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I like his approach. He sold short SPY and QQQ. Those are very liquid and he will have no problem being able to cover if the market moves against him. He's not

I like his approach. He sold short SPY and QQQ. Those are very liquid and he will have no problem being able to cover if the market moves against him. He's not shorting individual stocks. I just did something similar. I bought puts on both SPY and QQQ. As the author notes, I had to pay a put premium. I will exit quickly if the market continues to go up at the beginning of the new year. There is one advantage to buying puts instead of shorting. If the price of puts (the implied volatility) goes up, the put becomes a leveraged bet. A put can go up in value even if the market goes sideways. Of course that is just short term, longer term there are many other factors such as time decay involved.

downrightmike 7y ago
The latest round of repo injection will go until mid january. And the Fed is going to continue doing QE through April.
- chii 7y ago
  > repo injection i have not understood what the repo market is - anyone care to give a laymen's explanation?
  - JamesLeonis 7y ago
    It's basically short-term lending market. Think overnight, or within a couple of weeks, as the loan terms. The full name is Repossession Market, since it acts like a giant pawn shop. You walk in with some collateral, and walk out with cash and a promise to repay a little more to get your stuff back. Recent events have caused cash lenders to step back, so the Fed has been lending (more and more...) over the last couple of months. Why? Probably better to not look too closely at that Leviathan, citizen!
blackrock 7y ago
As much as I would like to buy a put, the timing is hard to get right. The decay of the option will make your derivative expire worthless. And then, the next month, the market will fall as you predicted, but you lost your money on that option. Or if you're a true believer, then you'd roll over your options, and keep throwing money down. But as they say, the market will stay irrational, longer than you can stay solvent.
- PhantomGremlin 7y ago
  the timing is hard to get right Yes the timing is tricky and decay is a bitch. My thesis is that the market will begin to drop in January. Perhaps as soon as January 2. The puts are to protect my portfolio from that scenario. If the market doesn't drop I will quickly blow out of my put options. The time decay over a few days or even weeks on a 90 day option isn't that significant. Of more concern is that the price of a put will decline if the market continues to move up away from the strike price. It's a double whammy because, as a market moves up, the inherent cost of options (the implied volatility) usually goes down as well. Or if you're a true believer, then you'd roll over your options, and keep throwing money down. Yes it's foolish to keep rolling put options in a rising market. You must use them tactically for when you expect an inflection point might soon be at hand. You can also use put options for more practical reasons. E.g. in my case I need to periodically sell stocks because I have tuition to pay for my daughter currently in college. Two scenarios: 1) stay in the market, buy puts, lose some of the upside because of cost of puts. 2) sell stock now against future tuition needs, lose all of the upside.
  - blackrock 7y ago
    Good luck! The market tends to crash right after everyone is exuberant and claiming that it'll go up forever. Then, the adults come into the room, and pull the rug from under them. Then these same people start seeing red and cry that the world is going to fall apart. They completely forget that their previous stance was that the market would go up forever. On a side note, some people think that they could've timed the Big Short of 2008. If only they had bought a Put. Or go naked, and short the SPY stock directly. But from my analysis, this was an impossibility. At least to a normal trader. There were just too many fake-outs, too many dead-cat bounces, that the likelihood of you fulfilling your original trading thesis, is nil. The whole thing took place over a 12 month span, which is far too long to execute a derivative trade. So, you would have to short the stock naked, and hold it for 12 months, and hope and pray that your thesis was correct. But, you can only borrow so much money, thus the benefit of such a trade, was not worth the risk. If you made any money, then it would be a rounding error. Now, if you had insider information (especially on when critical actions were being taken by the government and key players), and if you have significant financial resources, then that might be a different game. And you would've benefited significantly from that once-in-a-lifetime trade. But for the rest of us normal folks, shorting the market in 2008 was impossible. Anyways, good luck! This market needs to correct. The bigger they are, the harder they fall. This QE insanity has impoverished us all. Except for the rich elites. They're like vampires that suck on the souls of the poor unwashed masses, and the middle class that hopes to be rich like them but never will, and laugh at us all, as they lounge around on their 3rd yacht.
turk73 7y ago
I'm going to tell you your future: You're going to lose money on those puts. I know it's hard to face, but the markets as you know them don't exist. The algos own them. There are programs that watch every trade coming from any place where retail traders, such as yourself, can buy and sell from. Those trades are front-run on both ends and endlessly fucked with. That includes options and futures. You're going to get fucked because they are designed for that very exact purpose. You don't believe me but it is a fact. I've seen algos run prices up and down just to stop out a single retail trader. They know everything. The know if you have stops or not, they know your psychology, and unlike you, they have a plan of how they are going to manipulate the bid in order to screw you over. And it costs them practically nothing to do it. You should not fuck around with this stuff. Just accept that it is rigged. By the way, the guys in the Big Short who did win nearly didn't--Burry's investors tried to pull out and he was getting sued to allow them to bail out of his strategy. Once he won, he didn't win because the firms he bought the CDOs from refused to pay. He had to sue them to get his money, which he eventually did. Point being, if you think you are going to "go short" and win, you are a fool.

downrightmike 7y ago

The latest round of repo injection will go until mid january. And the Fed is going to continue doing QE through April.

chii 7y ago
> repo injection i have not understood what the repo market is - anyone care to give a laymen's explanation?
- JamesLeonis 7y ago
  It's basically short-term lending market. Think overnight, or within a couple of weeks, as the loan terms. The full name is Repossession Market, since it acts like a giant pawn shop. You walk in with some collateral, and walk out with cash and a promise to repay a little more to get your stuff back. Recent events have caused cash lenders to step back, so the Fed has been lending (more and more...) over the last couple of months. Why? Probably better to not look too closely at that Leviathan, citizen!

blackrock 7y ago

As much as I would like to buy a put, the timing is hard to get right. The decay of the option will make your derivative expire worthless. And then, the next month, the market will fall as you predicted, but you lost your money on that option. Or if you're a true believer, then you'd roll over your options, and keep throwing money down. But as they say, the market will stay irrational, longer than you can stay solvent.

PhantomGremlin 7y ago
the timing is hard to get right Yes the timing is tricky and decay is a bitch. My thesis is that the market will begin to drop in January. Perhaps as soon as January 2. The puts are to protect my portfolio from that scenario. If the market doesn't drop I will quickly blow out of my put options. The time decay over a few days or even weeks on a 90 day option isn't that significant. Of more concern is that the price of a put will decline if the market continues to move up away from the strike price. It's a double whammy because, as a market moves up, the inherent cost of options (the implied volatility) usually goes down as well. Or if you're a true believer, then you'd roll over your options, and keep throwing money down. Yes it's foolish to keep rolling put options in a rising market. You must use them tactically for when you expect an inflection point might soon be at hand. You can also use put options for more practical reasons. E.g. in my case I need to periodically sell stocks because I have tuition to pay for my daughter currently in college. Two scenarios: 1) stay in the market, buy puts, lose some of the upside because of cost of puts. 2) sell stock now against future tuition needs, lose all of the upside.
- blackrock 7y ago
  Good luck! The market tends to crash right after everyone is exuberant and claiming that it'll go up forever. Then, the adults come into the room, and pull the rug from under them. Then these same people start seeing red and cry that the world is going to fall apart. They completely forget that their previous stance was that the market would go up forever. On a side note, some people think that they could've timed the Big Short of 2008. If only they had bought a Put. Or go naked, and short the SPY stock directly. But from my analysis, this was an impossibility. At least to a normal trader. There were just too many fake-outs, too many dead-cat bounces, that the likelihood of you fulfilling your original trading thesis, is nil. The whole thing took place over a 12 month span, which is far too long to execute a derivative trade. So, you would have to short the stock naked, and hold it for 12 months, and hope and pray that your thesis was correct. But, you can only borrow so much money, thus the benefit of such a trade, was not worth the risk. If you made any money, then it would be a rounding error. Now, if you had insider information (especially on when critical actions were being taken by the government and key players), and if you have significant financial resources, then that might be a different game. And you would've benefited significantly from that once-in-a-lifetime trade. But for the rest of us normal folks, shorting the market in 2008 was impossible. Anyways, good luck! This market needs to correct. The bigger they are, the harder they fall. This QE insanity has impoverished us all. Except for the rich elites. They're like vampires that suck on the souls of the poor unwashed masses, and the middle class that hopes to be rich like them but never will, and laugh at us all, as they lounge around on their 3rd yacht.

turk73 7y ago

I'm going to tell you your future: You're going to lose money on those puts. I know it's hard to face, but the markets as you know them don't exist. The algos own them. There are programs that watch every trade coming from any place where retail traders, such as yourself, can buy and sell from. Those trades are front-run on both ends and endlessly fucked with. That includes options and futures. You're going to get fucked because they are designed for that very exact purpose. You don't believe me but it is a fact. I've seen algos run prices up and down just to stop out a single retail trader. They know everything. The know if you have stops or not, they know your psychology, and unlike you, they have a plan of how they are going to manipulate the bid in order to screw you over. And it costs them practically nothing to do it. You should not fuck around with this stuff. Just accept that it is rigged. By the way, the guys in the Big Short who did win nearly didn't--Burry's investors tried to pull out and he was getting sued to allow them to bail out of his strategy. Once he won, he didn't win because the firms he bought the CDOs from refused to pay. He had to sue them to get his money, which he eventually did. Point being, if you think you are going to "go short" and win, you are a fool.