Investments Trade Log

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ertyu
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Re: Investments Trade Log

Post by ertyu »

Critique my bright idea: why shouldn't I do this (SPX):

1. Choose an expiration far, far out.
2. Sell a call and a put exactly at the money (this was called either straddle or strangle i think)
3. Buy the next call out, and the next put out (1 expiration away).
4. SPX options do not exercise until expiration, and they settle in cash.
5. As SPX and theta do their thing, purchase back the calls or puts I sold (prepare to eat 5x100 per contract if cannot sell and one expires in the money)
6. Keep the long call/put to hopefully capitalize on vol.

What am I missing? I will repurchase the put and call I sold as soon as they are somewhat in the green to avoid a potential IV explosion. I am considering having 2-5% of portfolio at stake (10-20 contracts of the entire contraption). Max loss 10k + whatever I spend on putting the trade on.

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Bankai
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Re: Investments Trade Log

Post by Bankai »

Yeah, the printing press is on big time. BoE will now finance the UK government directly with an unlimited overdraft facility (normally capped at £350M, in 2008 drawn down to £20B, this year probably way deeper).

So... is it time to turn bullish? After all, you can't beat the printing press.

...or is it the biggest suckers rally yet?

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Dream of Freedom
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Re: Investments Trade Log

Post by Dream of Freedom »

ertyu wrote:
Thu Apr 09, 2020 4:28 pm
3. Buy the next call out, and the next put out (1 expiration away).
I'm a bit confused by the wording. 1 expiration from today or from the last leg?

ToFI
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Re: Investments Trade Log

Post by ToFI »

ToFI wrote:
Fri Mar 20, 2020 12:46 pm
Few days ago, I had the urge to convert everything to cash but resisted after reviewing my investment plan and stick with it. My stocks still keeping the out performance with SP500. It's 10% above the SP500 Year to date (Since Dec 31, 2019) during the worse panic of last few weeks. It's consistent of the 15% out performance per year from the past 5 years so I'll keep the growth stocks.

When fear is maximized, bottom is near. It could be we are near the bottom.

So SP500 bottomed 3 days later... It may well be the bottom of this bear market.
Even the strong minded person get the urge to convert to cash. When that happens, bottom is near.
This rule really works. I learned this from reading the story about a guy named Saul on fool's board.

ertyu
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Re: Investments Trade Log

Post by ertyu »

@DoF, from last leg. So if I sold 2800p I would be buying 2795p and if I sold 2800c I would be buying 2805c. The idea is to buy back the 2800c and 2800p, so hopefully we'll zigzag around 2800 a little before expiration, but if not, I would be on the hook for max 5*100 at end per contract. In this case I would be betting that on, say, August 31 2020, the SPX will not close between 2795 and 2805. In either case, though, I don't plan to hold to expiration. The idea is to close the trade when it makes money and roll. Criteria for repurchase of short options is, are slightly in the green/am not losing money on them. The money will hopefully be made by finding a cheap way to get myself long vol.

@ToFI, I am calling top on this rally, then. My inner bear is close to capitulating. I am starting to get fomo.

jacob
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Re: Investments Trade Log

Post by jacob »

Just a corny and yet not so corny and widely quoted observation now that the market is in a condition of being able to deliver rapid lessons in mass psychology:
Sun Tzu wrote: If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.
Here, the enemy is the market psychology and yourself is of course your own psychology. Understanding the market psychology is objectively difficult but not impossible. The index cult does have a strategy that is in complete accordance with their beliefs: They understand themselves and insist that the market cannot be understood, so they refuse to do battle. This is wise. Learning the enemy takes time and talent. Whether this succeeds or not is not random luck but the split accounts for the other two categories.

Generation-X
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Re: Investments Trade Log

Post by Generation-X »

I like that, and it's probably very true.

After preparation, it's the doing that makes the most difference - whether it is indexing, trading, investing or gambling (or doing all). Rest is the roll of the dice. (probability.)
Last edited by Generation-X on Fri Apr 10, 2020 3:10 am, edited 2 times in total.

Quadalupe
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Re: Investments Trade Log

Post by Quadalupe »

jacob wrote:
Thu Apr 09, 2020 8:45 pm
The index cult does have a strategy that is in complete accordance with their beliefs: They understand themselves and insist that the market cannot be understood, so they refuse to do battle. This is wise. Learning the enemy takes time and talent. Whether this succeeds or not is not random luck but the split accounts for the other two categories.
Furthermore, I also believe that one can be greatly mistaken in his assessment on how well he knows the enemy. Better to be on the left side of mount stupid than stuck at the peak.

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Lemur
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Re: Investments Trade Log

Post by Lemur »

@Bankai @ToFi

Not sure I understand the bullish sentiment here....S&P 500 is now at beginning 2019 levels with the recent run-up. The FED announced its stimulus literally at the same time of the jobs reports....Q2 / Q3 earnings reports are going to be devastating. We're just getting started with this Bear market. No way this is over yet...I am of the opinion you might be looking at the largest bull trap ever in stock market history. I'm not buying this rally at all. I know its time to continue being a bear when random friends on my Facebook who've never invested before are saying its time to buy and they're posting referral links to RobinHood. That to me is a signal...

ertyu
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Re: Investments Trade Log

Post by ertyu »

Lemur wrote:
Fri Apr 10, 2020 4:04 am
Q2 / Q3 earnings reports are going to be devastating.
The unemployment numbers were devastating and they just kept printing through it. What stops them from printing through earnings season? I don't argue that economic fundamentals are shitty and that there is a severe mismatch between valuations and fundamentals. But they can make valuations whatever they want. This market is a function of the fed's balance sheet and of opex/dealer gamma hedging. We're a long way away from Kansas, even if our brains want to cling to a sense of normalcy in how the market "should" work. If the market worked how it should work, valuations would have gone down long, long ago.

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Lemur
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Re: Investments Trade Log

Post by Lemur »

@ertyu

We're too narrow and short-term focused. Market valuations will always return to the mean....eventually. And right now what the Federal Reserve is doing is just creating the largest equity asset bubble ever and JPOW is just bending to Trumps will it seems.

1.) https://www.gurufocus.com/stock-market-valuations.php [Total Market Capitalization / GDP = 128.6%]
2.) https://www.multpl.com/shiller-pe [Currently 26.16, mean is ~17]

So we've two big indicators here showing that the market as it stands right now is significantly overvalued ....and this is even after the stimulus is "Priced In" and we have not even seen Q2/Q3 earnings report. Unemployment will rise and the people will catch on. These won't keep being ignored.

The chickens have come home to roost eventually. What scares me the most is how the Federal Reserve is delaying the natural business cycle. For a real recovery to happen, you need the poor fundamentally run businesses to fall off the indexes. But they're all being propped up, bailed out, and kept on a ventilator. No amount of printing is going to keep these companies alive forever.

But of course...maybe I'm just dead wrong and the bottom is here, but I'm absolutely willing to trade away upside to stay on the sidelines for a bit. My bearish sentiment is not ending until after the virus is over and earnings report begin reversing course. I don't think that is going to happen in 2020. Until then, its all a bull trap to me.

ertyu
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Re: Investments Trade Log

Post by ertyu »

Thesis: the printing will continue until 2030, when the boomer cohort will have thinned out. Pensions are underfunded. If the US wants to actually be able to pay pension entitlements, they need to deliver the 8% return the pension funds are built around. Somehow.
Even if the value of said entitlements might get shakier over time.

Do you think they're capable of keeping this charade up for another 10 yrs? Because I think they are.

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Lemur
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Re: Investments Trade Log

Post by Lemur »

@ertyu

Oh absolutely....the charade can last a long-time. I can't imagine a scenario anytime soon where the Fed would need to raise interest rates.The only 100% idea I'm certain is about is that 90% of the material I learned for my Masters in Finance degree was useless lol. I don't think this changes the fact that I still see a bull trap in the short-term.

ertyu
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Re: Investments Trade Log

Post by ertyu »

Lemur wrote:
Fri Apr 10, 2020 6:39 am
@ertyu
I don't think this changes the fact that I still see a bull trap in the short-term.
from your lips to god's ears, man.

zork97
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Re: Investments Trade Log

Post by zork97 »

Lemur wrote:
Fri Apr 10, 2020 4:04 am

Not sure I understand the bullish sentiment here....S&P 500 is now at beginning 2019 levels with the recent run-up. The FED announced its stimulus literally at the same time of the jobs reports....Q2 / Q3 earnings reports are going to be devastating. We're just getting started with this Bear market. No way this is over yet...I am of the opinion you might be looking at the largest bull trap ever in stock market history. I'm not buying this rally at all. I know its time to continue being a bear when random friends on my Facebook who've never invested before are saying its time to buy and they're posting referral links to RobinHood. That to me is a signal...
I realized this a little late and bought in some equity trying to catch a falling knife . My random friends too have started looking to make a fast buck by buying anything out there today and exiting in 2021 . I am going back to sitting on the sidelines now.

Lucky C
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Re: Investments Trade Log

Post by Lucky C »

If the market goes on to set new highs this year, it will be the most obvious V-shaped "don't fight the Fed" recovery from the most obvious buy-the-dip opportunity ever. If the market goes on to set new lows it will be the most obviously predictable (continued) crash with this month (probably) being the most obvious opportunity to exit at close to record high valuations ever.

Right now my brain certainly thinks one scenario is much more likely than the other, but in terms of cold hard data it is less clear (based on what seems to actually matter) which way things are going to go. Yes, the economic data paints an extremely negative picture, but further significant gains in market prices (at least in the short term) are certainly not impossible. I expect it won't take long, maybe only a few weeks, to get a clearer picture as to what's going on. Of course by the time the bull case or bear case becomes "obvious", prices will have moved significantly from the current purgatory and further movements in the same direction may be limited.

Gold on the other hand has been giving a much more consistent positive signal, so I've just been letting that allocation grow.

ertyu
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Re: Investments Trade Log

Post by ertyu »

@Lucky, exactly the same thinking here. thus thinking if i want to sell itm options and buy the next strike after to ensure i'll participate in the tails. As for gold, I'm worried I missed it. I'm worried everyone's crowded into it now the way they were into treasuries in august. I missed loading up on gold, and i am afraid to chase here. But then, if what half of fintwit says is true, chasing might be the difference between buying spx at 900 or 1050 way back when. Rode up 15%, you feel you missed it, just that over the next 10 years it went up 350%. Hard to decide what to do here, the analysis paralysis is strong.

ToFI
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Re: Investments Trade Log

Post by ToFI »

@ertyu
That's the issue of market timing. My strategy is I don't get in and out of market for the majority of my portfolio. It remains long term investment that I don't try to sell them before the next big crash.

@Lemur

Look at Italy, before the virus, its economy was in a much worse shape than US. Its stock market bottomed after 40% drop. It's not unreasonable to say US bottomed after 35% drop.

The speed of recent crash is reflection of the virus's speed of spreading. Initially, the virus was doubling every 3 days. The market panicked. As soon as it realized the virus can be contained, it bottomed. In normal bear market, it bottoms in few months. This time, the whole process is condensed into few weeks. The faster it drops, the faster it rises. Where does the index goes from now depends on individual company's earning performance. Some companies earning will not go down. No more indiscriminating selling from Index/mutual funds. e.g. rich doctors converted index ETF to cash.

Yes, unemployment numbers will be bad but governments are helping. Canada is giving $2000 per month for few months. Most of those job loss are short term. As soon as lock down is gradually lifted, they will come back. We might going to have a slight labour shortage because of some deaths. Not all deaths are old retired people. But it'll be less severe than 1918 labour shortage where many young people died. The global containment effort is also a lot better this time than 1918. We don't have a distraction of world war. The total spread will be much limited.

Lucky C
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Re: Investments Trade Log

Post by Lucky C »

Well if you look at pretty much any rules-based trading system based on price movements and apply the system to gold prices (though they may not be intended for use with gold prices), they would probably all tell you that you should be buying/holding gold - until the trend reverses and the rule tells you to sell it. With SPX on the other hand, most (possibly all the popular) rules-based trading systems would be telling you to sell currently, however depending on the rule the signal is not that strong with the recent advance and it may change by the end of the month when many trend-followers execute/rebalance.

In terms of valuation, gold is possibly (probably?) overvalued based on its historical trend, and it may only be expected to keep up with inflation over the next decade or so, or maybe not even keep up with inflation if it mean-reverts. If you wanted to hold on to some form of money for a decade, you might be much better off with an unpopular emerging market currency.

giskard
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Re: Investments Trade Log

Post by giskard »

ertyu wrote:
Thu Apr 09, 2020 3:25 pm
Nicely done, giskard! Any worries that the gold trade is getting too crowded? I keep thinking it's not the right time, but maybe I missed the right time. They just keep printing...
I don't think so, I still see a lot of people (especially traders and economists) predicting deflation and saying gold will go down. They might be right, 2 months or 3 months from now gold might go down and we might see a lot of deflation in the short term.

But long term the economy is so levered, can it handle deflation? If we see deflation the government will respond and stop it. The response will have to be to do even more fiscal stimulus and QE. E.g. what if earnings crater and we get a slow recovery? More stimulus. What if the virus goes on longer? More stimulus. What if companies start to default on their debts? More QE. What if the entire oil industry goes bankrupt? Probably bailouts and QE, right? The response to every thing is to do QE or stimulus.

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