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Old 10-18-2018, 03:13 PM   #141
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In contrast to stocks and options that are widely accessible and priced uniformly, avocado availability is subject to geographical and temporal limitations.

I don't know why Fuego wanted to compare an asset class to a perishable agricultural product, although options are also perishable.
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Old 10-18-2018, 03:32 PM   #142
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I am one who did not say anything about the possibility that the S&P could get down to 2500.

Rather, I was saying that if the S&P gets that low, the put you purchase would not gain enough to cancel out the loss you would suffer on the stocks that you still held.

Of course, you could buy a lot more puts than the shares that you held, in order to net short the market. But in that case, for the option premium you would have spent more than 1% of the assets you try to protect.

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Originally Posted by Running_Man View Post
If for a strategy to be understandable one needs all the details, then I think the meaning of strategy is not possible for that person to understand. To me it's like I am hungry what should I do, and I tell someone there is a market in town I am going to the store to buy some and I get the response , "What food? What Aisle? What are the hours of the store? " What is the cost of the food?"without these details I can't understand why you would tell me this I don't understand your strategy...........................
To borrow from your analogy, I am hungry too (fear of the market decline), and want to "eat something". I applaud you for getting something to eat to ease that hunger. But I was thinking that you may not eat nearly enough to make a difference.
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Old 10-18-2018, 07:37 PM   #143
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To me this thread really reminds me of the bank stocks thread, if you go back to 2007 and read it you will see many of the same types of complaints. There was a high level of comfort owning bank stocks as the easy cheap dividends of the world and I was pretty confident that the losses on the prime mortgages would cause house prices to fall which would make all the derivative debt fail, and thought that while the market would fall the banks would fall the most. I was of the exact opposite opinion of 95% of people on the board and thought that was among the most foolish of ideas I had ever heard of, I was far more vocal back then of the foolishness of initiating or holding positions in those stocks and thought I might be able to convince some people in retirement to become more cautious. I have learned that is not possible and actually most just increased their bank allocation in a joyous leap towards dividend yields.

Through months of that thread I was verbally castigated that I held no logical thoughts for my position to sell those stocks other than Banks had used too much of their capital buying stock back and had no contingency money. Houses never fall in price!! I was asked where was my economic model I had that would refute the economic models all the bankers and their prestigious examiners had and that the Federal Reserve would see any issue far in advance and correct any possible issue.

As of today I am more negative on the market today than I was in 2007 and the only reason I am not selling my stocks is the fact that it could be a large increase in inflation that occurs as a result of current economic policy.

I do firmly believe we have reached a peak, the economic gymnastics and market structures have taken this market as far as it could go and the confidence in the stock market to provide value is so deeply ingrained it is viewed as an impossibility for the market to decline 30 percent in three months and if it does the FED will bring it right back, so selling is beyond foolish.

If buying S&P 2500 puts expecting a decline in the next 3 months to 2100 when the market was at 2900 does not make sense unless you know the exact month my options expire then so be it. To me this will more than cover my portfolio for the possibility I expect. I post this to mark in time the points of what I believe which is the market is historically overpriced and the time seems to be upon us for a reversal, I did think in fairness believe this may have been happening earlier in the year when I just sold all my stocks but market action convinced me I was wrong at that time and I bought my stock position back at a 100 points lower on the S&P500.

Now what if I am wrong? I realize there is a more likely than not possibility that I could be wrong. But I do act on those conclusions I draw that are serious. But if I am wrong then I will gladly take any gain in the market and my puts expire worthless at a very small cost to my portfolio, I am more than happy with that idea in fact I will be ecstatic for that to occur. My actual wish is for the market to continue a steady rise for decades to resolve these problems. But as the days pass and I view the market action and listen to people --- the ones I listened to in 2007 are very skeptical about the economics of the current financial system-- for one Greenspan saying this is the most overheated labor market he has seen in his lifetime, and he expects the economy to slow a lot in the fourth quarter.....

When someone is willing to sell you this insurance at such a low cost after the longest bull market in the history of the United States, well I had to jump on that.

So to review, the Fed has led the economy to full employment by over incentivizing business investment with prolonged no cost interest, taxes have been cut to create the highest percent profits ever right at the same time there is now a shortage in transportation, employees while the FED is forced to increase interest rates with a historic level of corporate debt. So profits, taxes, labor and interest rates are ending the most favorable position to raise corporate profits in history while the valuation of those profits are simultaneously at the highest level ever. The realization and re-evaluation of proper valuation is just beginning but when this happens it usually happens to quickly for the average person to do anything about.


I believe this is the worst possible time for forward returns in stocks that has occurred in my lifetime, and I expect computer programs to greatly exaggerate the initial shock and awe decline. So I will revisit on December 31st for the efficacy of my forecast unless in the meantime something occurs to make me change my mind, which may very well occur. But when I change my mind I post that as well.
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Old 10-18-2018, 07:58 PM   #144
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Originally Posted by Running_Man View Post
...buying S&P 2500 puts expecting a decline in the next 3 months to 2100 when the market was at 2900...
So we're talking 3 month options covering roughly October-December time frame.

That was all I wanted to know. Thanks.
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Old 10-18-2018, 08:39 PM   #145
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Originally Posted by Running_Man View Post
To me this thread really reminds me of the bank stocks thread, if you go back to 2007 and read it you will see many of the same types of complaints. There was a high level of comfort owning bank stocks ....

Through months of that thread I was verbally castigated that I held no logical thoughts for my position to sell those stocks ....
I'm not going to go back and re-read this whole thread, but that post makes me wonder - are you talking about this thread?

Maybe I missed it if others are saying they have high level of comfort in this market, or castigated you for your position. I certainly haven't. I've only questioned the 'cheerleaders' saying this was a great trade based on the recent dip. Adding that we can't rate 'the call' specifically, unless we know what 'the call' was and if/when it was closed out, specifically.


But to have a personal sense that it is time to be cautious, and take out some insurance, and accept that it may very well expire worthless? Fine, that's what insurance is for. And we don't need specifics for that, unless someone actually wants to measure the result, rather than accept it as a general statement.

Those are worlds apart.

The only other thing I questioned in this thread, was unrelated - your statement of your YTD measure of your portfolio against inflation. Equities are volatile, it seems only the long term measurement is useful.


Quote:
Originally Posted by Running_Man View Post
... I believe this is the worst possible time for forward returns in stocks that has occurred in my lifetime, and I expect computer programs to greatly exaggerate the initial shock and awe decline. So I will revisit on December 31st for the efficacy of my forecast unless in the meantime something occurs to make me change my mind, which may very well occur. But when I change my mind I post that as well.
You may be correct, only time will tell. And if buying puts helped offset losses, it was a good move for you.

But I am skeptical of calls like this. If the market tanks in February 2019, rather than Dec 2018, were you 'wrong'? I don't think so, if we look at the general case. But from an economic view, buying DEC 2018 puts would not have been a good move (maybe good emotionally though).

I've certainly had the strong sense that the market was too hot, or too cold, several times. But I rarely got the timing right enough that it would have been worth the risk of being wrong.

I'm not fearful, but I'm sure not confident in the current market. The market goes up, it goes down, I've survived the ride before. If the market is overheated, I might prefer a slow adjustment, a flat NAV and let earnings rise over time. There would be less "OMG! Points!" headline noise. But others would like to buy on those dips. Can't please everyone!

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Old 10-19-2018, 06:31 AM   #146
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I will echo comments similar to those I made back in my earlier post (#95). Myself, and a few others here who are trying to be thoughtful about implementing an option hedge, are interested in the mechanics of RM's hedge. His refusal to share the specifics with us is baffling to me. Others here who have similar concerns about the markets (and possibly even RM himself) might have benefited from a discussion about the specifics of the hedge. IMO, there must be a better way to implement a hedge than simply buying and holding 13% OTM puts until expiration for 1% of the portfolio's value (if this is what RM is doing - he won't tell us). If your SWR is 4% (most here use a smaller one), you are spending 25% of one year's income for portfolio insurance and still exposing yourself to a 13% decline.

When you buy puts, you are buying negative delta but equally important, you are buying volatility. It is the increase in volatility that provides some protection against that 13% decline. I would have been interested in RM's views on this issue. Did he lever the option position with shorter-term puts so that it's notional value is a multiple of his equity portfolio? Did he consider buying put spreads or collars? IMO, these are important questions since the implementation of a bad hedge will provide little or no protection yet still cost a significant a mount of money. Posters who ask these questions are not challenging RM's market call - they are only trying to understand how he is implementing his market view. To say "I think the market is going down and am buying 13% OTM puts on the S&P 500" really isn't very useful information. If he told us the expiration, we could estimate the probability that the market would fall 13% in the time until expiration. To me that would be useful information in evaluating the statistical probability of the likely effectiveness of the hedge.
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Old 10-19-2018, 10:07 AM   #147
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I will echo comments similar to those I made back in my earlier post (#95). Myself, and a few others here who are trying to be thoughtful about implementing an option hedge, are interested in the mechanics of RM's hedge. His refusal to share the specifics with us is baffling to me. Others here who have similar concerns about the markets (and possibly even RM himself) might have benefited from a discussion about the specifics of the hedge. .....

FIRE'd@51, I'd be very interested in hearing people's thoughts on this. I'd encourage you to start a new thread on the subject, I think this one is pretty well poisoned and unfocused at this point.

Personally, I'm wary of using options on a broad index. I can see (and have used) options as a hedge, or speculation, surrounding a specific event on an individual stock. Or to protect after a fast, huge run-up, where you think the stock may still have legs, but would just hate to risk losing most of what's in the bag, or want to stagger your gains across tax years. When you have a large gain, the cost of puts may seem small enough to be worthwhile.

But 'wary' doesn't mean 'never' to me. So I would like to hear thoughts on using option strategies on 'the market'. I might learn something, and see some opportunities in the future.

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Old 10-19-2018, 10:51 AM   #148
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RunningMan-
Enjoyed your post and explanation. Obviously now is nothing like 2007. It sounds like your view is that interest rates will kill this market. I agree but I do not envision a meltdown.

Forward earnings are certainly forecast to be low from here. But that forecast has been out there for at least 4 to 5 years. If one sold on that basis, you would have missed a lot of upside.

I do not particularly trust Greenspan. Did he say the labor market was "irrationally exuberant"?

I also disagree with you that people view the market cannot decline. On the contrary, there is a lot of caution and pessimism. This does not feel like a market top IMHO.

I think the portfolio insurance makes a ton of sense, because we have had a long bull run, valuations are relatively high, we are in a rising rate environment and I see few catalysts to the upside. But not because I think I know the market is about to suffer a historic decline.

Just my view.
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Old 11-07-2018, 02:35 PM   #149
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Been quiet here. S&P on 10/7 closed at 2,728, volatile period going into the elections but seems the uncertainty removed and today it's at 2,810. Still over a month before year-end so anything possible.
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Old 11-07-2018, 09:12 PM   #150
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Everyone says inflation will kill the bull. And if low unemployment equates to higher salary costs for employers, then that means a lower yield.

Of course, earnings could get juiced and the bull is off to the races again. I listened to R_Man back in 2015 when he called a pullback and made a move, but I decided to sit this one out and save myself the heart attack. I wish I hadn't and actually unloaded but wishes are for genie's and I'm more of a realist.

The thing I kept reminding myself this time was that the majority of the year's gains happens within like 10 different trading days, and with mid terms around the corner and the statistics surrounding that it seemed plausible we would actually move ahead more. I am still in the "Santa's rally" camp on this forum and I think the second half of earnings season will be strong, and we will see the markets get primed while money managers hit that home stretch before the December 21st break plowing the cash on the sidelines into Small Caps and staple tech, healthcare and banks.

Everyone want's a fat turkey and a bunch of presents under the tree's and I can just smell the optimism in the air. Freeways are packed, malls and grocers are packed, economy is humming...for now, oil is cheap. The first big drop close to half-way into 2019 will be an eye opener though. I have plenty of time between now and then to take it back though.

My only concern is when we start getting bad unemployment numbers and housing is the x factor. If that can pick up a bit, we are off to the races again.
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Old 11-07-2018, 09:16 PM   #151
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With essentially 29 days left to trade in the year, I see SP500 closing between 2900-2950. 2019 Q1 around 3050
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Old 11-07-2018, 09:53 PM   #152
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With essentially 29 days left to trade in the year, I see SP500 closing between 2900-2950. 2019 Q1 around 3050
Melt up.
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Old 11-07-2018, 09:58 PM   #153
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I have been buying and selling since I went to cash in late September. I sold a big slug today near the close and now only 20% invested, with a third of that in Chinese stocks. I do not plan to do get back in until we have successful test of some lower support levels.
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Old 11-07-2018, 11:59 PM   #154
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I donít really understand why some people here are quite so pessimistic. I am hoping for moderate gains over the next year. Maybe 10% or so. Not a barn burner just historical norm. Is that too much to ask for?
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Old 11-08-2018, 07:40 AM   #155
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Just a guess, but feels better when you are wrong with estimate that things will be bad than good.

I've been retired for just about 3 years, all during that time just kept reading that the market is ready for correction, sell off or worse. Not just here, but from financial "experts". Say it often enough and the one time they are right they'll jump out front, but never step forward to say they were wrong.
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Old 11-16-2018, 12:28 AM   #156
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I donít really understand why some people here are quite so pessimistic. I am hoping for moderate gains over the next year. Maybe 10% or so. Not a barn burner just historical norm. Is that too much to ask for?
Yes.
It will probably be around 5% (my guess) avg over a few years. I'm hoping there is a simple flattening so the overall avg has a gentle return to the median.
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Old 11-16-2018, 05:24 AM   #157
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I am a simple man. I have a higher cash position, but other than that, plan to ride the waves and hope for a decent long term return. Maybe picking up a few good deals along the way. Will let yíall know how it goes.
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