Daily Advice Thread - All basic help or advice questions must be posted here. Investing |
- Daily Advice Thread - All basic help or advice questions must be posted here.
- How to not get ruined with Options - Part 3a of 4 - Simple Strategies
- Microsoft to close all retail stores (107 US Locations)
- Remington Arms preps for bankruptcy sale to Navajo Nation
- Economic impacts of COVID-19 in real time
- God dammit wire card.
- How to not get ruined with Options - Part 3b of 4 - Advanced Strategies
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| Daily Advice Thread - All basic help or advice questions must be posted here. Posted: 27 Jun 2020 05:10 AM PDT If your question is "I have $10,000, what do I do?" or other "advice for my personal situation" questions. If you are going to ask how to invest you should include relevant information, such as the following:
Please consider consulting our FAQ first - https://www.reddit.com/r/investing/wiki/faq Be aware that these answers are just opinions of Redditors and should be used as a starting point for your research. You should strongly consider seeing a registered financial rep before making any financial decisions! [link] [comments]  |
| How to not get ruined with Options - Part 3a of 4 - Simple Strategies Posted: 26 Jun 2020 11:39 PM PDT Post 1: Basics: CALL, PUT, exercise, ITM, ATM, OTM Post 2: Basics: Buying and Selling, the Greeks Post 3a: Simple Strategies Post 4: Example of trades
Ok. So I lied. This post was getting way too long, so I had to split in two (3a and 3b) In the previous posts 1 and 2, I explained how to buy and sell options, and how their price is calculated and evolves over time depending on the share price, volatility, and days to expiration. In this post 3a (and the next 3b), I am going to explain in more detail how and when you can use multiple contracts together to create more profitable trades in various market conditions. Just a reminder of the building blocks: You expect that, by expiration, the stock price will … ... go up more than the premium you paid → Buy a call … go down more than the premium you paid → Buy a put ... not go up more than the premium you got paid → Sell a call ... not go down more than the premium you got paid → Sell a put Buying Straight Calls: But why would you buy calls to begin with? Why not just buy the underlying shares? Conversely, why would you buy puts? Why not just short the underlying shares? Let's take long shares and long calls as an example, but this applies with puts as well. If you were to buy 100 shares of the company ABC currently trading at $20. You would have to spend $2000. Now imagine that the share price goes up to $25, you would now have $2500 worth of shares. Or a 25% profit. If you were convinced that the price would go up, you could instead buy call options ATM or OTM. For example, an ATM call with a strike of $20 might be worth $2 per share, so $200 per contract. You buy 10 contracts for $2000, so the same cost as buying 100 shares. Except that this time, if the share price hits $25 at expiration, each contract is now worth $500, and you now have $5000, for a $3000 gain, or a 150% profit. You could even have bought an OTM call with a strike of $22.50 for a lower premium and an even higher profit. But it is fairly obvious that this method of buying calls is a good way to lose money quickly. When you own shares, the price goes up and down, but as long as the company does not get bankrupt or never recovers, you will always have your shares. Sometimes you just have to be very patient for the shares to come back (buying an index ETF increases your chances there). But by buying $2000 worth of calls, if you are wrong on the direction, the amplitude, or the time, those options become worthless, and it's a 100% loss, which rarely happens when you buy shares. Now, you could buy only one contract for $200. Except for the premium that you paid, you would have a similar profit curve as buying the shares outright. You have the advantage though that if the stock price dropped to $15, instead of losing $500 by owning the shares, you would only lose the $200 you paid for the premium. However, if you lose these $200 the first month, what about the next month? Are you going to bet $200 again, and again… You can see that buying calls outright is not scalable long term. You need a very strong conviction over a specific period of time. How to buy cheaper shares? Sell Cash Covered Put. Let's continue on the example above with the company ABC trading at $20. You may think that it is a bit expensive, and you consider that $18 is a more acceptable price for you to own that company. You could sell a put ATM with a $20 strike, for $2. Your break-even point would be $18, i.e. you would start losing money if the share price dropped below $18. But also remember that if you did buy the shares outright, you would have lost more money in case of a price drop, because you did not get a premium to offset that loss. If the price stays above $20, your return for the month will be 11% ($200 / $1800). Note that in this example, we picked the ATM strike of $20, but you could have picked a lower strike for your short put, like an OTM strike of $17.50. Sure, the premium would be lower, maybe $1 per share, but your break-even point would drop from $18 to $16.50 (only 6% return then per month, not too shabby). The option trade will usually be written like this: SELL -1 ABC 100 17 JUL 20 17.5 PUT @ 1.00 This means we sold 1 PUT on ABC, 100 shares per contract, the expiration date is July 17, 2020, and the strike is $17.5, and we sold it for $1 per share (so $100 credit minus fees). With your $20 short put, you will get assigned the shares if the price drops below $20 and you keep it until expiration, however, you will have paid them the equivalent of $18 each (we'll actually talk more about the assignment later). If your short put expires worthless, you keep the premium, and you may decide to redo the same trade again. The share price may have gone up so much that the new ATM strike does not make you comfortable, and that's fine as you were not willing to spend more than $18 per share, to begin with, anyway. You will have to wait for some better conditions. This strategy is called a cash covered put. In a taxable account, depending on your broker, you can have it on margin with no cash needed (you will need to have some other positions to provide the buying power). Beware that if you don't have the cash to cover the shares, it is adding some leverage to your overall position. Make sure you account for all your potential risks at all times. The nice thing about this position is that as long as you are not assigned, you don't actually need to borrow some money, it won't cost you anything. In an IRA account, you will need to have the cash available for the assignment (remember in this example, you only need $1800, plus trading fees). Let's roll! Now one month later, the share price is between $18 and $22, there are few days of expiration left, and you don't want to be assigned, but you want to continue the same process for next month. You could close the current position, and reopen a new short put, or you could in one single transaction buy back your current short put, and sell another put for next month. Doing one trade instead of two is usually cheaper because you reduce the slippage cost. The closing of the old position and re-opening of a new short position for the next expiration is called rolling the short option (from month to month, but you can also do this with weekly options). The croll can be done a week or even a few days before expiration. Remember to avoid expiration days, and be careful being short an option on ex-dividend dates. When you roll month to month with the same strike, for most cases, you will get some money out of it. However, the farther your strike is from the current share price, the less additional premium you will get (due to the lower extrinsic value on the new option), and it can end up being close to $0. At that point, given the risk incurred, you may prefer to close the trade altogether or just be assigned. During the roll, depending on if the share price moved a bit, you can adjust the roll up or down. For example, you buy back your short put at $18, and you sell a new short put at $17 or $19, or whatever value makes the most sense. Assignment Now, let's say that the share price finally dropped below $20, and you decided not to roll, or it dropped so much that the roll would not make sense. You ended up getting your shares assigned at a strike price of $18 per share. Note that the assigned share may have a current price much lower than $18 though. If that's the case, remember that you earned more money than if you bought the shares outright at $20 (at least, you got to keep the $2 premium). And if you rolled multiple times, every premium that you got is additional money in your account. Want to sell at a premium? Sell Covered Calls. You could decide to hold onto the shares that you got at a discount, or you may decide that the stock price is going to go sideways, and you are fine collecting more theta. For example, you could sell a call at a strike of $20, for example for $1 (as it is OTM now given the stock price dropped). SELL -1 ABC 100 17 JUL 20 20 CALL @ 1.00 When close to the expiration time, you can either roll your calls again, the same way that you rolled your puts, as much as you can, or just get assigned if the share price went up. As you get assigned, your shares are called away, and you receive $2000 from the 100 shares at $20 each. Except that you accumulated more money due to all the premiums you got along the way. This sequence of the short put, roll, roll, roll, assignment, the short call, roll, roll, roll, is called the wheel. It is a great strategy to use when the market is trading sideways and volatility is high (like currently). It is a low-risk trade provided that the share you pick is not a risky one (pick a market ETF to start) perfect to get create some income with options. There are two drawbacks though:
You will have to be patient for the share to go back up, but often you can end up with many shares at a loss if the market has been tanking. As a rule of thumb, if I get assigned, I never ever sell a call below my assignment strike minus the premium. In case the market jumps back up, I can get back to my original position, with an additional premium on the way. Market and shares can drop like a stone and bounce back up very quickly (you remember this March and April?), and you really don't want to lock a loss. Here is a very quick example of something to not do: Assigned at $18, current price is $15, sell a call at $16 for $1, share goes back up to $22. I get assigned at $16. In summary, I bought a share at $18, and sold it at $17 ($16 + $1 premium), I lost $1 between the two assignments. That's bad.
You will have to find some other companies to do the wheel on. If it softens the blow a bit, your retirement account may be purely long, so you'll not have totally missed the upside anyway. A short put is a bullish position. A short call is a bearish position. Alternating between the two gives you a strategy looking for a reversion to the mean. Both of these positions are positive theta, and negative vega (see part 2). Now that I explained the advantage of the long calls and puts, and how to use short calls and puts, we can explore a combination of both. Verticals Most option beginners are going to use long calls (or even puts). They are going to gain some money here and there, but for most parts, they will lose money. It is worse if they profited a bit at the beginning, they became confident, bet a bigger amount, and ended up losing a lot. They either buy too much (50% of my account on this call trade that can't fail), too high of a volatility (got to buy those NKLA calls or puts), or too short / too long of an expiration (I don't want to lose theta, or I overspent on theta). As we discussed earlier, a straight long call or put is one of the worst positions to be in. You are significantly negative theta and positive vega. But if you take a step back, you will realize that not accounting for the premium, buying a call gives you the upside of stock up to the infinity (and buying a put gives you the upside of the stock going to $0). But in reality, you rarely are betting that the stock will go to infinity (or to $0). You are often just betting that the stock will go up (or down) by X%. Although the stock could go up (or down) by more than X%, you intuitively understand that there is a smaller chance for this to happen. Options are giving you leverage already, you don't need to target even more gain. More importantly, you probably should not pay for a profit/risk profile that you don't think is going to happen. Enter verticals. It is a combination of long and short calls (or puts). Say, the company ABC trades at $20, you want to take a bullish position, and the ATM call is $2. You probably would be happy if the stock reaches $25, and you don't think that it will go much higher than that. You can buy a $20 call for $2, and sell a $25 call for $0.65. You will get the upside from $20 to $25, and you let someone else take the $25 to infinity range (highly improbable). The cost is $1.35 per share ($2.00 - $0.65). BUY +1 VERTICAL ABC 100 17 JUL 20 20/25 CALL @ 1.35 This position is interesting for multiple reasons. First, you still get the most probable range for profitability ($20 to $25). Your cost is $1.35 so 33% cheaper than the long call, and your max profit is $5 - $1.35 = $3.65. So your max gain is 270% of the risked amount, and this is for only a 25% increase in the stock price. This is really good already. You reduced your dependency on theta and vega, because the short side of the vertical is reducing your long side's. You let someone else pay for it. Another advantage is that it limits your max profit, and it is not a bad thing. Why is it a good thing? Because it is too easy to be greedy and always wanting and hoping for more profit. The share reached $25. What about $30? It reached $30, what about $35? Dang it dropped back to $20, I should have sold everything at the top, now my call expires worthless. But with a vertical, you know the max gain, and you paid a premium for an exact profit/risk profile. As soon as you enter the vertical, you could enter a close order at 90% of the max value (buy at $1.35, sell at $4.50), good till to cancel, and you hope that the trade will eventually be executed. It can only hit 100% profit at expiration, so you have to target a bit less to get out as soon as you can once you have a good enough profit. This way you lock your profit, and you have no risk anymore in case the market drops afterwards. These verticals (also called spreads) can be bullish or bearish and constructed as debit (you pay some money) or credit (you get paid some money). The debit or credit versions are equivalent, the credit version has a bit of a higher chance to get assigned sooner, but as long as you check the extrinsic value, ex-dividend date, and are not too deep ITM you will be fine. I personally prefer getting paid some money, I like having a bigger balance and never have to pay for margin. :) Here are the 4 trades for a $20 share price: CALL BUY 20 ATM / SELL 25 OTM - Bullish spread - Debit CALL BUY 25 OTM / SELL 20 ATM - Bearish spread - Credit PUT BUY 20 ATM / SELL 25 ITM - Bullish spread - Credit PUT BUY 25 ITM / SELL 20 ATM - Bearish spread - Debit Because both bullish trades are equivalent, you will notice that they both have the same profit/risk profile (despite having different debit and credit prices due to the OTM/ITM differences). Same for the bearish trades. Remember that the cost of an ITM option is greater than ATM, which in turn is greater than an OTM. And that relationship is what makes a vertical a credit or a debit. I understand that it can be a lot to take in. Let's take a step back here. I picked a $20/$25 vertical, but with the share price at $20, I could have a similar $5 spread with $15/$20 (with the same 4 constructs). Or instead of 1 vertical $20/$25, I could have bought 5 verticals $20/$21. This is a $5 range as well, except that it has a higher probability for the share to be above $21. However, it also means that the spread will be more expensive (you'll have to play with your broker tool to understand this better), and it also increases the trading fees and potentially overall slippage, as you have 5 times more contracts. Or you could even decide to pick OTM $25/$30, which would be even cheaper. In this case, you don't need the share to reach $30 to get a lot of profit. The contracts will be much cheaper (for example, like $0.40 per share), and if the share price goes up to $25 quickly long before expiration, the vertical could be worth $1.00, and you would have 150% of profit without the share having to reach $30. If you decide to trade these verticals the first few times, look a lot at the numbers before you trade to make sure you are not making a mistake. With a debit vertical, the most you can lose per contract is the premium you paid. With a credit vertical, the most you can lose is the difference between your strikes, minus the premium you received. One last but important note about verticals: If your short side is too deep ITM, you may be assigned. It happens. If you bought some vertical with a high strike value, for example: SELL +20 VERTICAL SPY 100 17 JUL 20 350/351 PUT @ 0.95 Here, not accounting for trading fees and slippage, you paid $0.95 per share for 20 contracts that will be worth $1 per share if SPY is less than $350 by mid-July, which is pretty certain. That's a 5% return in 4 weeks (in reality, the trading fees are going to reduce most of that). Your actual risk on this trade is $1900 (20 contracts * 100 shares * $0.95) plus trading fees. That's a small trade, however the underlying instrument you are controlling is much more than that. Let's see this in more detail: You enter the trade with a $1900 potential max loss, and you get assigned on the short put side (strike of $350) after a few weeks. Someone paid expensive puts and exercised 20 puts with a strike of $350 on their existing SPY shares (2000 of them, 20 contracts * 100 shares). You will suddenly receive 2000 shares on your account, that you paid $350 each. Thus your balance is going to show -$700,000 (you have 2000 shares to balance that). If that happens to you: DON'T PANIC. BREATHE. YOU ARE FINE. You owe $700k to your broker, but you have roughly the same amount in shares anyway. You are STILL protected by your long $351 puts. If the share price goes up by $1, you gain $2000 from the shares, but your long $351 put will lose $2000. Nothing changed. If the share price goes down by $1, you lose $2000 from the shares, but your long $350 put will gain $2000. Nothing changed. Just close your position nicely by selling your shares first, and just after selling your puts. Some brokers can do that in one single trade (put based covered stock). Don't let the panic set in. Remember that you are hedged. Don't forget about the slippage, don't let the market makers take advantage of your panic. Worst case scenario, if you use a quality broker with good customer service, call them, and they will close your position for you, especially if this happens in an IRA. The reason I am insisting so much on this is because of last week's event. Yes, the RH platform may have shown incorrect numbers for a while, but before you trade options you need to understand the various edge cases. Again if this happens to you, don't panic, breathe, and please be safe. This concludes my post 3a. We talked about the trade-offs between buying shares, buying calls instead, selling puts to get some premium to buy some shares at a cheaper price, rolling your short puts, getting your puts assigned, selling calls to get some additional money in sideways markets, rolling your short calls, having your calls assigned too. We talked about the wheel, being this whole sequence spanning multiple months. After that, we discussed the concept of verticals, with bullish and bearish spreads that can be either built as a debit or a credit. And if there is one thing you need to learn from this, avoid buying straight calls or puts but use verticals instead, especially if the volatility is very high. And do not ever sell naked calls, again use verticals. The next post will explain more advanced and interesting option strategies.
Post 1: Basics: CALL, PUT, exercise, ITM, ATM, OTM Post 2: Basics: Buying and Selling, the greeks Post 3a: Simple Strategies Post 4: Example of trades [link] [comments]  |
| Microsoft to close all retail stores (107 US Locations) Posted: 26 Jun 2020 06:28 AM PDT "Microsoft said the closing of its physical locations will "result in a pre-tax charge of approximately $450 million, or $0.05 per share," which it will record in the current quarter that ends June 30." https://www.cnbc.com/2020/06/26/microsoft-to-close-retail-stores.html [link] [comments]  |
| Remington Arms preps for bankruptcy sale to Navajo Nation Posted: 26 Jun 2020 10:09 PM PDT https://nypost.com/2020/06/26/gunmaker-remington-preps-for-bankruptcy-sale-to-navajo-nation/ Remington Arms, America's oldest gun maker, is preparing to file for Chapter 11 bankruptcy protection and is in advanced talks for a potential sale to the Navajo Nation, The Wall Street Journal reported on Friday. Remington is making preparations for the Native American tribe to serve as the lead bidder to purchase its assets out of Chapter 11, the Journal reported here, citing people familiar with the matter. The report added that the filing could come with in days. Remington had previously filed for bankruptcy protection in March 2018. The company makes the Bushmaster AR-15-style rifle used in the Sandy Hook shooting that killed 20 first-graders in 2012. Remington and a representative for the Navajo Nation did not immediately respond to Reuters' requests for comment. [link] [comments]  |
| Economic impacts of COVID-19 in real time Posted: 26 Jun 2020 09:40 PM PDT Track the economic impacts of COVID-19 on people, businesses, and communities across the United States in real time https://tracktherecovery.org Why Reopening Isn't Enough To Save The Economy https://www.npr.org/sections/money/2020/06/23/881662948/why-reopening-isnt-enough-to-save-the-economy? The data should help plan the moves for markets? [link] [comments]  |
| Posted: 26 Jun 2020 03:01 PM PDT God dammit. Invested a healthy chunk into wire card just before the huge f me in the ass scandal. The range that I saw was showing a positive prediction and a 6-month recovery period; easing stock price to around 125-145 euros but no . Obviously I sold, but DAMMIT- this is a bad chunk in my portfolio. 80% loss. Man, I understand the German tax sector didn't check their actual profit for about three years, but damn it. Was I in the wrong to invest?- here is where I invested: https://imgur.com/a/bHt0ZNL Key: Red=where I bought Purple=where my ego thought I was right. Green= where I was thinking of selling (But didn't) Blue=Analysis of my dumb ass thinking it would be a good investment. [link] [comments]  |
| How to not get ruined with Options - Part 3b of 4 - Advanced Strategies Posted: 27 Jun 2020 12:12 AM PDT Post 1: Basics: CALL, PUT, exercise, ITM, ATM, OTM Post 2: Basics: Buying and Selling, the greeks Post 3b: Advanced Strategies Post 4: Example of trades
In the previous post 3a, I explained simple strategies like cash covered put, rolling, selling covered calls, and bullish and bearish spreads (also called verticals). Now let's do some more advanced strategies, they can be quite interesting. First, let's quickly introduce the concept of a leg in options. It simply describes a specific combination of expiration / strike / call or put, said differently it groups the same options contract together. A long call or put is a single leg, whether you have 1 contract or 20, it has one kind of contract. A cash covered put, or a covered call have also a single leg. A vertical has 2 legs, one for the short strike, one for the long strike. It used to be that the trading fees were different depending on how many legs you had in your position, like a fixed price per leg plus the number of contracts, or $15 for exercise or assignment per leg regardless of how many contracts. In the past couple of years, the trading fees dropped quite a bit, so it does not seem to be happening anymore, but some brokers may still do that. Calendars A calendar is a 2 leg position. Both legs have the same strike, but they have different expiration dates. The closest expiration is a short position, the farthest position is a long position. It can be constructed with both calls and puts, and will have roughly the same cost either way. But if your strike is far from ATM, you should pick the variant that is OTM to avoid assignment on your short position. Here is how a calendar looks like: SELL -1 ABC 100 17 JUL 20 17.5 CALL @ 1.00 BUY +1 ABC 100 17 AUG 20 17.5 CALL @ 1.50 2 legs, both calls, strike of $17.50, you are shorting the July 17 contract, and long the August 20. Because Aug 20 is farther, it costs more than the July 17 contract. Total cost of that position is $50 per contract (($1.50 - $1.00) * 100 shares). This is your maximum risk. Despite having one short position, your long position has the same strike, and will be worth always more. Both values will move in tandem. This will be the case for both calls and puts. If your short position becomes somehow assigned because it is deep ITM, your long position will protect you, with a bit more extrinsic value. Why would you take this position? As time passes, the short position will lose theta much faster than your long position. At the first expiration date (the one from your short position), if that's OTM, then that short position expires worthless, and you are left with just a long position with extrinsic that now you can sell. If the share price and volatility stays the same, the short leg will go from $1.00 to $0, the long leg will go from $1.50 to $1.00. You paid $50 per position, you got $100, i.e. 100% profit in a month. This position is positive theta and positive vega. You will benefit if the volatility increases (both legs will have their extrinsic values increase). However, if the volatility crashes, you may not make money, or even lose some. The long leg could drop from $1.50 to $0.50. You paid $50, you got $50. No gain. Worse, this position works best when the share is around the strike you picked. If the share moves up or down significantly, you'll lose money (potentially your full $50). The profit curve looks like a gaussian curve, with the top at your strike price. This position excels in two cases though:
And did you notice that when you rolled your short puts or covered calls from month to month with the same strike, your trade was the same as selling a calendar? Talking about rolls, you can also buy a much longer-term long position (like 6 months away, or even a year), and roll your short position each month, bringing you an additional premium. If the market complies, you can pay your 6 months options in 2-3 iterations of your monthly short, and maximize your profit. Diagonals Diagonals are a mix of calendars and verticals. You have a short position in the front month, and a long position in the back month while having 2 different strikes. Here is how a diagonal looks like: SELL -1 ABC 100 17 JUL 20 15.0 CALL @ 1.00 BUY +1 ABC 100 17 AUG 20 17.5 CALL @ 1.10 Diagonals can be tricky to set up, and you will have to play with the numbers a bit. It allows you to have a calendar-like position (but not exactly the same, the peak and profit/risk profile are different) at a lower cost. Notice in the example that the short position has a strike of $15, and the long position has a strike of $17.50. We pick these in a way that the cost of the short position is roughly the same as the cost of the long position (long position is farther so higher cost, but we pick a higher strike to lower its overall cost). Total cost is $0.10 per leg ($1.10 - $1.10). With this position, you will lose up to $250 in the worst-case scenario if the price shoots up (as both extrinsic values will go towards $0, and you will be left to pay for the strike difference between $15 and $17.50 - The extrinsic value of the short call will drop much faster than the long call though, so a $250 loss may not happen in practice). If the price in the short expiration is a bit below $15, you may earn $50 to $100 with the leftover extrinsic value of the long call. Diagonals are usually positive theta, and vega neutral. Unlike for calendars, in general, the volatility change will not make a big difference in the position. Something to note: When you roll your short puts, covered calls, or even calendars with a different strike, you are actually selling a diagonal. Synthetic Share Now let's talk about a quite simple position, a synthetic share. Did you notice that if you buy a call, and sell a short, you will have the same profit/risk as if you bought the shares? ABC is trading at $33.05, here is a 2 leg version of a share with options: SELL -1 ABC 100 17 JUL 20 33.0 PUT @ 1.80 BUY +1 ABC 100 17 JUL 20 33.0 CALL @ 1.85 Cost of this position is around $0.05 per share. If the share is at $40 by expiration, you will earn $7 per share (minus $0.05). If the share is at $20 by expiration, you will lose $13 per share (plus $0.05). The exact same way as if you bought the share at $33.05. Magic. And you can pick a strike of $20 instead, that you will pay $13.05 or so. Why? Because your call has $13.05 of intrinsic value, and you pay for that. The extrinsic value of the call is paid by the extrinsic value of the short put. Same if you pick a $40 strike, you will get a $6.95 credit. The market is quite efficient, and this holds pretty much true on all strikes, and both calls and puts. They all get repriced automatically as the share price changes and the extrinsic of the call will match the extrinsic of the put at the same price. Think of it this way, if there were some inefficiencies, someone would automate the arbitrage to profit from it. And they do. The same way market makers arbitrage ETF price with its holdings so they are close in sync, they will arbitrage options. Something important to note is that the cost of this synthetic share will take into account the cost of money (close to zero these days) and the dividend. So no free lunch by buying the share, and selling a synthetic share to pocket the dividend with no risk. :) Given that formula that we just discovered: 1 share = 1 call - 1 put You will notice that: 1 call = 1 share + 1 put On the way up, this moves the same way as a call (due to the long share) Lose theta like a call (due to the long put) On the way down, it cannot lose more than the premium (due to the put offsetting the long share). And this: 1 put = 1 call - 1 share On the way down, this moves the same way as a put (due to the short share) Lose theta like a put (due to the long call) On the way up, it cannot lose more than the premium (with long call offsetting the short share) So when you buy a call, the market makers will do the opposite side of the trade and will hedge in a way that they have no risk. The MM will buy / sell shares/calls/puts as needed, arbitrage constantly, earn money on the slippage between the bid and the ask, and each of their trades will partially cancel each other, so at the end of the day, they have little to no risk, nor even a position. Now that we deconstructed a share with puts and calls, you could build a trade like this: SELL -1 ABC 100 17 JUL 20 26.0 PUT @ 0.60 BUY +1 ABC 100 17 JUL 20 40.0 CALL @ 0.60 This is a bullish position. Theta and volatility neutral. You will lose money only if the share price drops below $26 by expiration, you will get assigned the share if you don't sell before. It won't move 1:1 with the share price though, but depending on the range you pick, you can still make some good profit with a lower risk. Note that despite the value being correlated with the share price before expiration, it won't be 1:1 especially if the strike difference is big, and both are OTM. So if you look at this synthetic share, you should realize by now that you don't need cash to profit from a share price going up. As long as you are not assigned, no need for margin anymore. You can even do this trade with additional credit, at a greater risk for assignment though. Collars A collar is the opposite of a synthetic share: BUY +1 ABC 100 17 JUL 20 26.0 PUT @ 0.60 SELL -1 ABC 100 17 JUL 20 40.0 CALL @ 0.60 It is used to protect against the drop of your existing shares (through the put), and the protection is paid by selling the covered calls against your shares. Years ago, company execs would build collars on their existing, or soon to be vested, stock options and RSUs so they would have a steady income with little risk. Nowadays, most companies' policies prevent you from trading options with company shares. Straddle and Strangle A straddle is buying a call and a put at the same strike and expiration. BUY +1 ABC 100 17 JUL 20 33.0 PUT @ 1.80 BUY +1 ABC 100 17 JUL 20 33.0 CALL @ 1.85 The idea is to profit from the movement in the share price. It is theta negative and vega positive (both due to the double long). The hope is that the stock will move faster in one direction than the theta loss. This position is regularly used by gamma scalpers and they will go in and out and adjust as the stock moves. The strike is usually around the ATM strike, to reduce the intrinsic value that you may waste as the stock moves. A strangle is similar except that the strikes are not the same between the call and the put. BUY +1 ABC 100 17 JUL 20 26.0 PUT @ 0.60 BUY +1 ABC 100 17 JUL 20 40.0 CALL @ 0.60 Because you use OTM strikes, the cost is cheaper, with less sensitivity to theta and vega. Depending on the strikes you pick, you can also have a bullish or bearish bias in your position. If the volatility is very high, and you like to yolo, you can actually build a short straddle or strangle. You expect that the share price will not move more than the implied volatility and that the double theta will provide a good income. Because only one of the legs will be at risk if the share moved up or down at expiration, you improved your profit/risk profile because you got a double premium. However, you are also exposing yourself to two risks. Don't do it, unless you are looking forward to being ruined. It will work until it won't, and you will blow up your account. Also, straddles and strangles have a special tax treatment, another reason to avoid them. Iron Condors and Butterflies I am going to add two last strategies, mostly for completeness. I played with Iron Condors in the past. I used to say "I could get a 5% return pretty much every month", and that is true (although with the current volatility that would be more like 7-10%). However, my next sentence was "But once in a while, I would lose most of it." That part is also true. :) It is built with 2 credit spreads, one bullish, one bearish, both OTM: BUY +1 SPY 100 17 JUL 20 245 PUT SELL -1 SPY 100 17 JUL 20 250 PUT SELL -1 SPY 100 17 JUL 20 330 CALL BUY +1 SPY 100 17 JUL 20 335 CALL This position can be sold today for $0.32 per share with a $4.68 risk. As long as by expiration the share price is between $250 and $330, you would keep the premium, so around 7% (minus trade fees) for 3 weeks, so around 120% annualized profit. It is a bit more advantageous right now because the volatility is quite high, and we kind of have some bounds between the top and the bottom of these 6 last months, but you can still blow up the trade, and lose everything. If you did an Iron Condor in February for a March expiration, you would have incurred the maximum loss. This can be a very stressful position, as the market goes up and down constantly. As it gets closer to the edges, the Iron Condor gets more expensive. Then what do you do? Do you buy it back? Do you hope it gets back to the middle? If it passes the edges, do you buy it back at 50% loss? But what if you close, and the market reverses suddenly and you would have been in the green if you kept the position? Very stressful. Avoid. :) However, if the market goes up on and on, you may want to build a far OTM bearish spread (thinking that the market could revert to the mean). Then when the market drops back and continues dropping, again and again, you could build a far OTM bullish spread. You would end up with an iron condor with a much better profit/risk profile than if you built it on a given day. This situation happens rarely though. Remember, as indicated in part 3a, to close the side of the spread that reached 90+% profit. No need to keep some risk there for a few more dollars of profit. A butterfly has a similar behavior as an Iron Condor but expects even less movement: BUY +1 SPY 100 17 JUL 20 300 PUT SELL -2 SPY 100 17 JUL 20 310 PUT SELL -1 SPY 100 17 JUL 20 320 PUT This can be built with PUT and CALL, it can be extremely profitable if the stock ends in your middle strike by expiration. But it won't, and you will probably lose your money. :) The names of Condor and Butterfly are after the shape of their profit curve for the long version that (very) loosely looks like a condor and a butterfly. :) Again, they are fun for shit and giggles, but can be very stressful. Just don't do it. You have been warned. The next post will explain the various trades I made recently using these strategies, and taking advantage of this very volatile market.
Post 1: Basics: CALL, PUT, exercise, ITM, ATM, OTM Post 2: Basics: Buying and Selling, the greeks Post 3b: Advanced Strategies Post 4: Example of trades [link] [comments]  |
| Which private company would you happily invest in if it became public tomorrow? Posted: 27 Jun 2020 12:31 AM PDT Some of the companies I admire the most are private companies. And while I understand that becoming public might have a negative influence on their innovative corporate cultures, I would still eagerly invest in them if they ever become public. What are some of your favorite private companies and why? [link] [comments]  |
| Facebook boycott – Facebook needs diversification Posted: 27 Jun 2020 01:02 AM PDT As more companies join the broad boycott of Facebook and Instagram, I think FB really needs to diversify from advertising. They are looking for ways to do it for years now, without success. Their Libra project was meant to become their payments vertical but failed so far. It's still too early to judge if Oculus VR sets will really take off. Compared even to Google (I've posted earlier about their plans to offer credit to business in India), FB is in the very beginning of this diversification process. [link] [comments]  |
| Gap Shares Surge After Retailer Reaches 'Yeezy' Clothing Line Deal with Kanye West Posted: 26 Jun 2020 06:39 AM PDT Gap Inc. (GPS) - Get Report shares surged Friday after the struggling retailer unveiled a clothing and marketing partnership with entertainment mogul Kanye West. Gap said the new 'Yeezy' clothing line, which is wholly owned by West and was recently valued at $2.9 billion, will appear in stores next year. West will receive loyalty payments and "potential equity' related to sales targets of the brand over its ten-year timeframe, Gap said. Thoughts on this? For those who don't follow streetwear or fashion, Kanye has an incredible influence over culture and current trends. After signing with Adidas in 2015, the stock has surged 300% [link] [comments]  |
| Are REITS massively overvalued? Posted: 26 Jun 2020 06:22 PM PDT Hey everyone! I've been looking at REITS in the office, hotel, and retail space. What I'm seeing and finding is that from a pure growth perspective most of them are extremely overvalued when you factor in zero earnings growth let alone negative earnings growth. I'm considering buying Puts 7 to 8 months out I'd love everyone's thoughts. [link] [comments]  |
| Supreme Court of Canada dismisses Uber appeal, allowing $400M class-action lawsuit to move ahead Posted: 26 Jun 2020 07:40 AM PDT https://www.cbc.ca/news/politics/stefanovich-supreme-court-uber-class-action-decision-1.5626853 Canada's highest court opened the door to a proposed $400-million class-action lawsuit against Uber today after it sided with a driver in a case over whether workers can settle disputes with the ride-hailing company through a costly, foreign arbitration process or through Ontario courts. In an eight to one decision, the Supreme Court of Canada ruled that drivers can have labour issues resolved through Ontario courts, opening up the possibility of Uber drivers being seen as employees within the meaning of Ontario's Employment Standards Act. Uber had challenged an Ontario Court of Appeal decision that found the company's contract clause, which relies on a costly arbitration process in the Netherlands to settle disputes, was "unconscionable" and "unenforceable." The lower court ruling came after David Heller, a driver for UberEATS, attempted to launch a class-action lawsuit in 2017 to force the company to recognize its drivers as employees rather than independent contractors. Heller, who no longer works for Uber, started legal action after he received a message on his cellphone asking him to accept changes to the way he is compensated. "There was clearly inequality of bargaining power between Uber and Mr. Heller," the Supreme Court's ruling said. "The arbitration agreement was part of a standard form contract. Mr. Heller was powerless to negotiate any of its terms." His lawyer, Lior Samfiru, said Heller agreed to the changes because he was out on a delivery in Toronto at the time — and wouldn't have been paid if he had declined. "If the court agrees with Uber, then every company can have its workers sign a document that says the same thing," Samfiru said before the Supreme Court issued its decision. "That would mean that companies can do whatever they want with impunity." Are individuals in the gig economy employees? Uber had won a stay of the proposed class action before Ontario Superior Court because of a clause in the contract that requires all disputes between drivers and the company to go through a mediation process in the Netherlands — at a personal cost of $14,500 US for drivers. "Practically no one will do that," Samfiru said. [link] [comments]  |
| Barchart Top 100 Weighted Alpha Portfolio Posted: 26 Jun 2020 09:21 PM PDT Has anyone tried investing or backtesting a portfolio using their list of high alpha names for over a year? Their historical list only goes back to March. I took their list from March and plugged it in Finviz and I see a nice equity curve returning +200% over the SPY. It has about a 50% drawdown due to the nature of the holdings during the COVID downturn but can be hedged to smooth the drawdown to 25%. Results are amazing just wondering why I can't seem to find much articles or research about using weighted alpha in a portfolio. Now I understand this is highly weighted towards recent performance, but I think this approach is worth looking into. [link] [comments]  |
| Best platform for investing in US markets, from NewZealand? Posted: 26 Jun 2020 10:20 PM PDT Hi all, I was hoping someone could point me in the right direction; what would be the best platform/app to use for investing as a beginner, living in NZ be? I'm looking to start small ($100-$1000 initially) and I'm interested in stocks, ETFs and options. Lower fees the better! Also, if anyone could help with any valuable info relating to how the tax works in this situation, that'd also be a great help. Am about to try go down that rabbit hole myself and failing that I'll call IRD on monday. Have been paper trading successfully for a while on investopedia and expect another learning curve is to come as I transition into the real game. TIA [link] [comments]  |
| Posted: 27 Jun 2020 12:52 AM PDT What do you guys think of long term HODL for PCG? I know its down trending and can go lower in the short term but the company has 17B in revenue and is trading around @ P/E of 2. Is also partially protected from future fires with the Cali wildfire fund. has assets worth 80+B. I think it may bring short term pain but could be a great long term hold. What're your thoughts? [link] [comments]  |
| Posted: 26 Jun 2020 03:30 PM PDT Do any of you invest in literal precious metals (that is, owning actual gold bullion, silver coins, etc) as a hedge against inflation? I feel cheated by gold ETFs like IAU or GLD because if there's inflation what's to say those will be as good as owning the actual asset? But, of course, it's not easy to store tons of gold bars in your apartment or whatever. So what say you? Is it worth getting into gold ETFs as a safe-haven or should I just pour a few grand into acquiring actual gold? [link] [comments]  |
| SoftBank plans to sue EY over Wirecard scandal - Der Spiegel Posted: 26 Jun 2020 08:23 AM PDT
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| Posted: 26 Jun 2020 06:05 AM PDT "At today's level, mortgage servicers may need to advance up to $3.5 billion per month to holders of government-backed mortgage securities on Covid-19-related forbearances. That is in addition to up to $1.4 billion in tax and insurance payments they must make on behalf of borrowers." How long before the non-banking mortgage servicing industry fails? The GSAs (Freddie, Fannie and Ginnie) will see massive losses if that occurs and will likely need a congressional authorized bailout. This scenario was theorized and posted to this sub a couple years ago and it looks like it has a real chance of materializing: What fallout would occur in the stock market? Ultimately the mortgage originating sector would freeze up and cascading into larger financial entities. If the GSAs fail to fund the mbs the we have a repeat of 2008? [link] [comments]  |
| Using Degiro as a European, should you apply lower tax treaty on some US instruments? Posted: 27 Jun 2020 12:26 AM PDT Don't quite get what it actually means, are there any risks involved in doing this? Doesn't have to be Degiro, that's just there broker that I use. It seems legit to want to have lower taxes on the income but I don't really understand why you wouldn't say yes to this? Maybe someone who knows more here could help me. Thankful for any advice. [link] [comments]  |
| Hedging my 401k against a stock market collapse Posted: 27 Jun 2020 04:10 AM PDT Ok right now I'm 100% in Vanguard Retirement 2045 VTIVX. I since we're in a v-shape recovery right now and I think the market will not get better and potentially tank hard after people realize that stocks is overpriced and business will not go back to normal for a long while. Is there an index fund that's going to yield less gain but is disconnected from the stock market? A fund that won't lose value in a recession. How would I hedge against a collapse? Thanks. [link] [comments]  |
| Posted: 27 Jun 2020 03:43 AM PDT I was looking at CD's and my question is what is the justification for having a CD if I get 1.15% interest apy for 5 years? I'd make like 60$ in 5 years that would be less than inflation in somecases. Can someone explain why a CD would be a good idea? [link] [comments]  |
| What’s the difference between free cash flow and net income? Posted: 26 Jun 2020 05:47 PM PDT What's the difference between free cash flow and net income? These both appear to be the same accounting measures to me: the company's total revenue minus their total expenses. I'm sure I'm missing something here. (I have to add extra text because this post will otherwise be automatically removed for being too short) [link] [comments]  |
| Where can I find the industry average benchmark for accounts payable turnover ratio? Posted: 26 Jun 2020 06:54 PM PDT I'm a business student and I'm doing a research on a company. I need to find the industry average (2018/2019 preferably Q4) for the accounts payable turnover ratio in order to compare it with the company's efficiency. I've tried to find it on yahoo finance, bizstats, bizminer, ready ratio, csimarket and I still can't find the figures. If anyone knows exactly where I can find this ratio's analysis I would be so thankful. I don't know if this is the correct subreddit for me to ask such a question but I'm pretty desperate. So please help! 😠[link] [comments]  |
| Posted: 26 Jun 2020 03:07 PM PDT https://www.geekwire.com/2020/geekwire-daily-zoox-deal-pits-amazon-uber-lyft-robotaxi-race/ Let's start with Amazon's purchase of autonomous vehicle company Zoox. When news site The Information broke the story Thursday, the logical assumption was that Amazon was picking up the technology to bolster its delivery and logistics infrastructure. But it's actually more interesting than that. Confirming the deal on Friday morning, Amazon said Zoox will continue to operate as a standalone business, developing an on-demand, autonomous ride-hailing service. In other words, Amazon has suddenly emerged as a major competitor for Uber and Lyft in the race to deploy robotaxis in the year ahead. "We now have an even greater opportunity to realize a fully autonomous future," said Aicha Evans, CEO of Zoox and Intel's former chief strategy officer, in a statement. Amazon says Evans will continue to lead Zoox along with Jesse Levinson, the company's co-founder and chief technology officer. [link] [comments]  |
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