I’m happy you guys ripped off 50 posts this morning ITT and it wasn’t due to the circuit breaker.
1 Like
Of course it has fees–they’re just carried internally, not paid to an external manager.
Also, unlike a mutual fund, Berkshire pays corporate income taxes…
I’m sort of at a loss about how doom and gloom everything is in the main COVID thread and how upbeat everyone is here.
I’m far from being a finance bro (I hate finance) but to me, the idea of a 20% discount to buy a bunch of companies with highly leveraged, massive investments, which are currently completely in the red and only go back into the black when things return to “normal,” and the timeline for normal is unknown and it is unknown if we’ll ever get there or what that will look like, isn’t that appealing of a discount.
We have no idea what happens when millions and millions of people suddenly lose their paychecks. Tens of thousands of small businesses suddenly close shop. We’re only experiencing the tip of the spear right now. There must be hundreds of factories continuing production simply because there’s a pipeline of inputs coming to them and it would be more expensive to halt operations than to sell at a loss, or fulfilling contracts that are getting ready to be canceled, but every week more and more of them will shut down their pipeline, and halt their operations.
We aren’t at the looting grocery stores and road blocks stage yet. But it is entirely possible we are there in a month. If people start to get a whiff of the police and judiciary being ineffective, how quickly will this devolve? And then how will the stocks of these companies look if you can’t drive a delivery truck around without armed escort?
I’m considering buying SPY puts with a strike around 200 and expiration in early June. Hopefully they expire worthless, in which case I will presumably still have an income for the next year. If these bottom 10% scenarios come to pass and basically all my projects are canceled (so far only one has been), it will be nice insurance that’s relatively cheap (something like $3.50 per contract).
Also, I’m simultaneously making full 401K contribs like normal, and plan to for the duration.
3 Likes
Yes, I think the idea that we’re buying “on sale” might look pretty silly 6 months from now. But in the nobody knows nothing category, I’m fairly shocked we’re not sub Dow 18000 right now. (And without the massive govt.interference in this market we would probably be a lot less than that.)
I’m continuing to max my investments every pay period as long as I keep my job, and I intend to get more aggressive with my AA if the market continues to drop, (as I fully expect it to), but I can’t say I feel too good about any of this.
So you’re saying the unemployment rate will go down a little when we hire all the armed escorts? Good news everyone!
I’m basically in the same boat as you and @anon10387340… I could see this getting way worse, but this administration is clearly going to empty the clip on it with monetary policy and stimulus. I think they’ll have the Fed buying stocks if it comes to it, and I don’t think the political will exists to stop it from doing so.
I’m also considering buying SPY puts and yet I am going to continue buying every time it dips 3% more from ATH than my last purchase - next one would be around S&P 2,175, and I’m sprinkling it between an S&P index (VOO), a total market index (VTI) and QQQ.
I just got approved for options trading, so I’m still learning a bit. When you say $3.50 per contract, is that $3.50 per share? So SPY 196.50 would be your breakeven point?
FWIW I think I could make a pretty compelling case for a V shaped recovery OR for economic catastrophe. But in a catastrophe, it feels like holding cash won’t matter much anyway at some point.
Well it’s actually $350 per contract = put option on 100 shares, but $3.50 in terms of each share. A contract is for 100 shares; I wasn’t using the term to its precise meaning.
$196.50 would be breakeven point if you held it all the way to expiration, but that won’t happen. By the time SPY hits $196.50, if it’s in the reasonably short term, the option would be worth $10-15 each. You generally don’t want to sit holding options if the thing you thought was going to happen ended up happening (assuming you’re not invested otherwise, like if it’s an option contract for business purposes). The value of the option erodes the closer you get towards expiration, so owning in the money puts is usually not a great idea. Just sell them and, if you think it’s going to go down more, invest a smaller amount in puts that aren’t in the money.
I mean, philosophically, you don’t want to own options at all. The net value of a whole bunch of random options contracts will be declining, every day. But this is a way to hedge against a falling market without having an unlimited potential loss, which most of us can’t stomach.
Disclaimer: I have no formal training in this and potentially no idea what I’m talking about.
Yeah that’s what I figured, wanted to make sure. If it was somehow $3.50 per contract I was going to buy a shit ton of them lol…
Can you explain this? Like if it hits 196.50 and you exercise the puts, aren’t you just breaking even no matter when it is? Isn’t a put contract for $200 an option to sell 100 shares at $200?
My understanding is that you wouldn’t exercise a put option before expiration (for our purposes, ever).
If the option is in the money, say SPY falls next week and is trading at $196.50, the options would exercise at $3.50, same as you bought it for. But as long as there’s some time left before expiration, it will undoubtedly be worth more than $3.50 to someone else. (If it weren’t, anyone buying SPY would be stupid not to also buy put options and, for a 2% premium on the price of the stock, fully insure their stock purchase against losses until the expiration date.)
Therefore, if it goes to $196.50, your puts go from $3.50 to $15, so you sell the puts and pocket the difference. If SPY magically sits at $196.50 all the way until expiration, then the put option value would slowly dwindle from $15ish to $3.50.
Buying puts is a dumb way to hedge a break down of society. Food, guns, ammo, and a self sustaining safe house are the only way to hedge against that.
Another way to look at it is annual US GDP is $21 trillion. At “the tip of the spear” we have already printed $2.2 trillion stimulus on top of whatever the hell the Fed is doing while Trump was saying the whole thing will be over by Easter. If we are still into shutdown into late May it’ll be another $5 trillion or so. Into fall, maybe another $5 trillion+ on top of that. Etc.
Even in a worst case scenario, break down of society, your puts could be blasted out of the money via inflation alone.
The one caveat that I mentioned earlier ITT is that I do think there is a chicken and the egg re: additional stimulus. The market is already correctly pricing in the additional stimulus I discussed above. But in order to actually get it the market is going to have to throw a hissy fit and tank to build the political will for it to actually happen. Without that market crash, you’ll have stubborn politicians holding out.
So I do think there is an opportunity to sell now, wait for the crash to happen then get back in. Or similarly buy puts and quickly cash them out once they are decently in the money. I just don’t have the balls to do it nor the specialized/insider knowledge to do it particularly effectively even if I wanted to.
2 Likes
There’s a massive, massive gulf between unrest I’m talking about (~an order of magnitude worse than Rodney King riots, say) and break down of society. I’m not that concerned about the latter.
But in either event, plus many other scenarios that don’t have huge unrest, shareholder equity of a lot of major companies will be completely wiped out, or the risk thereof will look very high (when debating a massive stimulus needed to save a company like AAL, this will happen quite a lot). These also tend to be the scenarios during which I no longer have a paycheck.
Not really worried about inflation right now.
Okay, in a bad but non-societal breakdown scenario there won’t be super high inflation and stocks will likely simply be propped up by printing half+ of annual GDP in stimulus. The companies tanking will be counteracted by massive companies that are more heavily weighted in indexes anyway gaining even more power (this is why the Russell 2000 which consists of smaller companies is down about 36% from its highs and the S&P is down about 27%).
I bought a large stack of oil puts on Thursday and Friday when it went up bigly on those Trump tweets assuming it was bs. Looks like the negotiations broke down in a major way over the weekend. Cant wait for the futures market to open here in a few hours to see what happens.
Betting against every single thing Donald says being true has been a pretty good trade over the last 3 years probably.
My best guess is that this bounce has something to do w/ Bill Gates relatively optimistic take on the death toll from the Coronavirus.
I think it’s funny that just a couple of weeks ago we were laughing about the conspiracy of a “Plunge Protection Program,” and now the Feds have literally established a “Paycheck Protection Program”. I’m starting to buy into the conspiracy based on that.
Dow up 8%. Wat
efficient markets, yo
1 Like
Haven’t been watching the news today. Did we get a cure or was it a vaccine? Judging by the stock market, I can only assume…
No? Nothing? The Prime Minister of the UK is in ICU too? Wow… Well, okay then, let’s see how high this dead cat can bounce.
Turns out all this stuff is fake 🤷 buy buy buy
1 Like