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Basic strategy (there are others): I own stocks in 100 chunk blocks. I then buy the exact same amount of -15-20% puts to cover my downside risk and simultaneous

Basic strategy (there are others): I own stocks in 100 chunk blocks. I then buy the exact same amount of -15-20% puts to cover my downside risk and simultaneously sell the same amount of ~+10-20% calls and use their premium to make the insurance free. My portfolio value, if hedged perfectly and fully backed with cash is now locked to +/- ~20% (depending on IV) at little to no cost. More here: http://www.investopedia.com/articles/optioninvestor/09/asset-allocation-not-enough.asp http://www.investopedia.com/articles/optioninvestor/09/asset... || http://www.theoptionsguide.com/the-collar-strategy.aspx http://www.theoptionsguide.com/the-collar-strategy.aspx || http://www.theoptionsguide.com/costless-collar.aspx http://www.theoptionsguide.com/costless-collar.aspx || http://www.advisorperspectives.com/newsletters10/Risk_Management_through_Costless_Collars.php http://www.advisorperspectives.com/newsletters10/Risk_Manage... Mark Cuban used this to stay a billionaire through the dot-com crash: https://www.quora.com/How-did-Mark-Cuban-survive-the-dot-com-crash https://www.quora.com/How-did-Mark-Cuban-survive-the-dot-com...

tocomment 14y ago
But from you other posts it sounds like your expecting greater than 20% growth. I'd just worry 20% growth could happen fairly quickly.
- confluence 14y ago
  That's what we in finance call a good problem to have.
_debug_ 14y ago
TSLA Puts seem to be priced with higher IV than Calls at the same distance for both near and far expiries (Calls at 120% vs. Puts at 80% of spot). I see Puts at strike $27 priced at 200% to 166% of the Calls at strike $41. Options chains from Google Finance : http://www.google.com/finance/option_chain?q=NASDAQ:TSLA&ei=Hv_EUNizAYL2kQXMEA http://www.google.com/finance/option_chain?q=NASDAQ:TSLA&#38... So I'm assuming that the TSLA collar (unlike your other equity collars) is not costless. Or is it? Am I missing something? Thanks for sharing your thoughts, BTW. I'm just loving going through your comments on other HN articles!
- confluence 14y ago
  Yeh that's why I said ~15-20% - it varies with IV, I just take a different spread than exactly +/- 20%. Fundamentally I don't want to be exposed to black swan downside, and black swan upside is statistically rare - so I don't mind losing that (things don't move up 30-40% in a month too often - manias/booms are slow - but they have moved down 30-40% crashes/panics -> bull markets are slow, bear markets are fast - and that is the asymmetry I'm exploiting to cap my risk without negatively effecting my return - selling covered calls is effectively free money most of the time, and buying puts covers my ass from Enron like events and the asymmetrical movement between booms/busts/disclosure negative information like bankruptcy).
  - _debug_ 14y ago
    Thanks! Yes, (in my 4 years of trading experience,) I've only seen pharma stocks move up 30-40% in a month (or day!).
marvin 14y ago
This is incredibly fascinating to read. Thanks for the links and insight.

tocomment 14y ago

But from you other posts it sounds like your expecting greater than 20% growth. I'd just worry 20% growth could happen fairly quickly.

confluence 14y ago
That's what we in finance call a good problem to have.

_debug_ 14y ago

TSLA Puts seem to be priced with higher IV than Calls at the same distance for both near and far expiries (Calls at 120% vs. Puts at 80% of spot). I see Puts at strike $27 priced at 200% to 166% of the Calls at strike $41. Options chains from Google Finance : http://www.google.com/finance/option_chain?q=NASDAQ:TSLA&ei=Hv_EUNizAYL2kQXMEA http://www.google.com/finance/option_chain?q=NASDAQ:TSLA&#38... So I'm assuming that the TSLA collar (unlike your other equity collars) is not costless. Or is it? Am I missing something? Thanks for sharing your thoughts, BTW. I'm just loving going through your comments on other HN articles!

confluence 14y ago
Yeh that's why I said ~15-20% - it varies with IV, I just take a different spread than exactly +/- 20%. Fundamentally I don't want to be exposed to black swan downside, and black swan upside is statistically rare - so I don't mind losing that (things don't move up 30-40% in a month too often - manias/booms are slow - but they have moved down 30-40% crashes/panics -> bull markets are slow, bear markets are fast - and that is the asymmetry I'm exploiting to cap my risk without negatively effecting my return - selling covered calls is effectively free money most of the time, and buying puts covers my ass from Enron like events and the asymmetrical movement between booms/busts/disclosure negative information like bankruptcy).
- _debug_ 14y ago
  Thanks! Yes, (in my 4 years of trading experience,) I've only seen pharma stocks move up 30-40% in a month (or day!).

marvin 14y ago

This is incredibly fascinating to read. Thanks for the links and insight.