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When China put 10% of the worlds population on travel restrictions, a put on SPY with a strike of 300 expiring this Friday was 29 cents. The optimism is frankl
by ouid 7y ago
When China put 10% of the worlds population on travel restrictions, a put on SPY with a strike of 300 expiring this Friday was 29 cents.
The optimism is frankly unbelievable.
- senordevnyc 7y agoA few weeks ago, I spent $730 to buy 73 SPY put option contracts expiring this Friday with a strike of $270, so about 10 cents per share. Unbelievable. I've been selling them over the last week and just finished getting out today with a realized gain of about $30k. Wish I had put $50k in instead of $1k, but I suppose that's always the lament when an ultra-risky trade goes your way :)
- idclip 7y agoTeach me your ways. Literature ?
- ouid 7y agoIf the news says "China puts 760 million people on travel restrictions", you should look at the price of puts.
- senordevnyc 7y agoThis. It was really just insurance. I fully expected the $1k I bought to expire worthless, and the first $230 did, but these ones I was able to exit for a nice profit. I highly suspect the expected value of options trading is negative, but it's useful as a hedge. Really wish I could spend like 10% of my salary on put options for my employer in case I get laid off, but it's forbidden apparently.
- jliptzin 7y agoInsurance by definition is negative expected value (otherwise insurance companies wouldn't be in business). Great job hedging!
- LegitShady 7y agoreddit wallstreetbets obviously
- senordevnyc 7y agoActually no...I hadn't ever visited before a few days ago :)
- kortilla 7y agoThat’s not optimism. That’s options pricing driven by implied volatility and the current price.
- ouid 7y agoMarkets are not wiggly lines.
- senordevnyc 7y agoOne of us is thinking about implied volatility wrong. My understanding is that it's not a measure of actual volatility, of either the underlying security or the option itself. Rather, it's a measure of how much the price reflects expected volatility in the underlying security. So in a security with ultra-low expected volatility (IV), options that are far out of the money will have much lower premiums than those where high volatility is expected in the underlying security. In this way, the poster you're replying to is right. The reason premiums were so low was that IV was so low, but that was because no one expected the S&P 500 to drop from 3350 to 2750 in a few weeks. The IV is pretty high now, but it's still bouncing around much more than the actual volatility of the SPY index itself. I've seen everything from 30-150% over the past few weeks.
- kortilla 7y agoIt’s still not optimism because it doesn’t imply direction. A low implied volatility just means lower expectation of big moves in either direction. A stock that has gone up like a rocket ship will have a high implied volatility despite no crashes or expectations of declines.
- senordevnyc 7y agoIt’s not optimism that stocks will only go up, but it’s optimism that they won’t suddenly go up or down by too much, which is generally to be avoided unless you’re a trader.
- kortilla 7y ago