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I 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
by sixQuarks 7y ago
I 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
- devchix 7y agoWho is the counterparty to these trades? When the market sentiment is negative, the number of these counterparties are narrow and dwindling, surely it's not that easy to find people who will buy a thing for $5? Maybe they would buy at $4.25 or even less?
- songzme 7y agoGood job asking from the other perspective. Here it is (over simplified to state a point, you would need to do more research). Let's say Tesla stocks are at 700. If someone offered 2k in addition to the opportunity to buy tesla at $620 / share, I'm sure many people will be lined up to buy it. Not only do you get $2000 immediately in the bank, you also get to buy tesla stock at a 10% discount. Not a bad deal.
- Insanity 7y agoThank you and parent posters, this makes it clear to me!
- justsid 7y agoThe counter party is set when you sell the put contract. When you set up a put contract, your broker will find a counter party (or none at all). To incetivice the counter party you pay them a premium, which they get to keep no matter what happens. Once you have the contract, it’s locked in and you have the party. That’s why you set up puts _before_ the general sentiment is that the market will go down.
- bawana 7y agoI don’t mean to be dense but I am still missing something. I appreciate the fact that the counter party is locked in when you buy a ‘put’. But what if the counter party wants to get out of a bad deal and they declare bankruptcy? After all if they have to buy Tesla at 620 (using the example above) and Tesla is trading at 400 that’s a significant loss.
- pheug 7y agoWhen market crashes, volatility shoots up through the roof and significantly increases value even for such deep out-of-the-money options, by far more than the difference between strike and underlying price. Essentially he made most of that money on volatility spike.
- sjg007 7y agoHow do you buy a put? On etrade?
- lbotos 7y agotrite response: If you are asking this question, you shouldn't. Actual answer: Most brokers will allow you to buy options and some specialize in it. Options are very dangerous because you can lose more than you invested. (Which can happen shorting stocks too)
- senordevnyc 7y agoNot if you only buy
- manigandham 7y agoYou cannot lose more than you invested when buying options.
- sdinsn 7y agoAlmost all brokers will offer options. BUT, before you buy puts or calls, do LOST of research. They are far more confusing and risky than stocks.
- klohto 7y agoJust out of curiosity, where do you buy?
- songzme 7y agoany trading platforms: robinhood, etrade, ameritrade, etc etc.
- hef19898 7y agoSold a bunch of my Amazon stock earlier this year. I am slowly tempted to buy some of it back if markets continue to fall. I still have to figure out a comfortable assumption of where thongs will end up. Could be COVID-19 changes a lot of dynamics.