Investments Trade Log

[Bankai]

P/E is not reliable at all right now. Some companies will go bust, others will take a lot of debt on to survive the storm and profits will collapse across the board. Any 'forecast' is just a pure guess at this point. The yield on FTSE is already well over 7% which clearly indicates severe dividends cuts to come. However, 2-3 years down the like profits should recover. I still think it's not the time yet - imagine what the sentiment will be once virus deaths are in millions (hope this never happens but you can't rule it out considering how things develop).

EDIT: to get an idea of how bad this could get: figures from China released last night show retail sales down 20% in Jan-Feb (year on year) and industrial output down 13.5%. And this is with only parts of the country on lockdown - imagine what will happen here with most of Europe on lockdown.

[IlliniDave]

Certainly looks like we're teed up for another Really Bad Day. Stocks down 50% or more for the year by late summer feels like a reasonable expectation. Not certain, but reasonable.

I always say that the fundamental relationship is that we get paid to put our money at risk. We're getting a reminder that the risk we're buying into is real.

[Lucky C]

It feels like we've been alternating Down days and Up days every other trading day for weeks, but here's the daily close direction on the S&P500 from Feb 20th to Friday:

D D D D D D D U D U D D D U D D U, and D today(?)

So that's only 4 up days out of 17, 18 counting today. Less than a fourth of the days! Seems like it was more, maybe because those up days were really good. There's that silly argument that you should stay invested all the time because otherwise you will miss out on the best trading days. Yeah, the best trading days occur during bear markets because volatility is high - that doesn't mean I want to be invested through a bear market!

[jacob]

A few Danish banks/investment companies have suspended trading/redemption/contribution in their mutual funds due to inability to calculate NAV. That caught some in positions they didn't/don't want to be in. Short term speculation might had additional risks now.

I wonder if/when US exchanges will eventually suspend trading like they did after 9/11.

[thedollar]

@Jacob

That's pretty common for these Danish 'investment associations'. Happened a few days last week as well but it's my experience that they will trade later in the day.

[Seppia]

severe dividends cuts to come.

Historically, dividends are much more resilient than one may think. At teh worst of the GFC, dividends in teh S&P were "only" cut 20%, VS a 50% price decline.

I agree PE doesn't matter now (it's very probable it will go up significantly in the coming quarters due to collapsing earnings), but you see what I mean. Should have said CAPE maybe for better clarity.

Bought a bit of European Index funds again today, we just hit the lowest prices since 2012

[ajcoleman22]

And here we go!

[2Birds1Stone]

Well that stung. 10k dow is looking very real now.

[TheWanderingScholar]

The DOW went from nearly 30k to 20k within a month. And it has not even begun to hit the US like in Italy.

[jacob]

Weirdly, we (the US) has only just about touched the bottom of the December 2018 dip. We've gone from a total market cap/GDP of almost 160% to 112%... but the historic average is still 80%. Of course, it's not written in law (or economics) that it should converge on 80%... and a month ago, you could have convinced me that we've been in a new era (ha!) where 120% was the new normal since the dotcom bust.

Still, if https://www.gurufocus.com/stock-market-valuations.php is any guide, the US has only gone from "insanely overvalued" and back to "modesty overvalued". IOW, in terms of valuations the 29% drop we've seen so far is more like the drop seen in late 2018. It's nowhere near comparable to the credit crisis.

[George the original one]

Where's that "like" button

[Lemur]

@Jacob

So you're telling me to buy puts on SPY? lol.

Its tempting as always but if I were to play that ...would only do it on one of those out-of-nowhere rallies that accompany the downfall. However...my INDA Put is doing really well. Bought the $26 PUT for INDA last Friday when the stock was trading around $29 or so for average cost of $1.88 a contract. INDA dropped 15% today...so I'm sitting on hypothetical break-even if I held until expiration April 17. So I could take 40-50% gains now or just sit on it a little bit which I think I'm going to do. Another art of these trades....letting your winners ride a bit but their is a fine-line with greed that I'm trying to discover.

[jacob]

I have a bunch of short calls expiring OTM on Friday, but I'm not touching the options market as long as I'm not getting real/realistic market quotes. I don't have my own pricing calculator(*) and I'm sure as shit not going to use Black-Scholes in this environment which requires a full scale special "panic"-edition of the ivol surface.

(*) I usually just send limit orders to the midprice. There's often a hidden order sitting there already.

PS: Even if the means are the same, our ends are likely not. I don't use options for income. I use them for insurance and so consider the profit made coverage (or what the word is) for being long in the high-risk (overvalued) market of a couple of months ago.

[Seppia]

@jacob: Europe, in contrast, is back to valuations not seen since 2012.

[Frugalchicos]

Can't decide if keeping the cash or investing another 15K in the coming month or 2...Will wait to see how the US deals with the COV19

[Lemur]

@Frugalchicos

That is enough to sell 1 cash-covered put on any blue-chip stock that is trading between $0 - $150. Take your pick and set a price at a 20-25% discount Can make money while you're waiting and potentially get yourself into a long position on something you might want to hold for a while. Consider Boeing....I'd sell the $100 put myself when I get the chance.

@Jacob

Mid-point is where I learned to set my limits as well. Maybe it helps that I'm not buying or selling that many contracts so its easier and quicker to get in / get out. I'd imagine if one was trying to trade hundreds or thousands of contracts, they would have to play this a little differently.


Digging through my notes...decided to write down what I'm going to do about my gain on INDA. Remembered that some backtesting shows that theta decay on long options increases exponentially after 21 days. Subtracted my expiry date from 21 and decided to bail out March 27. Because I think INDA can drop further, I'll just wait until March 27 anyhow and as long as I'm still below the $26 strike price, I'm profiting regardless. Or if implied volatility somehow falls? But in this environment...I don't think that is gonna happen. It might not even matter because I've intrinsic value built in from the underlying below my strike price.

As well.....if my thesis is still the same [INDA must go down] I could always buy another put at a later date (concept called 'rolling options').

Its good to write down the strategy...I've a paper held up on a bulletin board. Need to remove emotion whenever possible.

Edit: Second thoughts are telling me to take the 80% or so gain....Maybe I just need to play this by day but I definitely need to discover a profit taking strategy.

[classical_Liberal]

Weirdly, we (the US) has only just about touched the bottom of the December 2018 dip.

For another perspective, adjusted for inflation, the US is back to early 2015. Heck, the S&P isn't that far from 2000 level prices during the dot-com bubble high when earnings were half. So measuring points matter.

I agree we have a ways to go though. A friend of mine who works at an old school small town brokaged is telling me everyone's wanting to buy. This seems the same in the FIRE boards and bogleheads. When I start seeing these people changing their tune we might be getting close. I still doubt we will see CAPE stay below the 20 mark for too long though, at least until we have some new, sustained (multiple quarters) low earnings to justify it.

[Lucky C]

Discussion here has shifted from wanting to buy in to get a good deal around the -20% point, to talk of shorting and how this could go on for a while longer. Meanwhile we set another new "worst since 1987" day yesterday and market pessimism is back to extremes after the nice ending Friday. That all sounds (at least short-term) bullish to me! Maybe this time we will actually have two or more days in a row of gains.

[Lemur]

Sold my INDA put and took a 37% gain. With the market popping up this morning the gains I was looking at were cut in half. Decided to roll down into the next strike:

INDA 05/01/2020 P $25.00. 10 Contracts @ $2.70. Breakeven is $22.3 at expiry.

[ertyu]

@bigato: I tend to agree. The USA isn't at the "blood on the streets" / piles of grannies in body bags stage yet. Give it a month, we should see at least another 10% drop - though the QE that's starting might throw a spanner in the -50% drop I need (waiting for SPY 170 here as I solemnly swore that at SPY around 170 and around 25 JAFI I'm pulling the plug)