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I bought some put options on the S&P index a couple weeks ago.

by foota 7y ago

wtvanhest 7y ago
I literally gritted my teeth when I read this. https://www.google.com/search?q=S%26P&rlz=1C1GCEB_enUS862US862&oq=S%26P&aqs=chrome..69i57.911j0j7&sourceid=chrome&ie=UTF-8 https://www.google.com/search?q=S%26P&rlz=1C1GCEB_enUS862US8...
- foota 7y ago
  Don't worry, it wasn't anything I wasn't okay losing :)
  - totalZero 7y ago
    Depending on your strike and maturity, you may not lose anything. If the entire market sells off hard, correlation will go to 1 in the slide. Index options tend to price in some expectation of this (it's called "correlation skew") for downside options. So you'll make money on three things in a slide: * delta, ie the slide itself, * vega, ie the increased expectation of volatility for the remaining duration of the option contract, * skew, which will increase more for index options than for single names due to implied correlation resetting higher. I have noticed that the market seems to be in a "buy any dip" mentality, so be aware of that. If the market sells off, it may come right back the next day. Look at what happened already with the coronavirus outbreak, as well as Iran's missile launches before that.
    - kk58 7y ago
      Can you recommend a good source to learn more about how options trading works in real life? Id like to know how you guys generate trading ideas, come up with bet size, study market sentiments etc
      - wtvanhest 7y ago
        I'm going to jump in here. Trading options is extremely risky and a lot of people teaching it, teach it because doing it is normally not profitable and they have already lost their money. Unless you have some huge edge, which no one does, options are the last place to spend your time and blow your money.
        mattrp 7y ago
        Second this... even when you’re right you could be wrong. Options just amplify the effect.
        foota 7y ago
        There's an article I read a few years ago talking about the possible outcomes from startup equity, using the analogy of a 99 sided die. It's something like: 1-50: nothing 51-70: a little 70-90: what you would get from a FAANG 90-99: millionaire 100: you're a billionaire And then goes on to note that there is no 100 on a 99 sided die, seems like options are similar :) I have no belief in my ability to beat the market and treat them like a fun thing to spend some money on, not like an investment.
    - xbmcuser 7y ago
      I got out around 23rd Jan when I started hearing about Corona virus spread in China. Market went up and it looks like I left 10-15% of profit on the table. But as I live in Asia and I see what is happening economically in many countries now I still think it was a good decision. If the market doesn't drop in the next few weeks it will once the 1st quarter results come out
pjkundert 7y ago
Won’t help, if response is infinite QE and monetization of government debt: Dow 1,000,000, here we come! I was thinking deep out of the money gold calls...
- AznHisoka 7y ago
  If the OP really thinks this will be a worldwide pandemic, far dated put options are the best bet. Wall Street has definitely not priced that in. Everyone is assuming this will be over with in a few months.
  - pjkundert 7y ago
    We printed our way into this problem; we can print our way out! /s Seriously, though; S&P puts yields are implicitly discounted by inflation — do we really think they won’t sacrifice the dollar on the alter of asset price nominal “stability”? Gold calls get you a positive real yield on both stock market drop & inflationary response, no?
- dcolkitt 7y ago
  QE and monetary stimulus is primarily effective at counteracting demand shocks. For example productive capacity, like empty storefront or unemployed workers, sits unused because liquidity has dried up. A worldwide pandemic would primarily exert its economic effect through supply shocks. The productive capacity of the economy genuinely shrinks. Stores can't open during a quarantine. Sick workers can't show up at the office. A pandemic might have second-order demand shocks, particularly if panicking investors flee to quality. But there'd still be a genuine contraction in real and potential GDP, most of which would get absorbed by contracting corporate profits. Monetary stimulus can't route around those constraints.
  - jshaqaw 7y ago
    Very clearly put. Thank you.
rayvd 7y ago
Sorry about the jobs report messing things up for you. I hope there is a dip as I want to put more in. I don't think this Coronavirus thing will be the trigger though. Flu still far worse.
- foota 7y ago
  Don't be too sorry, I also bought AMD and TSLA a few months ago :)

I bought some put options on the S&P index a couple weeks ago.

by foota 7y ago

I bought some put options on the S&P index a couple weeks ago.

I literally gritted my teeth when I read this. https://www.google.com/search?q=S%26P&rlz=1C1GCEB_enUS862US862&oq=S%26P&aqs=chrome..69i57.911j0j7&sourceid=chrome&ie=UTF-8 https://www.google.com/search?q=S%26P&rlz=1C1GCEB_enUS862US8...

foota 7y ago
Don't worry, it wasn't anything I wasn't okay losing :)
- totalZero 7y ago
  Depending on your strike and maturity, you may not lose anything. If the entire market sells off hard, correlation will go to 1 in the slide. Index options tend to price in some expectation of this (it's called "correlation skew") for downside options. So you'll make money on three things in a slide: * delta, ie the slide itself, * vega, ie the increased expectation of volatility for the remaining duration of the option contract, * skew, which will increase more for index options than for single names due to implied correlation resetting higher. I have noticed that the market seems to be in a "buy any dip" mentality, so be aware of that. If the market sells off, it may come right back the next day. Look at what happened already with the coronavirus outbreak, as well as Iran's missile launches before that.
  - kk58 7y ago
    Can you recommend a good source to learn more about how options trading works in real life? Id like to know how you guys generate trading ideas, come up with bet size, study market sentiments etc
    - wtvanhest 7y ago
      I'm going to jump in here. Trading options is extremely risky and a lot of people teaching it, teach it because doing it is normally not profitable and they have already lost their money. Unless you have some huge edge, which no one does, options are the last place to spend your time and blow your money.
      - mattrp 7y ago
        Second this... even when you’re right you could be wrong. Options just amplify the effect.
      - foota 7y ago
        There's an article I read a few years ago talking about the possible outcomes from startup equity, using the analogy of a 99 sided die. It's something like: 1-50: nothing 51-70: a little 70-90: what you would get from a FAANG 90-99: millionaire 100: you're a billionaire And then goes on to note that there is no 100 on a 99 sided die, seems like options are similar :) I have no belief in my ability to beat the market and treat them like a fun thing to spend some money on, not like an investment.
  - xbmcuser 7y ago
    I got out around 23rd Jan when I started hearing about Corona virus spread in China. Market went up and it looks like I left 10-15% of profit on the table. But as I live in Asia and I see what is happening economically in many countries now I still think it was a good decision. If the market doesn't drop in the next few weeks it will once the 1st quarter results come out

pjkundert 7y ago

Won’t help, if response is infinite QE and monetization of government debt: Dow 1,000,000, here we come! I was thinking deep out of the money gold calls...

AznHisoka 7y ago
If the OP really thinks this will be a worldwide pandemic, far dated put options are the best bet. Wall Street has definitely not priced that in. Everyone is assuming this will be over with in a few months.
- pjkundert 7y ago
  We printed our way into this problem; we can print our way out! /s Seriously, though; S&P puts yields are implicitly discounted by inflation — do we really think they won’t sacrifice the dollar on the alter of asset price nominal “stability”? Gold calls get you a positive real yield on both stock market drop & inflationary response, no?
dcolkitt 7y ago
QE and monetary stimulus is primarily effective at counteracting demand shocks. For example productive capacity, like empty storefront or unemployed workers, sits unused because liquidity has dried up. A worldwide pandemic would primarily exert its economic effect through supply shocks. The productive capacity of the economy genuinely shrinks. Stores can't open during a quarantine. Sick workers can't show up at the office. A pandemic might have second-order demand shocks, particularly if panicking investors flee to quality. But there'd still be a genuine contraction in real and potential GDP, most of which would get absorbed by contracting corporate profits. Monetary stimulus can't route around those constraints.
- jshaqaw 7y ago
  Very clearly put. Thank you.

rayvd 7y ago

Sorry about the jobs report messing things up for you. I hope there is a dip as I want to put more in. I don't think this Coronavirus thing will be the trigger though. Flu still far worse.

foota 7y ago
Don't be too sorry, I also bought AMD and TSLA a few months ago :)