The Investment Thread (5 Viewers)

[SaintInBucLand]

Well, if you have 40% odds to make 300%, probably worth the 60% odds of losing your money.

I get that, but in the world of options trading, I have never heard of anyone holding on to calls if they are clearly out of the money and no shot getting there.

 

[HoustonSaint68]

This is the market coming to grips with PE ratios due to rising rates and inflation.

Bingo. Frankly, quite a lot out there is STILL too (objectively) expensive for set-it-and-forget-it investors — although I’m sure some of you traders out there are having a ball.

 

[Turfie]

Just my own hunch. I think we may have one more leg down. Then a big player gets ganged up on and tossed to the wolves. Then we start to have a pretty volatile recovery until we settle down and go sideways and slightly up.

 

[Turfie]

My BBBY is approaching the price of gas territory.

 

[DaveXA]

I get that, but in the world of options trading, I have never heard of anyone holding on to calls if they are clearly out of the money and no shot getting there.

But again, 40% isn't no shot.

 

[bclemms]

I was talking about this statement here specifically. "I think there is a 60% chance I lose my total investment."

Just wondering why you would hold onto calls if things were not looking favorable for you? If they are July 28 calls you definitely have some time to get out.

Would you just hold bad calls all the way to the end?

I literally bought them this morning.

 

[Rickboy]

on the one hand, my 401k is garbage right now. On the other, I have $150K just waiting for the market to bottom out.

 

[Saint_Ward]

It's interesting how a technically true headline still misses the point with data.

https://finance.yahoo.com/news/jobless-claims-june-16-2022-123826696.html

Yes, they're up a little bit from expectations, but down from the previous week.

perspective is found in a chart at the bottom of the article. The general trend has still been down.



Before the April 2020 spike, the baseline is 200-220K.

 

[SaintInBucLand]

I literally bought them this morning.

I don't think you are understanding what I am asking here.

I don't understand how a person who knows how options work, would continue to hold on to an option if it looks like their speculation isn't going to come to fruition. Say we keep hemorrhaging in the market and AAL doesn't rebound like you had hoped. You can still sell the calls you bought(obviously less than the premium you paid) but you should never lose 100% of your investment when buying options.

I sold some Ford calls earlier today that I didn't think were going to make it to their strike price and lost 40% on them, but I didnt keep holding in hopes it would be able to make that price.

 

[bclemms]

I don't think you are understanding what I am asking here.

I don't understand how a person who knows how options work, would continue to hold on to an option if it looks like their speculation isn't going to come to fruition. Say we keep hemorrhaging in the market and AAL doesn't rebound like you had hoped. You can still sell the calls you bought(obviously less than the premium you paid) but you should never lose 100% of your investment when buying options.

I sold some Ford calls earlier today that I didn't think were going to make it to their strike price and lost 40% on them, but I didnt keep holding in hopes it would be able to make that price.

I sell or roll all the time. I almost never let an option expire regardless of performance. This has been even more true in the last 6 months. I made a killing on ALL on the last run up to $21 into earnings. Sold pennies away from the top and left them outside of swing trades. I'm seeing a travel stock trading closer to the covid low than the 52 week high. One that has a very favorable market with more demand than it can supply. An airline that has adopted "adaptive pricing" which allows them to gouge the last remaining seats on a plane at a time where every available seat is the last available seat.

I see an airline who has had rising costs but they have not only had no problem passing those costs on to the customer but they've been able to greatly exceed them. Between fuel and labor costs, the airlines have seen a 20% increase in operating expenses but are able to increase fare rates even more. Not only are the bookings slammed for the summer travel season but the bookings are still rolling in at absurd numbers. When the planes are this full then suddenly the free trips and upgrades go away. The cost of buying a ticket with miles go up. They become more profitable at every level. They weren't expected to become profitable after covid until 2023 or 2024. They are going to be profitable this quarter and likely by a margin much larger than analysts are predicting. Despite all of this, the stock is down 18% this week.

We are also talking about a stock that has made dozens of 5% moves up this year with a handful of 10% plus gains.

Next, the 19 biggest single days in stock market history have all come in a bear market. The monster dead cat bounce that triggers shorts to cover and sends a false hope through retail investors where markets jump 10%+ in a single day. We haven't had a single one yet. So even if the stock sheets itself the next 45 days, there is about a 30% chance of a >8% dead cat rally and greater than 50% chance of a dead cat rally of 4% or more. Since AAL typically moves at about 3x the index rate, there is a high probability that I will have the opportunity to make money or even cover, even if I am wrong.

So now, let's say the market really crashes. Not one of these 3-4% down days but a halt triggering 10+% down day type move. My TSLA and APPL short positions as well as oil shorts will more than cover my AAL losses.

So my only real concern are stocks to suddenly go sideways both monthly and daily. I'm confident that wont happen. That is my ultimate bet.

 

[SaintInBucLand]

I sell or roll all the time.

Yeah, what I was thinking, why I was confused why you said "lose all of my investment." Although the pot odds are a good analogy, with options you can never really lose your entire premium unless you hold out till the end(which I have seen some people do, It's amazing how many people don't pay attention to theta)

 

[bclemms]

Yeah, what I was thinking, why I was confused why you said "lose all of my investment." Although the pot odds are a good analogy, with options you can never really lose your entire premium unless you hold out till the end(which I have seen some people do, It's amazing how many people don't pay attention to theta)

Usually if I'm holding to the end it is because I bought options as insurance. Ones that were way out of the money with huge upside to hedge other positions. It doesn't take much for those to go to $0 but the risk is always small with the expectations of going to $0.

 

[DaveXA]

I sell or roll all the time. I almost never let an option expire regardless of performance. This has been even more true in the last 6 months. I made a killing on ALL on the last run up to $21 into earnings. Sold pennies away from the top and left them outside of swing trades. I'm seeing a travel stock trading closer to the covid low than the 52 week high. One that has a very favorable market with more demand than it can supply. An airline that has adopted "adaptive pricing" which allows them to gouge the last remaining seats on a plane at a time where every available seat is the last available seat.

I see an airline who has had rising costs but they have not only had no problem passing those costs on to the customer but they've been able to greatly exceed them. Between fuel and labor costs, the airlines have seen a 20% increase in operating expenses but are able to increase fare rates even more. Not only are the bookings slammed for the summer travel season but the bookings are still rolling in at absurd numbers. When the planes are this full then suddenly the free trips and upgrades go away. The cost of buying a ticket with miles go up. They become more profitable at every level. They weren't expected to become profitable after covid until 2023 or 2024. They are going to be profitable this quarter and likely by a margin much larger than analysts are predicting. Despite all of this, the stock is down 18% this week.

We are also talking about a stock that has made dozens of 5% moves up this year with a handful of 10% plus gains.

Next, the 19 biggest single days in stock market history have all come in a bear market. The monster dead cat bounce that triggers shorts to cover and sends a false hope through retail investors where markets jump 10%+ in a single day. We haven't had a single one yet. So even if the stock sheets itself the next 45 days, there is about a 30% chance of a >8% dead cat rally and greater than 50% chance of a dead cat rally of 4% or more. Since AAL typically moves at about 3x the index rate, there is a high probability that I will have the opportunity to make money or even cover, even if I am wrong.

So now, let's say the market really crashes. Not one of these 3-4% down days but a halt triggering 10+% down day type move. My TSLA and APPL short positions as well as oil shorts will more than cover my AAL losses.

So my only real concern are stocks to suddenly go sideways both monthly and daily. I'm confident that wont happen. That is my ultimate bet.

Yep, hedge plays and straddles usually works pretty well in volatile markets.

 

[SaintInBucLand]

Wow premiums on calls are CHEAP for SPY and QQQs... may have to play some gambles that things swing to the upside for the end of the week.

You can risk so little right now for huge potential upside.

 

[UncleTrvlingJim]

Warren Buffett quote comes to mind - "Be fearful when others are greedy and greedy when others are fearful". I finally started putting money back in - i had missed most of the post pandemic run up b/c I didn't understand the market. It's finally entering a range where I understand the valuations. I'm not going to try to time the market though. I'll start buying a little bit now, but I'll wait until I'm sure the market is stable before I'll put a lot of money in -- I'll miss out on the absolute bottom, but I suspect I'll be fine on my overall entry point.