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Unfortunately, correlation between assets and also assets classes are extremely high so diversification ain't what it used to be. A crash can happen regardles

by beezle 6y ago

Unfortunately, correlation between assets and also assets classes are extremely high so diversification ain't what it used to be. A crash can happen regardless of liquidity - at its most base it is just a change in what people view is a fair price for an asset. "I no longer like red tulips so only pay $1 for your bulb instead of $8" Holding some cash is always wise. One can also keep some funds in 2yr treasury FRN - checking account yields until such a time as rates back up naturally or possibly suddenly if the world questions US treasury issuance. Key thing people need to understand is liquidity goes out the window in a crash. If you own corporate paper, you know this (or should) and need to be prepared as you won't be able to offload to raise funds to paydown margin needs elsewhere. Certainly, if you are using margin in some way you should consider your cash drawdown needs for at least a 30% drop and make sure you have funds that will be available no matter what lest you have positions automatically closed. I personaly have some out of the money, very long dated, SPY put spreads. They are long term protection as the value only maxes out at expiration and will be reduced with skyrocketing vol. So they will give me a degree of short term protection but are really designed to survive a crash followed by longer period of relative stagnation.

giantg2 6y ago
I was looking at longterm SPY puts. I didn't like the premiums (and almost inevitable decay) though. I went with shorter term puts on companies that would be unlikely to survive another downturn (after they came back up from the initial crash, like NCLH). Then for the case of possible inflation I bought LEAPS on stuff like MSFT and platinum ETFs (physical and miners/refiners) since platinum has tended to go up when industry does, but is atleast a commodity that hasn't already exploded like gold did. I've also been buying some utilities since they should be less affected in specific situations. And of course a healthy dose of more speculative stuff and swing trades.
- beezle 6y ago
  Yes, the premiums on the long dated OTM SPY are still historically rich. My long is actually in ES futures and I have managed to sell near OTM calls high enough to not be called away while still defraying the cost of the SPY puts a bit. Any any event, best viewed as sleep at night insurance. I find it helpful to look not at OMG the Vol! but what you are paying as a % of current market for insurance, annualized. For instance, $21 for Dec 22 300 puts on SPY is about 2.75%/yr. Obviously the delta won't go to 1 even in a tank due to vol and time, but it will cover some of the fall in the short term and if it is prolonged, everything below 300.
  - giantg2 6y ago
    Yeah, not bad for insurance as long ad the person realizes that's what it is (you do, but a noob might not). I've been selling calls on a lot of stuff lately (HPE, oil stocks, REITS, etc - all at prices I'm fine at them being called away at) . This volatility is awesome for it.

by beezle 6y ago

giantg2 6y ago

I was looking at longterm SPY puts. I didn't like the premiums (and almost inevitable decay) though. I went with shorter term puts on companies that would be unlikely to survive another downturn (after they came back up from the initial crash, like NCLH). Then for the case of possible inflation I bought LEAPS on stuff like MSFT and platinum ETFs (physical and miners/refiners) since platinum has tended to go up when industry does, but is atleast a commodity that hasn't already exploded like gold did. I've also been buying some utilities since they should be less affected in specific situations. And of course a healthy dose of more speculative stuff and swing trades.

beezle 6y ago
Yes, the premiums on the long dated OTM SPY are still historically rich. My long is actually in ES futures and I have managed to sell near OTM calls high enough to not be called away while still defraying the cost of the SPY puts a bit. Any any event, best viewed as sleep at night insurance. I find it helpful to look not at OMG the Vol! but what you are paying as a % of current market for insurance, annualized. For instance, $21 for Dec 22 300 puts on SPY is about 2.75%/yr. Obviously the delta won't go to 1 even in a tank due to vol and time, but it will cover some of the fall in the short term and if it is prolonged, everything below 300.
- giantg2 6y ago
  Yeah, not bad for insurance as long ad the person realizes that's what it is (you do, but a noob might not). I've been selling calls on a lot of stuff lately (HPE, oil stocks, REITS, etc - all at prices I'm fine at them being called away at) . This volatility is awesome for it.