So I bought S&P 500 2500 puts

[Free bird]

Is there a snark fin in the water? Where where

 

[Fedup]

Make me think of snark fin soup.

 

[Free bird]

It's all fishy to me

 

[OldShooter]

... why all the praise from others? That's what makes no sense to me. ...

I completely agree. There is plenty of data to say that skill in predicting prices does not exist. So what could praise mean? Do you praise someone who happened to flip heads and win a bet, or someone whose bread fell jelly side up? I don't think its logical to praise luck, though it is certainly fun to celebrate the lucky person's result.

If you can point out any snarkiness or unpleasantness in my posts in this thread, please point them out to me.

The only thing clear to me is the obfuscation.

Maybe in the eye of the beholder, despite the emoticon this one came off as snarky to me. And, really, several of your posts also came off to me as very demanding. Maybe not intended. No crisis.

 

[MichaelB]

I don't understand the reluctance of OP to state the details, after starting the thread in the first place. Why not just keep quiet about it? I doubt the OP or any of us have enough power or motivation to affect that trade. But if he doesn't want to share, fine. But why all the praise from others? That's what makes no sense to me.

I understand the reluctance of the OP to join the discussion. There was no real effort to understand what his strategy was, what type of risk he was managing, how this fit into his portfolio. Lots of assumptions and an excessive (IMO) emphasis on the prices he paid . This could have been a learning experience but looks more like a pile-on.

 

[Fedup]

Exactly!

 

[haha]

This could have been a learning experience but looks more like a pile-on.

I'm in the same (why should he have to provide details?) camp. His original post did not claim any special credit for his insights or his moves. I always read his posts, and I will continue to always read his posts. Let's remember, none of us are collecting a salary from the board, so we are free to disclose or not as we prefer.

Ha

 

[ERD50]

I understand the reluctance of the OP to join the discussion. There was no real effort to understand what his strategy was, what type of risk he was managing, how this fit into his portfolio. Lots of assumptions and an excessive (IMO) emphasis on the prices he paid ...

That's confusing to me.

Asking for the expiry is a real effort to attempt to understand the strategy, as is the price he paid. Expiry and price are key to that understanding.

... This could have been a learning experience but looks more like a pile-on.

Yes, exactly, it could have been a learning experience if we got the details. Without details it's nothing more that "I think the market is risky right now". OK, but most of us feel that way most of the time, what's to learn?

-ERD50

 

[Free bird]

Sometimes I celebrate for no reason at all

 

[ERD50]

Originally Posted by ERD50
The only thing clear to me is the obfuscation.

Maybe in the eye of the beholder, despite the emoticon this one came off as snarky to me. And, really, several of your posts also came off to me as very demanding. Maybe not intended. No crisis.

Just a bit of fun playing off the other posters saying it wasn't clear to them either. That goes back to the OP saying that he thought he was very clear. Well, a few of us just don't see clarity at all, and not providing the expiry and price (which would be so easy to do), does seem to obfuscate things, no?

Much ado about nothing really. But it's hard to put it down when people accuse me of being snarky, when I'm just pointing out I don't see the basis for heaping praise on this vague statement because the market dropped a few days later. If he had predicted that specifically, it would be different.

It's been a very, very strange thread.

-ERD50

 

[Free bird]

Maybe he's Allan Greenspan & if he sounds clear you probably misunderstood what he said.

 

[bobandsherry]

Just a bit of fun playing off the other posters saying it wasn't clear to them either. That goes back to the OP saying that he thought he was very clear. Well, a few of us just don't see clarity at all, and not providing the expiry and price (which would be so easy to do), does seem to obfuscate things, no?

Much ado about nothing really. But it's hard to put it down when people accuse me of being snarky, when I'm just pointing out I don't see the basis for heaping praise on this vague statement because the market dropped a few days later. If he had predicted that specifically, it would be different.

It's been a very, very strange thread.

-ERD50

Sometimes snarky just sees snarky.

 

[FUEGO]

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 extend your analogy, I'd say none of us are hungry and therefore don't have to go to the market to buy food since we all have seven figure portfolios here, right? But if there's a good way to save/make money at this market, perhaps if something is on sale for example, a couple of details might be helpful to illustrate to others how they might be able to save money too.

My own thought experiment:

Example A: I applied for credit cards and they are good because I will travel for free.

Example B: I applied for a Chase Ink Preferred Business card and a CitiBusiness American Airlines Aadvantage card. The first card comes with a sign up bonus that will give me $1000 worth of free travel after I spend $5,000 and the second card will give me enough frequent flyer points sufficient to fly to Southeast Asia for free.

Imagine if I started a post with the data contained in Example A. Not very actionable and not much to learn other than "maybe getting a new credit card is good". Contrast that with Example B - actionable information that others could emulate to benefit greatly.

A further example: avocados are on sale at Lidl this weekend for $0.69 each and they have been really good in the past when I bought them. Just give them 3-5 days to ripen up and they will be good for you too. I consider any price under $0.79 each to be a good price on avocados though that's a lot if the avocados are tiny.

 

[NW-Bound]

Nah, the above are not good prices for avocados where I am.

I can get small ones for as cheap as $1 for 5, although $1 for 3 or 4 is usually the norm. Occasionally the $1 for 3 applies to mid-sized ones too, but that does not happen often.

 

[Fedup]

You’re lucky if you even get good avocado, I don’t remember how much I paid, but it was green when I cut it. It’s been in my fridge for days. It’s usually ok to eat. My avocados might expire worthless to me.

 

[NW-Bound]

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.

 

[NW-Bound]

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.

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.

 

[Running_Man]

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.

 

[FUEGO]

...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.

 

[ERD50]

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.

... 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!

-ERD50

 

[FIRE'd@51]

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.

 

[ERD50]

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.

-ERD50

 

[Montecfo]

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.

 

[bobandsherry]

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.

 

[kgtest]

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.