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Should tech workers consider buying deep out of the money puts on tech ETFs as a form of insurance?
by yasp 7y ago
Should tech workers consider buying deep out of the money puts on tech ETFs as a form of insurance?
- soVeryTired 7y agoYou should only do that if you believe the crunch is coming in three months or so. Unless you can time the crunch exactly, put options are a mug's game. They bleed value over time (negative theta in industry parliance). If you really want to protect yourself, just plan your finances as if your high income was temporary rather than permanent.
- yasp 7y agoCan't you get options whose expiry is a year or two out (LEAPs), or is the time premium not worth it?
- deleted 7y ago[deleted]
- soVeryTired 7y agoI never traded long-dated options when I was in finance, but anything with longer than a three-month maturity was crazy expensive in terms of the spread you'd pay. These are not liquid instruments. It's been a while since I've done the maths, but I'm pretty sure it'd be cheaper to buy shorter dated puts and roll them over on expiry. Which would still be very expensive.
- maxxxxx 7y agoI used to do options in the end 90s and back then long term options were crazy expensive. You need a lot of capital for such a strategy.
- teambayleaf 7y agoDid you profit from that strategy?
- maxxxxx 7y agoI lost money. Which would make a successful startup these days :)
- pault 7y ago> plan your finances as if your high income was temporary rather than permanent. This is the best advice I've heard all week. I wish someone had told me this when I was 21 (even though I wouldn't have listened)
- kokey 7y agoYup, it's easy to spot a bubble but it's not easy to be able to tell how big it's going to get or when it's going to pop. You can be out by years and by magnitudes, which isn't useful for being able to profit from it. It's better to just plan for the worst and treat your exposure to the upside like a gamble.
- naveen99 7y agoHedging is better than hope. You could sell some nontech etf puts to reduce your cost also.
- mruts 7y agoOptions are going to affect the returns so much in good times rhr insurance probably isn’t worth it. A better idea would be to go long short, 30% short, and 100% long has always been popular. The leverage from the shorts lets you juice the long side while also giving you the 30% short protection. This should allow you to achieve a better Sharpe ratio than the market. If you can’t get the leverage, consider buying a S&P ETF that has downside protection in exchange for capped returns.
- asah 7y agoexample of such an ETF?
- lexapro 7y agoIt's cheaper to just mix in more bonds.
- mruts 7y agoA 60/40 equity/bond portfolio is going to underperform the market pretty significantly most years. Historically, 60/40 has outperformed the market slightly looking back 40-50 years. Risk parity is probably a better idea and should give you recent returns with some downside protection. The problem is that rebalancing could be costly, you probably would only want to on a yearly basis. But if you have access to leverage via shorts, I still think that’s the better play. My personal investments do nothing of the sort though: I just go with a 3x leveraged S&P ETF. Annualized returns of around 20% year over year. Of course, I have massive exposure to volatility and market crashes. But in the five years of investing all of my money in this strategy, I’ve outperformed the S&P by over 80% :)
- mywittyname 7y agoThe past five years has been one of the best forming markets ever. I would not assume a strategy which worked well since 2014 will continue to do well until 2034.
- 7y ago
- i_am_proteus 7y agoAssuming you currently have a portfolio of naked longs, selling covered calls and buying deep puts is an effective risk-limiting straddle.