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He was talking about a recession. Which might happen. (since people feel like it is getting closer) If you know a stock which actually goes up in a recession,

He was talking about a recession. Which might happen. (since people feel like it is getting closer) If you know a stock which actually goes up in a recession, please let me know!

kaibee 7y ago
Options.
loftyai 7y ago
Haha it's not really about the stock itself. It's about how you bet in the market. If you truly believe that the market will fall, you can short sell and index fund or purchase some put options on that index. If the market does fall, you will make money as a result. You just need to make sure the instrument you are betting against is representative of the overall market.
- onlyrealcuzzo 7y ago
  Okay... but who issues the instruments? I mean, what happened to instruments sold by Bear Sterns when they were acquired? And what instruments are you actually buying? Are there put and call options for CoreLogic Case-Shiller???
  - loftyai 7y ago
    Many large market makers issue these instruments. They are not traded OTC and thus would not face liquidity problems like the OTC instruments people couldn't offload during the GFC (specifically like those guys in the Big Short). As far as what the instruments actually are: they are puts on broader market REITs/ETFs as well as localized ones. We cannot name the specific instruments as we do not want their prices being bid up. Hope this clarifies and of course happy to answer any more questions you may have!
tryitnow 7y ago
Buy put or sell calls on an asset that's highly correlated with the overall economy. This is honestly the least controversial claim the OP is making.
- onlyrealcuzzo 7y ago
  Correlations change. You never know if gold might tank along with assets in the next recession. Or if yields will tank along with assets in the next recession. What if there's just hyper inflation? No one knows what's going to happen... You can go with Dalio's claim that as long as you have 10 hedges that are sufficiently un-correlated, your risk is incredibly low. But even that might not hold up under future unknown conditions.
  - loftyai 7y ago
    You're absolutely right about the correlation changes. However, gold's correlation to the general market was developed organically by human behavior over time. That does often change during crisis. However, options contracts are a form of derivatives, meaning they are contracts financially engineered to hold a specific correlation. So, you can build perfect hedges using options contracts, which is what they were originally invented for. People just started betting on the markets with them, which created all kinds of risks in the market.
    - bob_theslob646 7y ago
      There is no such thing as a perfect hedge. Delta hedging is not perfect and cannot be done continually.
cortesoft 7y ago
https://en.wikipedia.org/wiki/Short_(finance) https://en.wikipedia.org/wiki/Short_(finance)

He was talking about a recession. Which might happen. (since people feel like it is getting closer) If you know a stock which actually goes up in a recession, please let me know!

kaibee 7y ago

Options.

loftyai 7y ago

Haha it's not really about the stock itself. It's about how you bet in the market. If you truly believe that the market will fall, you can short sell and index fund or purchase some put options on that index. If the market does fall, you will make money as a result. You just need to make sure the instrument you are betting against is representative of the overall market.

onlyrealcuzzo 7y ago
Okay... but who issues the instruments? I mean, what happened to instruments sold by Bear Sterns when they were acquired? And what instruments are you actually buying? Are there put and call options for CoreLogic Case-Shiller???
- loftyai 7y ago
  Many large market makers issue these instruments. They are not traded OTC and thus would not face liquidity problems like the OTC instruments people couldn't offload during the GFC (specifically like those guys in the Big Short). As far as what the instruments actually are: they are puts on broader market REITs/ETFs as well as localized ones. We cannot name the specific instruments as we do not want their prices being bid up. Hope this clarifies and of course happy to answer any more questions you may have!

tryitnow 7y ago

Buy put or sell calls on an asset that's highly correlated with the overall economy. This is honestly the least controversial claim the OP is making.

onlyrealcuzzo 7y ago
Correlations change. You never know if gold might tank along with assets in the next recession. Or if yields will tank along with assets in the next recession. What if there's just hyper inflation? No one knows what's going to happen... You can go with Dalio's claim that as long as you have 10 hedges that are sufficiently un-correlated, your risk is incredibly low. But even that might not hold up under future unknown conditions.
- loftyai 7y ago
  You're absolutely right about the correlation changes. However, gold's correlation to the general market was developed organically by human behavior over time. That does often change during crisis. However, options contracts are a form of derivatives, meaning they are contracts financially engineered to hold a specific correlation. So, you can build perfect hedges using options contracts, which is what they were originally invented for. People just started betting on the markets with them, which created all kinds of risks in the market.
  - bob_theslob646 7y ago
    There is no such thing as a perfect hedge. Delta hedging is not perfect and cannot be done continually.

cortesoft 7y ago

https://en.wikipedia.org/wiki/Short_(finance) https://en.wikipedia.org/wiki/Short_(finance)