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Derivatives guy here. Perfectly fine opinion, but two issues. Why now? This is a general investing issue. Trading costs money, holding a put costs money, so wh

Derivatives guy here. Perfectly fine opinion, but two issues. Why now? This is a general investing issue. Trading costs money, holding a put costs money, so why will the market do what you think in this time frame? Why are the puts cheap? This could be substantiated with some numbers, esp implied volatility. Are they cheap vs history? I don't know, but the reasoning should show why you think so. Note I'm not looking for breakevens. That can be worked out from the price, but it doesn't tell you whether that is more or less likely than the market's opinion. Totally reasonable points otherwise.

femto113 5y ago
Except if you believe, as the author does, that the entire market is just scams and insider manipulation there is no meaning to be gleaned from any of the numbers. If it's all a sham it will blow up at some point, it's just a question of when, but that will almost certainly be precipitated by some unpredictable external event.
- AmericanChopper 5y ago
  That’s a very bad thesis to trade options on. The author believes that BTC is overvalued, but if you look at their reasons for believing it’s overvalued, some of them could have applied to BTC at any point in time over the past several years, and the rest could have applied to BTC and any point in time since it’s creation. By buying puts on bitcoin (derivatives), they’re not only betting that they’re correct, but also that something will happen in the next 5-6 months that will catalyze the market to correct that valuation. They don’t have any thesis at all for what’s going to catalyze this correction over the next 5-6 months. Their entire investment thesis is that “[they’d] be astonished if we get through 2021 without an explosion”. The investment described in this blog post is just a crypto-bear yolo play, with less thought put into it than your average r/WSB post. Edit: looking at the options chain for the BTC ETF they’re shorting, NTM puts are trading at $2, so the underlying has to lose about 1/3rd of its value for that trade to break even. If it goes to $0, their maximum profit is ~$400 per ~$200 contract. That’s certainly not a cheap contract.
  - midjji 5y ago
    Bitcoin, like tesla stock is better predicted by treating it as a religion than a rational investment. So how long are people going to believe a kid who said a god knocked her up to avoid getting stoned?
    - AmericanChopper 5y ago
      Would you be interested in placing a bet with me that the world gives up on religion before the end of the year? Bets are $200 each, and if there’s 0 religious people left by December 17, I’ll pay 3:1. Any takers?
    - deleted 5y ago
      [deleted]
    - ykevinator3 5y ago
      Tesla has a ton of ip, Bitcoin is pretty cloneable
      - atatatat 5y ago
        e.g. Dogecoin
      - abriosi 5y ago
        Being open source it is not a characteristic for value. There are multiple positive and negative examples of things that are open source and (un)valuable
      - cko 5y ago
        Though Bitcoin does have brand name recognition. And being listed on major exchanges. Is that what they refer to as network effects, btw? And if it's akin to religion or a well known brand, it could be easily cloneable but not easily adoptable. I can make a leather handbag or carbonated beverage right now, but unless I slap a Chanel or Coca Cola logo on it, it's not likely to be in demand. We have the tendency to approach this from a rational perspective - "it's not a currency or store of value", "what about Tether", etc. But I can think of plenty of examples where the name itself is powerful enough. I'm not willing to bet that Christianity (or any major religion) will collapse in the near future. Slow decline, maybe. Of course, maybe there's only like a tiny minority of true believers, a couple price manipulating whales, some smoke and mirror organizations, and everyone else is a Robin Hood speculator. I don't have the numbers on that.
- intev 5y ago
  “the markets can remain irrational longer than you can remain solvent.”
- mmahemoff 5y ago
  "Markets can remain irrational longer than you can remain solvent." - John Maynard Keynes Speculating on options based only on irrational pricing is a risky game. You could be waiting years for the correction to occur and it might never occur if the fundamentals change to make the price more rational. You can increase your safety level with a known catalyst. In this case, it might be something like an SEC investigation into tether, but you'd have to decide on the timing, the probability that occurs, and how much it could ultimately decrease the related stock prices.
- tasuki 5y ago
  > it will blow up at some point, it's just a question of when The author's options expire around Christmas. A pretty clear deadline for the trade to be profitable.
- codebolt 5y ago
  One major caveat; You're not shorting BTC/USD, you're shorting BTC/USDT. As long as Tether is managed by a shady, unregulated corporation with zero transparency or oversight, that has full freedom to create as much artificial liquidity as they see fit, that seems like a very bad bet.
  - puranjay 5y ago
    Most people don't know this but Tether and Bitfinex have the same parent company, iFinex. Bitfinex is easily the largest manipulator of BTC price and their wallet holds nearly 1% of the BTC supply. Together, they practically control the market. Even Bitcoin maxis agree that Tether's collateral is very risky. It's a house of cards waiting to collapse.
  - bcrl 5y ago
    Why not short USDT directly then rather than throwing BTC into the mix?
    - codebolt 5y ago
      The more I think about it, the more I think that this is actually a pretty genius trade. The price of Tether is effectively capped at 1 USD, so it's not like a short position could blow up in your face. All you'd stand to lose is the interest.
panarky 5y ago
Since he bought his puts on 6/26, BTC is up 9.5%, MSTR is up 9.9% and COIN is up 13.5%. He's already pretty deep underwater.
- foolmeonce 5y ago
  If you are betting something will tank then you don't time the market to get to put at the best price. Buying these puts either pays out a lot if there is a giant dive before they expire or is a cost to cover that time period.
  - heropaul 5y ago
    Timing is everything, being early is the same as being wrong.
- jschulenklopper 5y ago
  Is he underwater? Aren't the put options that he bought previously just not cheaper now? On options being underwater: "Underwater stock options have an exercise price which is greater than the market price of the underlying stock." Is that his situation?
  - ludamad 5y ago
    To be "short" you can sell borrowed equities, sell calls that you write, or buy put options. Buying put options will cap your risk at the option price (I think underwater just meant "lost lots of money" - more likely to go out of bounds with the first two kinds of short positions)
    - jschulenklopper 5y ago
      Sorry, but no. Those three are all 'bearish' strategies, but "going short" is selling something you don't have. Buying put options isn't short selling, although both are anticipating a decrease in the value of something. Underwater is the term for a contract or asset that is worth less than its notional value. https://www.investopedia.com/articles/trading/092613/difference-between-short-selling-and-put-options.asp https://www.investopedia.com/articles/trading/092613/differe... https://www.investopedia.com/terms/u/underwater.asp https://www.investopedia.com/terms/u/underwater.asp
omgWhyPlease 5y ago
“I may be early but I’m not wrong” “It’s the same thing Michael!” Best big short quote.
- dwohnitmok 5y ago
  Rather unfortunate that in that movie scene the speaker of that sage piece of advice was cast as the one who was hysterically panicking and its recipient as the calm, reasonable one.
- Sammi 5y ago
  Put options have a time limit. So being early means you loose the money you used to buy the put. So yeah it is the same thing. And Michael Burry was a lucky mother effer that he managed to keep his put on all the way until it finally happened.
  - manquer 5y ago
    Or as today they would describe as it diamond hands. It is rare to have both the conviction to bet everything and also be right at the same time.
    - Sammi 5y ago
      Diamond hands are for holding perpetual assets not expiring options. For reasons I explained above.
Sammi 5y ago
In trading you need a catalyst. A reason for why something will happen in a certain time frame. That's the basic premise for how trading works. If you don't have a catalyst then you are just blindly gambling or throwing your money away. OP gives a bunch of reasons, but no reason why any of that will play out in his particular time frame. So he's not trading. Time will tell if he is gambling or throwing his money away.
- tim333 5y ago
  Well he may not be saying his reasons timing wise. But if you look at the long term bitcoin graph it looks like it had a peak in may around $62k and could fall to something like $15k based on past peaks https://coinmarketcap.com/currencies/bitcoin/ https://coinmarketcap.com/currencies/bitcoin/ Also if you look at trading volume, here on coinbase but it's the same for other exchanges, it also seems to have had a peak in may and be going down which also in the past has lead to falls in btc https://nomics.com/exchanges/gdax-coinbase-exchange https://nomics.com/exchanges/gdax-coinbase-exchange
- BrissyCoder 5y ago
  Yeah - the closest he comes to providing one is "My best guess is that pretty soon the supply of greater fools runs out." But that's not very scientific. I suspect the catalyst will be some kind of regulatory action against Tether. But yeah it's really anyone's guess at this stage and as you point out it's knowing the timeframe that is the problem with shorting.
jschulenklopper 5y ago
On "why now?", he stated that he thinks the pool of new greater fools is running empty: > My best guess is that pretty soon the supply of greater fools runs out.
thisisit 5y ago
I think there is lot of subjectivity in this trade. The timing of the trade mostly author's gut feel that bitcoin will soon transition to a seller market as everyone who wants to buy bitcoin will already have one. Puts being cheap is also a subjective measure. Author might be looking at past prices and making the bet. He isn't looking at greeks at all.
- acomjean 5y ago
  I know to some extent trading stocks is a little like gambling. A lot of things you have no idea about can happen, but there is a lot of data that can help you make an educated guess. Even then a lot of unforeseen factors move a stock price. Crypto investing seems a lot more like straight up gambling, where there isn’t a ton to go on. Even less to go on than investing in a regular currency, which isn’t very mainstream.
jnwatson 5y ago
Yeah I bought puts in Sears 10 years ago after reading about Lampert (the CEO). I was roughly 8 years early. A company/idea/market can remain irrational a lot longer than you can remain solvent. With shorting stock, and even worse with long options, not only do you have to have the right premise, but also the right timing.
- manquer 5y ago
  The market can stay irrational longer than you have money to hold your position.

femto113 5y ago

Except if you believe, as the author does, that the entire market is just scams and insider manipulation there is no meaning to be gleaned from any of the numbers. If it's all a sham it will blow up at some point, it's just a question of when, but that will almost certainly be precipitated by some unpredictable external event.

AmericanChopper 5y ago
That’s a very bad thesis to trade options on. The author believes that BTC is overvalued, but if you look at their reasons for believing it’s overvalued, some of them could have applied to BTC at any point in time over the past several years, and the rest could have applied to BTC and any point in time since it’s creation. By buying puts on bitcoin (derivatives), they’re not only betting that they’re correct, but also that something will happen in the next 5-6 months that will catalyze the market to correct that valuation. They don’t have any thesis at all for what’s going to catalyze this correction over the next 5-6 months. Their entire investment thesis is that “[they’d] be astonished if we get through 2021 without an explosion”. The investment described in this blog post is just a crypto-bear yolo play, with less thought put into it than your average r/WSB post. Edit: looking at the options chain for the BTC ETF they’re shorting, NTM puts are trading at $2, so the underlying has to lose about 1/3rd of its value for that trade to break even. If it goes to $0, their maximum profit is ~$400 per ~$200 contract. That’s certainly not a cheap contract.
- midjji 5y ago
  Bitcoin, like tesla stock is better predicted by treating it as a religion than a rational investment. So how long are people going to believe a kid who said a god knocked her up to avoid getting stoned?
  - AmericanChopper 5y ago
    Would you be interested in placing a bet with me that the world gives up on religion before the end of the year? Bets are $200 each, and if there’s 0 religious people left by December 17, I’ll pay 3:1. Any takers?
  - deleted 5y ago
    [deleted]
  - ykevinator3 5y ago
    Tesla has a ton of ip, Bitcoin is pretty cloneable
    - atatatat 5y ago
      e.g. Dogecoin
    - abriosi 5y ago
      Being open source it is not a characteristic for value. There are multiple positive and negative examples of things that are open source and (un)valuable
    - cko 5y ago
      Though Bitcoin does have brand name recognition. And being listed on major exchanges. Is that what they refer to as network effects, btw? And if it's akin to religion or a well known brand, it could be easily cloneable but not easily adoptable. I can make a leather handbag or carbonated beverage right now, but unless I slap a Chanel or Coca Cola logo on it, it's not likely to be in demand. We have the tendency to approach this from a rational perspective - "it's not a currency or store of value", "what about Tether", etc. But I can think of plenty of examples where the name itself is powerful enough. I'm not willing to bet that Christianity (or any major religion) will collapse in the near future. Slow decline, maybe. Of course, maybe there's only like a tiny minority of true believers, a couple price manipulating whales, some smoke and mirror organizations, and everyone else is a Robin Hood speculator. I don't have the numbers on that.
intev 5y ago
“the markets can remain irrational longer than you can remain solvent.”
mmahemoff 5y ago
"Markets can remain irrational longer than you can remain solvent." - John Maynard Keynes Speculating on options based only on irrational pricing is a risky game. You could be waiting years for the correction to occur and it might never occur if the fundamentals change to make the price more rational. You can increase your safety level with a known catalyst. In this case, it might be something like an SEC investigation into tether, but you'd have to decide on the timing, the probability that occurs, and how much it could ultimately decrease the related stock prices.
tasuki 5y ago
> it will blow up at some point, it's just a question of when The author's options expire around Christmas. A pretty clear deadline for the trade to be profitable.
codebolt 5y ago
One major caveat; You're not shorting BTC/USD, you're shorting BTC/USDT. As long as Tether is managed by a shady, unregulated corporation with zero transparency or oversight, that has full freedom to create as much artificial liquidity as they see fit, that seems like a very bad bet.
- puranjay 5y ago
  Most people don't know this but Tether and Bitfinex have the same parent company, iFinex. Bitfinex is easily the largest manipulator of BTC price and their wallet holds nearly 1% of the BTC supply. Together, they practically control the market. Even Bitcoin maxis agree that Tether's collateral is very risky. It's a house of cards waiting to collapse.
- bcrl 5y ago
  Why not short USDT directly then rather than throwing BTC into the mix?
  - codebolt 5y ago
    The more I think about it, the more I think that this is actually a pretty genius trade. The price of Tether is effectively capped at 1 USD, so it's not like a short position could blow up in your face. All you'd stand to lose is the interest.

panarky 5y ago

Since he bought his puts on 6/26, BTC is up 9.5%, MSTR is up 9.9% and COIN is up 13.5%. He's already pretty deep underwater.

foolmeonce 5y ago
If you are betting something will tank then you don't time the market to get to put at the best price. Buying these puts either pays out a lot if there is a giant dive before they expire or is a cost to cover that time period.
- heropaul 5y ago
  Timing is everything, being early is the same as being wrong.
jschulenklopper 5y ago
Is he underwater? Aren't the put options that he bought previously just not cheaper now? On options being underwater: "Underwater stock options have an exercise price which is greater than the market price of the underlying stock." Is that his situation?
- ludamad 5y ago
  To be "short" you can sell borrowed equities, sell calls that you write, or buy put options. Buying put options will cap your risk at the option price (I think underwater just meant "lost lots of money" - more likely to go out of bounds with the first two kinds of short positions)
  - jschulenklopper 5y ago
    Sorry, but no. Those three are all 'bearish' strategies, but "going short" is selling something you don't have. Buying put options isn't short selling, although both are anticipating a decrease in the value of something. Underwater is the term for a contract or asset that is worth less than its notional value. https://www.investopedia.com/articles/trading/092613/difference-between-short-selling-and-put-options.asp https://www.investopedia.com/articles/trading/092613/differe... https://www.investopedia.com/terms/u/underwater.asp https://www.investopedia.com/terms/u/underwater.asp

omgWhyPlease 5y ago

“I may be early but I’m not wrong” “It’s the same thing Michael!” Best big short quote.

dwohnitmok 5y ago
Rather unfortunate that in that movie scene the speaker of that sage piece of advice was cast as the one who was hysterically panicking and its recipient as the calm, reasonable one.
Sammi 5y ago
Put options have a time limit. So being early means you loose the money you used to buy the put. So yeah it is the same thing. And Michael Burry was a lucky mother effer that he managed to keep his put on all the way until it finally happened.
- manquer 5y ago
  Or as today they would describe as it diamond hands. It is rare to have both the conviction to bet everything and also be right at the same time.
  - Sammi 5y ago
    Diamond hands are for holding perpetual assets not expiring options. For reasons I explained above.

Sammi 5y ago

In trading you need a catalyst. A reason for why something will happen in a certain time frame. That's the basic premise for how trading works. If you don't have a catalyst then you are just blindly gambling or throwing your money away. OP gives a bunch of reasons, but no reason why any of that will play out in his particular time frame. So he's not trading. Time will tell if he is gambling or throwing his money away.

tim333 5y ago
Well he may not be saying his reasons timing wise. But if you look at the long term bitcoin graph it looks like it had a peak in may around $62k and could fall to something like $15k based on past peaks https://coinmarketcap.com/currencies/bitcoin/ https://coinmarketcap.com/currencies/bitcoin/ Also if you look at trading volume, here on coinbase but it's the same for other exchanges, it also seems to have had a peak in may and be going down which also in the past has lead to falls in btc https://nomics.com/exchanges/gdax-coinbase-exchange https://nomics.com/exchanges/gdax-coinbase-exchange
BrissyCoder 5y ago
Yeah - the closest he comes to providing one is "My best guess is that pretty soon the supply of greater fools runs out." But that's not very scientific. I suspect the catalyst will be some kind of regulatory action against Tether. But yeah it's really anyone's guess at this stage and as you point out it's knowing the timeframe that is the problem with shorting.

jschulenklopper 5y ago

On "why now?", he stated that he thinks the pool of new greater fools is running empty: > My best guess is that pretty soon the supply of greater fools runs out.

thisisit 5y ago

I think there is lot of subjectivity in this trade. The timing of the trade mostly author's gut feel that bitcoin will soon transition to a seller market as everyone who wants to buy bitcoin will already have one. Puts being cheap is also a subjective measure. Author might be looking at past prices and making the bet. He isn't looking at greeks at all.

acomjean 5y ago
I know to some extent trading stocks is a little like gambling. A lot of things you have no idea about can happen, but there is a lot of data that can help you make an educated guess. Even then a lot of unforeseen factors move a stock price. Crypto investing seems a lot more like straight up gambling, where there isn’t a ton to go on. Even less to go on than investing in a regular currency, which isn’t very mainstream.

jnwatson 5y ago

Yeah I bought puts in Sears 10 years ago after reading about Lampert (the CEO). I was roughly 8 years early. A company/idea/market can remain irrational a lot longer than you can remain solvent. With shorting stock, and even worse with long options, not only do you have to have the right premise, but also the right timing.

manquer 5y ago
The market can stay irrational longer than you have money to hold your position.