5 ms·

If we know a global recession is coming, is there anything we can do to profit off it it? Does gold, Bitcoin, etc. go up during recessions? Or is the best stra

by umvi 7y ago

If we know a global recession is coming, is there anything we can do to profit off it it? Does gold, Bitcoin, etc. go up during recessions? Or is the best strategy to just buy low (during recession) and sell high (after recession)?

godzillabrennus 7y ago
The market can stay irrational longer than one can stay solvent. If you can time the market you can always get rich. The trouble is timing the market.
- dazc 7y ago
  The media are always predicting the next recession so it's just a case of picking the time they are right. Which is about once every ten years, on current form.
- jkhdigital 7y ago
  This wisdom was clearly conceived before the advent of widespread, liquid options markets. Purchasing options requires no leverage and thus bears no risk of becoming "insolvent". Of course, trading against stubbornly irrational markets via options can be quite expensive so there is a substantial price to pay for capping one's downside risk.
  - odyssey7 7y ago
    Options are priced by the same market forces that a speculator attempts to time. You can always lose the price you pay for the options, although you can avoid insolvency by not buying more than you can afford to lose.
  - thaumasiotes 7y ago
    > Purchasing options requires no leverage and thus bears no risk of becoming "insolvent". Of course, trading against stubbornly irrational markets via options can be quite expensive I didn't realize it was impossible to become insolvent just by spending money.
H8crilA 7y ago
You can short bubbles via long term put options, that's what I do. Tech (XLK, QQQ), green themes (PBW, TAN), borderline personality cults and ridiculous dreams (TSLA, SPCE), US corporate credit (JNK, LQD). Of course because it's options you always have to consider whether the market perception of IV isn't already too high. For example SPCE is a ridiculously good short but "the market knows" and the IV is ridiculous too. Also no two recessions are 100% alike. Most importantly - will the next one be deflationary or inflationary? Even that is hard to say. Growth in credit suggests deflation, but then if we face mass bailouts then gold and oil will be the places to be. Also, the virus thingy may be quite inflationary (disruption of supply chains, no more stuff from China!) if it materializes. I guess what I'm trying to say is that it's not about "crisis/not crisis", but rather "what is currently severely mispriced, and will correct when the market volatility rises?". This can be either up or down in price. Finally, if the world temperature goes to, say, +5*C or the virus is really super bad then this is risk that's not hedge-able via capital markets, because it will fuck up capital markets themselves. Think of this as counterparty risk.
- repsilat 7y ago
  > Of course because it's options you always have to consider whether the market perception of IV isn't already too high. For example SPCE is a ridiculously good short but "the market knows" and the IV is ridiculous too. So just use a spread?
  - H8crilA 7y ago
    You still pay a lot in IV even if you do a spread, i.e. the reward/risk is not that great (2022 puts on SPCE have an IV in excess of 100%... that's too much for me). And I don't have the stomach to sell options. But that's all my opinion, go ahead and do it if you think it makes sense.
    - repsilat 7y ago
      You pay IV on one side and get it back on the other, don't you? AIUI high IV just means the spread won't start "paying off" until closer to expiry.
abrichr 7y ago
The standard technique is known as a "short sale", or "shorting" [1]: You borrow a security at price $X, and sell it immediately. The price declines to $X - $Y. You buy it for $X - $Y, and return the security to the original owner. You just made $Y. So if you think there will be a recession, all you need to do is short the assets that will experience a decline in value as a result. The trick, as mentioned elsewhere in this thread, is knowing exactly when that will happen. If the price goes up instead of down in the time period you agreed upon with the lender, you lose $Y. Another technique mentioned elsewhere is via options. You can buy the right (or "option") to sell a security at a later date at a fixed price. This is known as a "put" option [2]. [1] https://www.investopedia.com/terms/s/shortselling.asp https://www.investopedia.com/terms/s/shortselling.asp [2] https://www.investopedia.com/terms/p/putoption.asp https://www.investopedia.com/terms/p/putoption.asp
- turk73 7y ago
  Good luck losing your ass shorting stocks! Shorting requires very accurate timing and even if the trend is your friend, it simply is not the opposite of going long. It just isn't. I only get two posts every 4 hrs because HN thinks I'm an asshole, but since I'm a rich asshole, I'll break it down for you: 99% of the advice on this thread is garbage.
- deleted 7y ago
  [deleted]
Findeton 7y ago
Stay liquid, try to save money, put it in things that do hold their value in times of crisis like gold (or yes perhaps bitcoin/ethereum). Then when the crisis happens buy everything cheap.
- fwn 7y ago
  Maybe you didn't mean it this way, but I think that advertising bitcoin for it's stable value is really disingenuous. It's a very volatile high risk product.
- ur-whale 7y ago
  You're assuming there will be anything left to buy once the storm has passed.

by umvi 7y ago

godzillabrennus 7y ago

The market can stay irrational longer than one can stay solvent. If you can time the market you can always get rich. The trouble is timing the market.

dazc 7y ago
The media are always predicting the next recession so it's just a case of picking the time they are right. Which is about once every ten years, on current form.
jkhdigital 7y ago
This wisdom was clearly conceived before the advent of widespread, liquid options markets. Purchasing options requires no leverage and thus bears no risk of becoming "insolvent". Of course, trading against stubbornly irrational markets via options can be quite expensive so there is a substantial price to pay for capping one's downside risk.
- odyssey7 7y ago
  Options are priced by the same market forces that a speculator attempts to time. You can always lose the price you pay for the options, although you can avoid insolvency by not buying more than you can afford to lose.
- thaumasiotes 7y ago
  > Purchasing options requires no leverage and thus bears no risk of becoming "insolvent". Of course, trading against stubbornly irrational markets via options can be quite expensive I didn't realize it was impossible to become insolvent just by spending money.

H8crilA 7y ago

You can short bubbles via long term put options, that's what I do. Tech (XLK, QQQ), green themes (PBW, TAN), borderline personality cults and ridiculous dreams (TSLA, SPCE), US corporate credit (JNK, LQD). Of course because it's options you always have to consider whether the market perception of IV isn't already too high. For example SPCE is a ridiculously good short but "the market knows" and the IV is ridiculous too. Also no two recessions are 100% alike. Most importantly - will the next one be deflationary or inflationary? Even that is hard to say. Growth in credit suggests deflation, but then if we face mass bailouts then gold and oil will be the places to be. Also, the virus thingy may be quite inflationary (disruption of supply chains, no more stuff from China!) if it materializes. I guess what I'm trying to say is that it's not about "crisis/not crisis", but rather "what is currently severely mispriced, and will correct when the market volatility rises?". This can be either up or down in price. Finally, if the world temperature goes to, say, +5*C or the virus is really super bad then this is risk that's not hedge-able via capital markets, because it will fuck up capital markets themselves. Think of this as counterparty risk.

repsilat 7y ago
> Of course because it's options you always have to consider whether the market perception of IV isn't already too high. For example SPCE is a ridiculously good short but "the market knows" and the IV is ridiculous too. So just use a spread?
- H8crilA 7y ago
  You still pay a lot in IV even if you do a spread, i.e. the reward/risk is not that great (2022 puts on SPCE have an IV in excess of 100%... that's too much for me). And I don't have the stomach to sell options. But that's all my opinion, go ahead and do it if you think it makes sense.
  - repsilat 7y ago
    You pay IV on one side and get it back on the other, don't you? AIUI high IV just means the spread won't start "paying off" until closer to expiry.

abrichr 7y ago

The standard technique is known as a "short sale", or "shorting" [1]: You borrow a security at price $X, and sell it immediately. The price declines to $X - $Y. You buy it for $X - $Y, and return the security to the original owner. You just made $Y. So if you think there will be a recession, all you need to do is short the assets that will experience a decline in value as a result. The trick, as mentioned elsewhere in this thread, is knowing exactly when that will happen. If the price goes up instead of down in the time period you agreed upon with the lender, you lose $Y. Another technique mentioned elsewhere is via options. You can buy the right (or "option") to sell a security at a later date at a fixed price. This is known as a "put" option [2]. [1] https://www.investopedia.com/terms/s/shortselling.asp https://www.investopedia.com/terms/s/shortselling.asp [2] https://www.investopedia.com/terms/p/putoption.asp https://www.investopedia.com/terms/p/putoption.asp

turk73 7y ago
Good luck losing your ass shorting stocks! Shorting requires very accurate timing and even if the trend is your friend, it simply is not the opposite of going long. It just isn't. I only get two posts every 4 hrs because HN thinks I'm an asshole, but since I'm a rich asshole, I'll break it down for you: 99% of the advice on this thread is garbage.
deleted 7y ago
[deleted]

Findeton 7y ago

Stay liquid, try to save money, put it in things that do hold their value in times of crisis like gold (or yes perhaps bitcoin/ethereum). Then when the crisis happens buy everything cheap.

fwn 7y ago
Maybe you didn't mean it this way, but I think that advertising bitcoin for it's stable value is really disingenuous. It's a very volatile high risk product.
ur-whale 7y ago
You're assuming there will be anything left to buy once the storm has passed.