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I have alot of unvested RSUs and my reasoning is that if 2008 repeats itself, there is a real chance I may get laid off and lose my RSUs. I donate most of my in
by songzme 7y ago
I have alot of unvested RSUs and my reasoning is that if 2008 repeats itself, there is a real chance I may get laid off and lose my RSUs. I donate most of my income and I have very little savings.
To protect myself, when I see sharp dips in the markets like this, I usually buy a put (option) just in case 2008 repeats itself. I bought a put last week for 2k (CMG) and now its worth 18k. If the markets keep falling, I may end up with around 30k, which is enough for me to pay my mortgage for a year and a half.
Maybe someone finds this helpful, maybe not. Be safe, play responsibly.
- zrail 7y agoHow do you buy a put option if you have zero savings and donate your income?
- songzme 7y agoupdated, sorry.
- VectorLock 7y agoAre rainy day funds not savings?
- texasbigdata 7y agoHe sells his virtue signaling
- czbond 7y agoSmart approach. Pay attention to unwind it before April please IF it is short duration. Mainly sharing since you state you donate your income (much applauded!). There will be a sharp short slaughter rally in April, but then dropping off a cliff.... (do own due diligence). If you have a put into summer you're fine.
- cadence- 7y agoAre you from the future?
- mortivore 7y agoIt really reads like that doesn't it? If you were from the future this wouldn't be a bad way to share that information.
- tcharlton 7y agoGoldman and OP both think a further fall by summer is likely [1] [1] https://www.bloomberg.com./news/articles/2020-03-11/goldman-slashes-s-p-500-forecast-calling-for-end-to-bull-market https://www.bloomberg.com./news/articles/2020-03-11/goldman-...
- glofish 7y agoThese guys are like George in Seinfeld. So wrong about absolutely everything that doing the exact opposite is the winning strategy. On a serious note, remember that they are not your friends at all. They make money when the rest of the investors are predictable. There is no incentive whatsoever for making accurate predictions.
- marktangotango 7y agoThe rally in April is pretty certain imo, that's the "dead cat bounce", but the "falling off a cliff" again part isn't. I don't think anyone sees this as another 50% correction... Or do they?
- czbond 7y agoNo, but when the obvious trade (short) is apparent, it is easy to take out weak hands with the opposite trade. Plus large institutions need a rally after this warning shot to exit positions. Always look for the shock (which is just a warning) to follow up by an exit position, followed by the real action. Real action should happen later... downwards from May.
- sixQuarks 7y agoI bought 20 spx 2500 put options on February 10th for $1.30 ($2,600 total invested) because I had a gut feeling. Today, those puts hit a high of $310,000 It's a shame I sold them too early!!! But still made about $20K.
- foota 7y agoI've been slowly winding mine down, it's hurt seeing what the ones I sold would have been worth, but at least I still have some left :) also hurt that I didn't spend more at the start. But I can at least take solace in the fact that the measured approach was probably wise.
- Insanity 7y agoForgive my ignorance, how come they hit a high when the market 'crashes'? The market probably looked better on feb 10, no?
- lee 7y agoBy buying a "put" he is wagering that the price will fall. The more the market crashes, the higher the value of the put.
- pheug 7y agoThe bulk of that profit came from volatility spike, rather than simple directional price difference between strike and underlying ("delta"). VIX (https://finance.yahoo.com/quote/%5EVIX https://finance.yahoo.com/quote/%5EVIX) was at 14-15 just a month ago and now at 65 - one of the highest ever! What a time to be alive after years of suppressed volatility! Both calls and puts increase in value when volatility increases.
- Ntrails 7y agoA Put option is the right, but not the obligation, to sell an item K at price X to a counterparty. If you've agreed to sell a thing for $5 that is worth $4, you're a dollar in the green. As market prices drop your profit increases
- chowes 7y agoBuying put options are a great way to protect yourself against downturn risk. I think of it like an insurance policy. You pay a premium to protect yourself in bad times. However, I'd recommend always having a put contract outstanding, not just when you predict things getting worse. You got lucky this time, but next time you may be too late.
- deleted 7y ago[deleted]
- whatshisface 7y agoWhat are the advantages of lowering risk by buying puts over lowering risk by holding cash?
- bohadi 7y agoIt seems OP is trying to hedge savings in the form of RSUs granted by his employer. Since they can't be sold yet cash isn't an option (pun unintended).
- nostrademons 7y agoMoney's fungible. Hold some cash that you save from your paycheck rather than donating it. (Little too late to do this for the OP, but it's pretty good advice for anyone else thinking of doing this.)
- seabird 7y agoThe OP probably can't cash out on the RSUs at this point, and options plays are like shooting fish in a barrel at the moment. Remember that the hard part of an options play is knowing when something is going to happen with a fair amount of accuracy, but there probably won't be a miraculous recovery of the market in the next 24-48 hours.
- highfrequency 7y agoNo, the hard part of trading anything is having edge over other people. Options are not priced assuming there will be a "miraculous recovery" in the next 24 hours. They're priced based on the world's expectation of future volatility, through a very competitive market mechanism. There is no reason to assume you have better insight than people who model this stuff full-time. It's irresponsible to suggest that making money trading is akin to shooting fish in a barrel. Best case, it's a slightly negative EV gamble with high variance.
- mercutio2 7y agoI think you’re saying you shorted the entire US equity market, which I think is probably fine. You probably won’t get caught, but buying puts, or anything modeled to behave like one, for your employer’s stock is almost certainly a violation of your employment contract if they’ve granted you RSUs. “You will not short, or otherwise participate in derivatives associated with the stock” is standard RSU boiler plate.
- hbbio 7y agoHe's shorting Chipotle and I doubt he works there.
- songzme 7y agothat's right, I don't work at chipotle and I made sure I don't short my employer's stock. Also correct, I'm essentially shorting the entire equity market. Chipotle is very volatile so there would be quite an upside if market trends downwards.
- pjc50 7y ago> I donate most of my income and I have very little savings. Unless you're very sure that you're donating to people who will help you in return (a church?), it's wise to see to your own financial oxygen mask before helping others.
- songzme 7y agoI'm all set myself. My only expenses are taxes and mortgage. I grow my own food in the backyard for fun and I'm pretty sure I can scale it up when the going gets tough. Personally, I believe that giving should be done without expecting anything in return, otherwise it becomes an exchange, which I find incredibly exhausting.
- sneak 7y agoYou’re not “all set yourself” if you have little in the way of savings and are resorting to derivatives trading to make your mortgage payments. Defer your donations until you have a year of payments in a rainy day account. You can’t donate if you’re homeless.
- xfitm3 7y agoI'm sure it's a troll. It's a humblebrag at best, troll at worst.
- songzme 7y agoBut its not a troll. My donations are no different from a startup founder going all in. Except my vision doesn't end up with me making billions of dollars. I'm working towards a vision where people around me has food to eat, gets education, and has a comfortable shelter.
- deleted 7y ago[deleted]
- sumofi 7y agoSo retirement? What happens when you need care? Do you wanna / have to work forever?
- vincentmarle 7y agoYou have a mortgage and donate most of your income ... why?
- songzme 7y ago30 year fixed at 2k / month, 3bed 2bath in Berkeley. I plan to continue paying 2k / month for the next 22 years there's no point paying it off early. Like I said originally, the puts are there to make sure that if market dips I make enough to pay off my mortgage, so any money above 2k / month is extra for me (minus personal expenses).
- theandrewbailey 7y ago> I plan to continue paying 2k / month for the next 22 years there's no point paying it off early. Why? There's some good reasons to pay off a mortgage early: 1. You pay less interest, so you pay less in total. Don't worry about the tax rebate; it's only giving you back maybe 10% of your payments. 2. A mortgage is a loan. Fewer loans means less risk. Your house can't be foreclosed on if it doesn't have a mortgage. 3. Afterwards, you have an extra $2,000 every month, because you're not sending it to the bank. Your expenses (burn rate) goes down, so your savings will last longer if you lose your job.
- iknowstuff 7y agoLet's say they'd have to shell out $400k to pay off the mortgage. Their $2000/month payment would be gone, but if we assume an average of 6-8% ROI on the $400k, they are missing out on a return of $2000-$2600/month. 20 years from now, the $400k becomes $1.282.000. Minus taxes.
- s1artibartfast 7y agoNot op. There are also good reasons to donate money today instead of tomorrow. Positive change in the world can also accumulate interest of time, and problems can also get worse over time
- donavanm 7y ago
- tomatotomato37 7y agoBe sure to harvest some of that profit now. Going all in for 1200% gains is fine for wacky WSB plays using disposable income, but not when you need it to build up a safety net
- songzme 7y agoif the market bounces back my RSUs goes back and I'm back to where I was. I don't plan on harvesting my put profits, I'm secretly hoping I lose it all.
- czbond 7y agoOne's investment plan should not rely on "if". Sit with a piece of paper - write down the scenarios that are possible, not the ones you want to happen. Now project forward - thinking what should I have done if each of these were true.
- mmhsieh 7y agoyou could lose on both ends. a quick double dip crash would wipe out your RSUs all the same and your options finish out of the money as 90% of them do.
- antisthenes 7y ago> If the markets keep falling, I may end up with around 30k, which is enough for me to pay my mortgage for a year and a half. Hope you're factoring in the additional tax burden of extra income. That may decrease your runway from 18 months down to 13-14.
- aazaa 7y ago> I bought a put last week for 2k (CMG) and now its worth 18k. You should really spell out the risk you're taking to get a return like that.
- whatshisface 7y agoThe risk is that you will buy thousands of puts, week after week, waiting for a crash to happen, and when one finally does you will have spent so much on puts while waiting that overall you didn't win anything.
- deleted 7y ago[deleted]
- odms 7y agoThe total risk is 2k. So, the puts could end up worthless at the expiry date.
- voidmain0001 7y ago"Naked selling of put options can be quite dangerous in the event of a steep fall in the price of a stock. The option seller is forced to buy the stock at a certain price. However, the lowest the stock can drop to is zero, so there is a floor to the losses." https://www.investopedia.com/ask/answers/050115/what-types-options-positions-create-unlimited-liability.asp https://www.investopedia.com/ask/answers/050115/what-types-o...
- sirsar 7y agoOP is buying puts, not selling them.
- outworlder 7y ago"naked" "selling" OP is doing neither.
- sdinsn 7y ago
- simonebrunozzi 7y agoThanks for sharing. What’s CMG? Also, how easy is it to buy options with Schwab or Etrade or similar?
- songzme 7y agoPossible high return per stock, 10% drop = $60 drop per share, which equates to a potential $6k profit. You could do the same with Tesla, Google, AMZN. Any strong stable company with reason to fall other than the market trend would do. Again, these are my thoughts, please take it with a grain of salt and do your own research. You may need to call up Schwab and Etrade and tell them you want your account approved for trading Options. Or maybe you can already do it, check to make sure.
- bojo 7y agoCMG is the ticker symbol for Chipotle Mexican Grill, Inc. With Schwab you have to apply for level 1 access to option trading, but it's pretty straight forward and quick since buying is low risk.
- setheron 7y agoWhy CMG though?
- songzme 7y agoPossible high return per stock, 10% drop = $60 drop per share, which equates to a potential $6k profit. You could do the same with Tesla, Google, AMZN. Any strong stable company with reason to fall other than the market trend would do. Again, these are my thoughts, please take it with a grain of salt and do your own research.
- jldugger 7y ago> I usually buy a put (option) just in case 2008 repeats itself. I bought a put last week for 2k (CMG) and now its worth 18k. Chipotle Mexican Grill? Or is that something related to Chicago Mercantile Exchange? Cuz like, the terms of my RSU package expclitly forbid dealing in related derivatives. I cannot offset downside risk like this with options.
- Someone1234 7y agoIt doesn't have to be related to offset the risk. For example you could offset using the SP 500 index, not violate the rules, and still protect yourself from a 07/08 style market collapse.
- jldugger 7y agoTrue, but I'm not sure how I feel about buying puts on stocks I own in bulk. If I'm making that kind of directional bet, wouldn't I also be better off shifting from SPY to AGG?
- sdinsn 7y agoYes, he's referring to Chipotle
- bityard 7y agoYour employment situation is uncertain, you give away most of your income, you have minimal savings _and_ you speculate in the stock market? You, sir, are made of sterner stuff than I.
- jovial_cavalier 7y agoIf you expect volatility to increase, which I think is very reasonable, then buying options is a very safe bet, and if you only put in a reasonable amount, it merely serves as insurance against getting laid off. If the market gets bad enough for him to have to be laid off, his presumption is that the puts will be valuable enough to get him along for a little while. If it doesn't, then he probably loses money on the puts, but he's still employed, so it doesn't make much difference. edit: I'm an engineer, not an economist, so this is probably wrong, but I think it's the line of thinking that songzme is on too.
- evanpw 7y ago> If you expect volatility to increase If you have high confidence that volatility will increase more than the market expects it to. > buying options is a very safe bet There is no world in which buying options in a volatile single stock is a very safe bet Unless OP actually works at CMG (in which case they're probably forbidden from buying puts), this is gambling, not hedging.
- jovial_cavalier 7y ago>There is no world in which buying options in a volatile single stock is a very safe bet I agree. I didn't pick up that CMG was Chipotle (that's what comes up when I search CMG). Do you think if the underlying was something diversified, this would be a safe strategy? > this is gambling, not hedging. My understanding of it is that in times of high volatility, options go up. If OP expects ^VIX to go up in the future, which I think is very safe to assume at this point, then won't the value of a diversified option go up? Again, maybe I'm confused... I don't really trade anything, so I don't have skin in the game. I just talk about the markets a lot with my friend who is into Quant Finance.
- Der_Einzige 7y agoI was saying these things in other threads and getting downvoted. Puts are basically insurance against shit hitting the fan. Thank you options and r/wsb
- nkingsy 7y agoI've had some short positions (different companies) to offset my own RSU market risk since I started my job a year ago. Until the last few weeks I avoided looking. Now I'll avoid checking my company's stock for a while and look at the shorts instead if I want to waste time patting myself on the back.