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Right, but looking at the $1M guy's positions he doesn't own naked calls/puts it's mostly a covered call on $F.
by tempsy 7y ago
Right, but looking at the $1M guy's positions he doesn't own naked calls/puts it's mostly a covered call on $F.
- H8crilA 7y agoThat's actually super smart. If you ever get such ridiculous margin you should buy things that have high chances of very small profit, such as selling deep OTM options or credit spreads. Wait for expiration, unfold the scheme, collect your profits, disappear. If you leverage up to $1M a small 2% profit with 95% chances of success is an easy thing to achieve by selling options, and would pay you $20k instantly. In the 5% outcome your margin will just totally blow up, like LTCM in 2000, or the whole idiotic concept of Value-at-Risk in 2008.
- deleted 7y ago[deleted]
- tempsy 7y agoYeah curious what Robinhood does here e.g. if they close his positions right now he's probably made 5 figures or so given the upward move in $F. Do they let him keep it or what?
- dmurray 7y agoThis is bad advice. Assuming your plan is not to pay back if your $1m goes bad, your edge comes from that scenario, so you actually want to maximise the chances of it. Much better to "put it all on black" and take a 50% chance of making a 90% profit - also easy to achieve by buying options. For best results, have a friend do the same thing but put it all on red, and agree to split the money. On the other hand, if you aren't planning on running away from your losses, you shouldn't take the 5% risk of a 100% loss to make just $20k. Liquidate the options and put your money back in index funds.
- 0898 7y agoA 2% profit with a 5% chance of going busto doesn’t sound like a super smart trade, unless I’m missing something.
- dwoozle 7y agoThat’s if you expect to be on the hook for downside risk. If you’re a teenager willing to go bankrupt (and face criminal charges) if the bet goes south then you should maximize your risk.