So I bought S&P 500 2500 puts

[Running_Man]

I mean it was a nice gamble and all but a person could buy a Jan 18, 2019 $250 SPY call for $3.60 today and make a 500% return if the January effect takes hold and SPY goes to around 270.

I have no anticipation for that so... no thanks

 

[gstillson]

I mean, yes you probably made more in real dollars, but during the year I traded volatility plus a few good picks and made $223,000 profit on an investment of just under $150,000.

I guess that is equivalent to selling S&P500 at 5500 or so.

 

[Running_Man]

I mean, yes you probably made more in real dollars, but during the year I traded volatility plus a few good picks and made $223,000 profit on an investment of just under $150,000.

I guess that is equivalent to selling S&P500 at 5500 or so.

At -5500 is your basis now I would think

 

[bobandsherry]

Looks like Santa just left us all a lump of coal. [emoji16]

How do you figure that? The market appears to be turning as we write!

Guess we'll see how market ends today, but S&P closed at 2416 on 12/21. The roller coaster ride since is putting us back at 2418 as of me writing this, so the wild ride has netted us nothing. Guess we'll see if the market gives us a positive move tomorrow. If not, I'm not counting on it for Monday.

 

[NYEXPAT]

Guess we'll see how market ends today, but S&P closed at 2416 on 12/21. The roller coaster ride since is putting us back at 2418 as of me writing this, so the wild ride has netted us nothing. Guess we'll see if the market gives us a positive move tomorrow. If not, I'm not counting on it for Monday.

You can "cherry pick" dates all you want. I was hedged going into Christmas, so what happened before is of no concern to me. I removed my hedge at S&P 2340 or so for the expected Santa Claus rally or as RM calls it a Bear Market Rally. So the question is (for me) what happens between Dec 26 and Jan 3 (7 trading days) or when I hedge again! RM is practicing active portfolio management and is looking to get back to his minimum 25% stock allocation.

 

[bobandsherry]

You can "cherry pick" dates all you want. I was hedged going into Christmas, so what happened before is of no concern to me. I removed my hedge at S&P 2340 or so for the expected Santa Claus rally or as RM calls it a Bear Market Rally. So the question is (for me) what happens between Dec 26 and Jan 3 (7 trading days) or when I hedge again! RM is practicing active portfolio management and is looking to get back to his minimum 25% stock allocation.

Dude, I'm not cherry picking anything, just aligning dates this year that are tied to the Santa Claus rally. S&P, and the market, did turn around at the end, another strange day. S&P ended at 2488 so slightly ahead of the 12/21 close.

We all have our approach and methods to our madness with investing. I'm just not that smart a guy to dabble with things, kind of stay on a charted course and make corrections when too far off path. I hope your hedge pays off.

 

[NYEXPAT]

What relevance does Dec 21st have to the Santa Claus rally that normally commences on Dec 26? What significance does Dec 21st have? Maybe Dec 24th as it was the same week the current conversation is about. But this thread is about RM's market call and his "put strategy"! I have been interested and supportive of his "call" since day one. I am sorry I corrupted this thread by posting my own moves. I find it interesting that "up till now" we have been doing the same things for very different reasons. I am a TRADER for 40 years and rely on technical's for active portfolio management. RM's "Math skills" are far superior to mine and has a good grasp on Economic's and the skills of a security analyst with regards to individual securities. His thought process reminds me of my Father who was a accomplished security analyst/money manager until his death at age 99. I find it curious that forum members that practice passive investment would have any interest in a thread like this? As RM has closed out his position and explained his philosophy, we should probably let the thread die as I cannot contribute any value. Good luck to everyone who has participated and may all have a profitable future!

 

[bobandsherry]

What relevance does Dec 21st have to the Santa Claus rally that normally commences on Dec 26? What significance does Dec 21st have?

I present this as "Evidence A".

A Santa Claus rally is a rise in stock prices in the month of December, generally seen over the final week of trading prior to the new year.

Source: https://en.wikipedia.org/wiki/Santa_Claus_rally#cite_note-:0-1

I present this as "Evidence B".

A Santa Claus rally generally hits Wall Street in the last trading week of the year.

Source: https://www.cnbc.com/2018/12/26/finally-signs-of-a-santa-claus-rally-come-to-wall-street.html

And then let's just pile it on further, this is "Evidence C":

A Santa Claus rally describes sustained increases in the stock market that occur in the last week of December through the first two trading days in January.

Source: https://www.investopedia.com/terms/s/santaclauseffect.asp

I therefore see that close of 12/21 is the last trading day before the final trading week. Or do you see something different in the calendar?

 

[NYEXPAT]

I present this as "Evidence A".

Source: https://en.wikipedia.org/wiki/Santa_Claus_rally#cite_note-:0-1

I present this as "Evidence B".

Source: https://www.cnbc.com/2018/12/26/finally-signs-of-a-santa-claus-rally-come-to-wall-street.html

And then let's just pile it on further, this is "Evidence C":

Source: https://www.investopedia.com/terms/s/santaclauseffect.asp

I therefore see that close of 12/21 is the last trading day before the final trading week. Or do you see something different in the calendar?

I stand "corrected" the FINAL week of trading (5-7 trading days) no longer occurs AFTER Dec 25th!

 

[Lsbcal]

Regarding the SC rally, I started a thread recently that discussed Hulbert's article and how the days after Xmas were best. So far that has been quite successful. Not that I traded it.

 

[NW-Bound]

A Santa Claus rally describes sustained increases in the stock market that occur in the last week of December through the first two trading days in January.

Source: https://www.investopedia.com/terms/s/santaclauseffect.asp

I like this definition.

Seeing that tomorrow is the last trading day of the year, I am happy that Santa still has two more days after the New Year to change his grinchy mind, retrieve his coal from my stocking and put something nice in there.

PS. Oops. The market still opens on Mon 12/31. So, Santa has lots of time left.

 

[Running_Man]

So right here at 2666-2670 is a good spot to put another 1% of one's portfolio back in @2475 puts a few months out. Just sayin............

 

[kgtest]

So right here at 2666-2670 is a good spot to put another 1% of one's portfolio back in @2475 puts a few months out. Just sayin............

I'm listening... While I continue to DCA. @1% its a small hedge

 

[corn18]

So right here at 2666-2670 is a good spot to put another 1% of one's portfolio back in @2475 puts a few months out. Just sayin............

Puts make my brain hurt. Could I just buy SH (PROSHARES TR/SHORT S&P 500) and accomplish the same thing?

 

[ERD50]

So right here at 2666-2670 is a good spot to put another 1% of one's portfolio back in @2475 puts a few months out. Just sayin............

As long as you are "just sayin....", why not just say which month?

-ERD50

 

[ERD50]

Puts make my brain hurt. Could I just buy SH (PROSHARES TR/SHORT S&P 500) and accomplish the same thing?

Not really. If you buy puts and the S&P goes up, you still share in the rise, minus the 1% you paid for the puts. Shorting offsets a rise and a fall.

-ERD50

 

[Hamlet]

Not really. If you buy puts and the S&P goes up, you still share in the rise, minus the 1% you paid for the puts. Shorting offsets a rise and a fall.

-ERD50

I'd prefer to just sell some of my S&P shares, rather than pay the vig to get a few months insurance. Options are a negative sum game, and unless you feel like you have an edge for some reason, or have major tax reasons to put off selling, I don't think they make much sense to use.

 

[ERD50]

I'd prefer to just sell some of my S&P shares, rather than pay the vig to get a few months insurance. Options are a negative sum game, and unless you feel like you have an edge for some reason, or have major tax reasons to put off selling, I don't think they make much sense to use.

I'm not defending the use of puts, I pretty much agree with you. I was just explaining the difference between a put and a short to corn18.

-ERD50

 

[bobandsherry]

As long as you are "just sayin....", why not just say which month?

-ERD50

Seems if someone really was expecting a drop they'd buy something like a 260, cost a couple $$ more but then lots of coverage on the downside, break-even around $255 (based on March 29 option) vs $244 b/e for 247 option.

Rough #'s on 1 contract (SPY 3/29 expiration):
260 - $491
Value at $244 = $1,600 / Net = $1,109

247 - $238
Value at $244 = $300 / Net = $62

 

[Running_Man]

I'd prefer to just sell some of my S&P shares, rather than pay the vig to get a few months insurance. Options are a negative sum game, and unless you feel like you have an edge for some reason, or have major tax reasons to put off selling, I don't think they make much sense to use.

I was waiting to see what the Fed would do, and they indicated they are ending sales of bonds, will probably declare victory against inflation and calling the operations a success. With the 20+ dollar jump in gold prices it appears to me the recovery reaction from the December low is coming to an end. However, I am not selling my stocks as if we were to get into an inflationary binge or the FED jumped up SPX purchases --- there are now calls for investigating the December decline as unfair to investors --- when selling is becoming a crime in the world of stocks --- well I'll leave it there but I view that as a bad sign when people think of a decline as a crime that the government needs to address. In any case there could be emotional increases that I cannot afford to miss.

 

[FIRE'd@51]

Seems if someone really was expecting a drop they'd buy something like a 260, cost a couple $$ more but then lots of coverage on the downside, break-even around $255 (based on March 29 option) vs $244 b/e for 247 option.

Rough #'s on 1 contract (SPY 3/29 expiration):
260 - $491
Value at $244 = $1,600 / Net = $1,109

247 - $238
Value at $244 = $300 / Net = $62

You are only looking at intrinsic value here. When RM first put his trade on back in early October, the VIX was around 15%. It subsequently rose above 30% in late December. This led to a significant increase in put premiums (the vega effect) which allowed him to cover the loss on his equity position without the puts actually having to go in-the-money.

Fast forward until today. SPX=2665, so 1% is 26.65. The March 29, 2475-strike SPX puts are offered at 23.80. Since RM is only 25% in equities, he can buy four times as many puts for 1% of his portfolio and lever his put position 4 to 1. If SPX falls near 2475, the VIX should rise substantially, and the time premium of his puts will also increase substantially, possibly (once again) covering the loss on his equities.

The only suggestion I would have to possibly improve upon RM's strategy would be to consider selling some out-of-the-money calls or call credit spreads (creating a collar) to defray part of the 1% cost of the puts should the market not fall precipitously in the next 2-3 months.

 

[corn18]

Could you just buy the VIX and accomplish the same thing?

 

[gstillson]

The only suggestion I would have to possibly improve upon RM's strategy would be to consider selling some out-of-the-money calls or call credit spreads (creating a collar) to defray part of the 1% cost of the puts should the market not fall precipitously in the next 2-3 months.

If you are going to spend money for downside protection and also cap your gains by selling covered calls, then perhaps it is time to just sell your stock?

 

[bobandsherry]

If you are going to spend money for downside protection and also cap your gains by selling covered calls, then perhaps it is time to just sell your stock?

The problem with that is tax hit from gains as well as ACA subsidy impact even if nothing happens.

 

[gstillson]

Looking like buying puts would/is a bad strategy right now with the Fed pushing stocks up. Probably will never drop below 2600 now.