasury bills. 4 week T-bills are at 1% yield now, up 10x from two years ago [0]. [0] https://fred.stlouisfed.org/series/TB4WK https://fred.stlouisfed.org/series/TB4WK

Lost_BiomedE 9y ago

Safe bet: cash. Speculative bet: put options.

AnimalMuppet 9y ago
It seems to me that holding the stock but buying put options is not speculative; it's merely buying insurance. Why do you regard it as speculative? Or were you referring to selling put options?
- vtange 9y ago
  Put options lose value over time. You are speculating on the near-term risk of stocks losing value - effectively trying to time the market/predict the weather. Selling put options is a bet that the put options will expire worthless, which is a bet that stocks will continue to go up/not fall. I honestly believe the insurance analogy for options is misleading. The value of an option is quite literally the difference in value between selling the stock at market price and at the option strike. As a stockholder you don't save yourself as much from buying put options regularly as you would from say getting a surgery covered with health insurance.
- Lost_BiomedE 9y ago
  Buying naked puts. It is like shorting but very leveraged and must be timed.
  - eru 9y ago
    I wonder if you turn writing naked puts into something like value investing? Figure out from fundamental what you think is a decent value for the stocks in question, then write puts for that strike price.
    - Lost_BiomedE 9y ago
      I do something like what you are saying but with selling covered calls while I am long a stock. A quick search online will show you strategies like this. It is not uncommon for more active equity traders. I mostly play long cycles in the equity market instead of trading. When I do trade equities, I play one or two stocks that I know their behavior intimately. My very active trading is mostly in futures and currencies.
      - eru 9y ago
        Yeah, thanks to put call parity a covered call and a naked put are basically the same thing. (I wonder if it's in some more general sense similar-ish to lending out your long equity to short sellers?) Having said all that, I'm an indexer at heart, and working for Bloomberg I'm not even allowed to trade the more interesting stuff.

drcode 9y ago

I've been wondering the same thing- The best I can come up with is a ratio (depending on risk tolerance) of treasury bonds, an index fund, and non-fiat currency substitutes (gold and/or crypotocurrency) Complain about Bitcoin and their ilk, but they could (in theory at least) offer some protections against stock market crashes and/or high USD inflation.

zzzzzzzza 9y ago
"but they could (in theory at least)", uhm, what theory is this? No seriously I would like to hear the theoretical basis for this assertion (though I think you are totally wrong as well).
- technofire 9y ago
  Well, one theory is that the valuation of bitcoin is largely unrelated to the systematic overvaluation of companies that ostensibly would be the reason behind a crash. Thus when the market start revisiting its value of stocks, this doesn't affect the value of cryptocurrencies.
  - jedrek 9y ago
    Yeah, cryptocurrencies have their own overvaluation issues.
- moduspol 9y ago
  I'm not OP, but I think it's likely that in another 2008-style recession where the risk is systemic, the value of Bitcoin is likely to rise as people seek something that can be traded easily yet is not tied to fiat currencies likely to pull each other down (e.g. USD and Euro).
- nnfy 9y ago
  Like any market, cryptocurrencies have value because of the collective valuations of large numbers of individuals. The simple fact that people like GP exist, and that there have been enough of them to propel the market cap of BTC et al. to billions, suggests that people like GP will continue to exist if the economy crashes. In fact, if the economy were to crash, it would only take a handful of high volume BTC purchases, I'd bet, to cause another spike in price as people see an opportunity to shelter their finances. Yes, it is high risk, but you're not just throwing away your money. BTC is much like gold in this manner - to the lay person, there is little value in the commodities other than as a store of value, which becomes more and more appealing as price continues to rise. Look at gold. Markets do not always appear to be rational.

ericb 9y ago

> Parking it today for 1.5% just doesn't seem that valuable. Another way to think of it is that you are taking one bucket of money that you're parking and making a bet against stocks, or even asset values in general. You can consider your return for that part of your portfolio the inverse of the market performance. Ex: stocks drop 30% and you buy in at that point, then that is the practical return for that bucket for the year.

lmm 9y ago

There are more people looking to invest more money today, so supply/demand means you won't get as good a return. In '87 access to capital was more valuable, so you could get paid more for it.

aswanson 9y ago
Thats one thing that hasnt been studied enough, I suspect. Huge amounts of capital from 401ks alone may have more effect on the market valuations than actual value creation. There is just so much money chasing a return, increasing constantly.
- pm90 9y ago
  This might be an unpopular opinion on this forum, but one of the best ways to reduce the money supply seems to be more taxation right? This is why I don't get why Republicans seem so hell bent on tax cuts... we already have so much money going around. Better take it out, fund healthcare and education and reasonable welfare systems.
  - RobertoG 9y ago
    If you fund healthcare and education you are putting the money out again. -When you tax and spend, you are redistributing, but the final quantity is the same. -When you tax but don't spend, you are reducing demand in the economy by making worse the people with money. -When you don't tax and don't spend in public services (austerity), you are reducing demand in the economy by making worse the people without money. That should explain the Republican position. Anyway, there are different "kinds" of money, and only one "kind" is reduced or created that way.
    - pm90 9y ago
      Great comment. I guess I should have clarified my statement since I meant redistribution, when talking about taxing and spending on healthcare/education. I guess the argument on the merits of redistribution is the fundamental difference b/w democrats and republicans.

JohnJamesRambo 9y ago

Look at bitcoin again.

aphextron 9y ago

>Let's say there is a big crash coming, where would you put your money for a safe bet Treasury bills. 4 week T-bills are at 1% yield now, up 10x from two years ago [0]. [0] https://fred.stlouisfed.org/series/TB4WK https://fred.stlouisfed.org/series/TB4WK