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When should we get greedy?

Investment discussion for beginners. Why you should invest your money, get help getting started
GoSeigen
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Re: When should we get greedy?

#294832

Postby GoSeigen » March 27th, 2020, 3:07 pm

bungeejumper wrote:
GoSeigen wrote:Volatility is extraordinarily high now so this really is a once-in-a-generation trade.

Hmmmm, remind me where I've heard that before? :lol:

I sort-of agree with you, but in a much less technical way.

[...]

In other words, all the basic assumptions are up for grabs these days. If you've got a better grasp of the new fundamentals and you think this is a golden moment to use the contortions in the Vix, then good luck. Personally, I'm still focused on the possibility that quite a large chunk of mankind might be in danger of disappearance, and that the US might be at the centre of that. And that we really know damn all about the epidemiology of this CV19 thing.

What the heck, I'm probably 30 years older than you. :lol: Can't afford to go large on once-in-a-generation trades. Good luck, and maybe we'll compare notes in the autumn?


I'd very much like to compare notes later but will probably forget -- so maybe not that much younger than you... (have similar issues watering the compost heap too!)


I'm trying to use options trades as a discipline to avoid trading too early in the underlying. Can't say I've made much on the options over the past couple of years, but it's educational and entertaining.

The Sep straddles I opened recently would in most circumstances immediately start losing money. Two days later they've barely moved, with VIX still high and an inverted term structure. So I've doubled the position today, may add more if the trade keeps moving favourably.


GS

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Re: When should we get greedy?

#295005

Postby JDot » March 28th, 2020, 7:34 am

GoSeigen wrote:
bungeejumper wrote:
GoSeigen wrote:Volatility is extraordinarily high now so this really is a once-in-a-generation trade.

Hmmmm, remind me where I've heard that before? :lol:

I sort-of agree with you, but in a much less technical way.

[...]

In other words, all the basic assumptions are up for grabs these days. If you've got a better grasp of the new fundamentals and you think this is a golden moment to use the contortions in the Vix, then good luck. Personally, I'm still focused on the possibility that quite a large chunk of mankind might be in danger of disappearance, and that the US might be at the centre of that. And that we really know damn all about the epidemiology of this CV19 thing.

What the heck, I'm probably 30 years older than you. :lol: Can't afford to go large on once-in-a-generation trades. Good luck, and maybe we'll compare notes in the autumn?


I'd very much like to compare notes later but will probably forget -- so maybe not that much younger than you... (have similar issues watering the compost heap too!)


I'm trying to use options trades as a discipline to avoid trading too early in the underlying. Can't say I've made much on the options over the past couple of years, but it's educational and entertaining.

The Sep straddles I opened recently would in most circumstances immediately start losing money. Two days later they've barely moved, with VIX still high and an inverted term structure. So I've doubled the position today, may add more if the trade keeps moving favourably.


GS


Hi Goseigen

Would you mind giving us beginners a little heads up as to what options are? And how they may be used to build wealth? Also I am interested to know your opinion on if now may be the time to start getting greedy whilst others are fearful or not?

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Re: When should we get greedy?

#295047

Postby GoSeigen » March 28th, 2020, 10:57 am

JDot wrote:
Hi Goseigen

Would you mind giving us beginners a little heads up as to what options are? And how they may be used to build wealth? Also I am interested to know your opinion on if now may be the time to start getting greedy whilst others are fearful or not?


[Long... ]

Options are not really a beginner asset class (which is why some posters are complaining about my posts). Very briefly though, an option is a contract to do something if you wish to. Typically in finance there are options to buy (called "calls") and options to sell (called "puts"). These options can be embedded as part of a wider set of contractual terms, but in the investment world there are financial products which consist pretty much entirely of the option to buy or sell some security (called the "underlying"). These put and call options are tradeable on exchanges like the CME and are considered a "derivative": their value is somehow proportional to the (mathematical) derivative of the underlying. Thus trading an option is like trading on the speed of price movement of the underlying.

Options contracts typically are offered at various "strike" prices: the price at which the underlying will be traded if the option is "exercised". The buyer of the option is the one who has the right to exercise, sellers "write" the options and carry the risk of the option being exercised: they are compelled to deliver or take delivery of the underlying on exercise or at expiry of the contract. In reality many options are "cash settled" which means the underlying is not delivered, just the value of the contract at exercise or expiry.

Options contracts typically expire at three month intervals; they thus have two elements to their value: an "intrinsic value" based on the price of the underlying relative to the strike price, and a "time value" which represents the value to the option holder of the right to exercise the option; this time value declines as exercise date approaches, but also rises and falls with the velocity of the price movements as mentioned above. This velocity is known as "implied volatility" in the options world. The implied volatility of options based on the S&P 500 underlying is tracked by an index called the "VIX" and is closely followed by investors. Implied volatility of options is typically calculated using the famous Black Scholes formula.

The above is a very very brief summary of the basics of options. As you can see they are fairly complex and there is far more, which you can look up if interested: e.g. the "greeks", or options trading strategies like "straddles" that I have been mentioning.


As for whether it is time to be greedy, the essence of what I and others are saying is that prices clearly are moving extremely rapidly. If you trade risky assets now you may make or lose money very quickly. Predicting which is a mug's game. Options let you trade on the volatility itself. In the short term volatility might grow as fear sets in, but over time volatility will die down -- and probably before the direction of travel of the markets becomes clear. Straddles are a bet on growing volatility; short straddles bet on declining volatility. To a large extent the direction of the underlying market doesn't matter so straddles are "market neutral". Personally I time my trades based partly on the "term structure" of VIX options, which expresses how the implied volatility varies as a function of expiration date.

If you are mathematically inclined options may be interesting to you. If not, I personally would not bother with them, except to have a basic awareness of them to help build context around what is happening in the markets.

The markets having declined c30%, I feel it is okay to be buying, and have done so myself, but with the proviso that painful losses can still come from current market levels. I'd avoid sectors that have been performing well for a long period but are hitting long-term structural problems now. I think the airline industry is a prime example, having enjoyed a long and extraordinary globalisation and tourism boom but seemingly now coming up against Trump's protectionist instincts and growing nationalist anti-trade forces of which Brexit is a symptom.

OTOH I like banks which have made me and lost me quite a bit of money, but which have been in recovery for ten years but now look good to capitalise on growing inflation and interest rates.

Good luck with whatever you choose to do. If you're a beginner take it as slow as you can bear because you will make mistakes: small and painful is better than big and painful and in investment time is your friend!


GS

{written hurriedly, may contain errors... terms of art are in quotes...]

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Re: When should we get greedy?

#295063

Postby dealtn » March 28th, 2020, 11:21 am

JDot wrote: And how they may be used to build wealth?


...and destroy wealth...

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Re: When should we get greedy?

#295069

Postby JDot » March 28th, 2020, 11:38 am

dealtn wrote:
JDot wrote: And how they may be used to build wealth?


...and destroy wealth...

:lol:
Thanks for that Dealth

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Re: When should we get greedy?

#295130

Postby TheMotorcycleBoy » March 28th, 2020, 3:22 pm

JDot wrote:
dealtn wrote:
JDot wrote: And how they may be used to build wealth?


...and destroy wealth...

:lol:
Thanks for that Dealth

As I've probably pointed out already, I'm a newbie too. Well - investing for 2 years exactly now.

The point is, given what both GS and dealtn have said, is that options are definitely for a very experienced type of investor, IMHO. I've certainly read lot about, and can honestly state that right now, I have zero interest in them. In my opinion, if you do wish to include "different asset classes" to your portfolio, my advice would be stick to with either funds, investment trusts, or shares in firms you really have some conviction in, or corporate bonds.

As for getting greedy, yes the indexes are down, hence "buy low", but given they may keep falling, so be prepared for some losses (hopefully temporarily) and don't spend all your cash at once!

Matt

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Re: When should we get greedy?

#298489

Postby tikunetih » April 7th, 2020, 12:43 am

tikunetih wrote:...but there's a new account with a lump sum to invest.

The lump was divided into four tranches, with a calendar schedule agreed to get it invested; the schedule will be followed unless in the meantime certain target index (S&P500) levels are reached due to further sharp falls, in which case the calendar schedule is accelerated. The first tranche was invested a couple of days ago. I'm hopeful that in the next few days we might reach the first index trigger level to accelerate the next purchase, and potentially the second even lower trigger level.

This account has a balanced risk remit, with an investment horizon of 15-35 years.


Update: This relative I mentioned who had a lump sum to invest as of a month or so ago is ~75% invested now. After the initial couple of tranches the remainder was split into smaller chunks to be invested on a schedule with the aim to complete by June-ish. A chunk of the cash remaining is tax relief yet to be received, which determines the schedule and timeframe to some extent.

NB it's psychologically "easier" to regularly invest a slice of salary via regular monthly purchases over a working life than to bung a big lump sum in during extreme volatility and a global pandemic(!), but it's a lump sum that arrived so that's the way it was; a plan was formed, much of it's done, with the rest to follow over the next couple of months or so.

If the market takes out the lows to-date and goes significantly lower, akin to Oct-08 to Mar-09, after they've finished deploying the remaining ~25%, then it's c'est la vie. Or, perhaps the future path looks akin to the Aug-11 to Oct-11 period with just a retest. Or maybe it turns out the lows are already in. Or much worse than that, with a multi-year bear market and dramatically lower prices to look forward to. Or something else again. Etc etc. We all have opinions, but nobody knows.

"Hindsight is always 20-20" but it's never around when you need it.

However it goes for them in the nearer term, over the intended 15-35yr investment horizon I suspect their returns will be quite satisfactory. No guarantees! Holding these investments for a few decades as planned, they'll encounter multiple periods of high volatility and a bunch of bear markets along the way - they've simply had an early taste of what it can be like. Lucky to be granted some early practice.

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Re: When should we get greedy?

#298513

Postby TheMotorcycleBoy » April 7th, 2020, 8:12 am

tikunetih wrote:
tikunetih wrote:...but there's a new account with a lump sum to invest.

The lump was divided into four tranches, with a calendar schedule agreed to get it invested; the schedule will be followed unless in the meantime certain target index (S&P500) levels are reached due to further sharp falls, in which case the calendar schedule is accelerated. The first tranche was invested a couple of days ago. I'm hopeful that in the next few days we might reach the first index trigger level to accelerate the next purchase, and potentially the second even lower trigger level.

This account has a balanced risk remit, with an investment horizon of 15-35 years.


Update: This relative I mentioned who had a lump sum to invest as of a month or so ago is ~75% invested now. After the initial couple of tranches the remainder was split into smaller chunks to be invested on a schedule with the aim to complete by June-ish. A chunk of the cash remaining is tax relief yet to be received, which determines the schedule and timeframe to some extent.

NB it's psychologically "easier" to regularly invest a slice of salary via regular monthly purchases over a working life than to bung a big lump sum in during extreme volatility and a global pandemic(!), but it's a lump sum that arrived so that's the way it was; a plan was formed, much of it's done, with the rest to follow over the next couple of months or so.

If the market takes out the lows to-date and goes significantly lower, akin to Oct-08 to Mar-09, after they've finished deploying the remaining ~25%, then it's c'est la vie. Or, perhaps the future path looks akin to the Aug-11 to Oct-11 period with just a retest. Or maybe it turns out the lows are already in. Or much worse than that, with a multi-year bear market and dramatically lower prices to look forward to. Or something else again. Etc etc. We all have opinions, but nobody knows.

"Hindsight is always 20-20" but it's never around when you need it.

However it goes for them in the nearer term, over the intended 15-35yr investment horizon I suspect their returns will be quite satisfactory. No guarantees! Holding these investments for a few decades as planned, they'll encounter multiple periods of high volatility and a bunch of bear markets along the way - they've simply had an early taste of what it can be like. Lucky to be granted some early practice.

Similarly my eldest (turned 18yrs in Feb), cashed in about half of the mature NS&I bonds, which her Grandad has gifted her since she was a tot, and about a fortnight ago invested them into the Fidelity World Equity Index P ACC fund. I'm not sure when she'll cash in the remainder, but we both believe that splitting the investment inputs is sensible.

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Re: When should we get greedy?

#298831

Postby GoSeigen » April 8th, 2020, 8:49 am

GoSeigen wrote:
bungeejumper wrote:What the heck, I'm probably 30 years older than you. :lol: Can't afford to go large on once-in-a-generation trades. Good luck, and maybe we'll compare notes in the autumn?


I'd very much like to compare notes later but will probably forget -- so maybe not that much younger than you... (have similar issues watering the compost heap too!)


I'm trying to use options trades as a discipline to avoid trading too early in the underlying. Can't say I've made much on the options over the past couple of years, but it's educational and entertaining.

The Sep straddles I opened recently would in most circumstances immediately start losing money. Two days later they've barely moved, with VIX still high and an inverted term structure. So I've doubled the position today, may add more if the trade keeps moving favourably.


This position is still practically at break-even and VIX still elevated with inverted term structure. Earlier this week I increased exposure with some Dec S&P straddles. The plan is to write shorter-dated and/or OTM options against the position when the term structure normalises, or close my S&P short futures if and when there's another severe market drop.

GS

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Re: When should we get greedy?

#298844

Postby TheMotorcycleBoy » April 8th, 2020, 9:23 am

GoSeigen wrote:VIX still elevated with inverted term structure

GS, though options don't interest me as such, could you be briefly describe what you mean by "inverted term structure" please?

I've heard the "term structure" terminology mentioned before, but I believe it was in reference to interest rates.

thanks Matt

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Re: When should we get greedy?

#298974

Postby GoSeigen » April 8th, 2020, 1:27 pm

TheMotorcycleBoy wrote:
GoSeigen wrote:VIX still elevated with inverted term structure

GS, though options don't interest me as such, could you be briefly describe what you mean by "inverted term structure" please?

I've heard the "term structure" terminology mentioned before, but I believe it was in reference to interest rates.

thanks Matt


Usually near-dated options are cheaper (lower implied volatility) than longer-dated ones. When the term structure is inverted then the opposite is true: longer expiration dates have lower IV. Inversion is usually interpreted as an expectation in the market of near-term volatility in the underlying.

The term structure of S&P options can be viewed here:

http://www.cboe.com/trading-tools/strat ... cture-data

The inversion is clear in the negative (downward) slope of the curve.

GS

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Re: When should we get greedy?

#299021

Postby TheMotorcycleBoy » April 8th, 2020, 4:02 pm

GoSeigen wrote:
TheMotorcycleBoy wrote:
GoSeigen wrote:VIX still elevated with inverted term structure

GS, though options don't interest me as such, could you be briefly describe what you mean by "inverted term structure" please?

I've heard the "term structure" terminology mentioned before, but I believe it was in reference to interest rates.

thanks Matt


Usually near-dated options are cheaper (lower implied volatility) than longer-dated ones. When the term structure is inverted then the opposite is true: longer expiration dates have lower IV. Inversion is usually interpreted as an expectation in the market of near-term volatility in the underlying.

The term structure of S&P options can be viewed here:

http://www.cboe.com/trading-tools/strat ... cture-data

The inversion is clear in the negative (downward) slope of the curve.

GS

Thanks mate,

I just found this https://www.investopedia.com/terms/t/termstructure.asp which now, armed your words, gives me a full understanding of the concept.

M

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Re: When should we get greedy?

#299740

Postby JDot » April 10th, 2020, 11:18 pm

Just come across this article intended for a US audience, in which is claimed a list of ETF's the US Fed will be buying in the near future. can anyone give any advice as to if this info would be correct or not?

Can we trust this kind of info to make a profit, or is a lot of this stuff fake news?


https://www.zerohedge.com/markets/here- ... al-reserve

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Re: When should we get greedy?

#299750

Postby TheMotorcycleBoy » April 11th, 2020, 7:37 am

JDot wrote:Just come across this article intended for a US audience, in which is claimed a list of ETF's the US Fed will be buying in the near future. can anyone give any advice as to if this info would be correct or not?

Can we trust this kind of info to make a profit, or is a lot of this stuff fake news?


https://www.zerohedge.com/markets/here- ... al-reserve

There's no such thing as a free lunch.

Matt

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Re: When should we get greedy?

#299754

Postby GoSeigen » April 11th, 2020, 8:27 am

JDot wrote:Just come across this article intended for a US audience, in which is claimed a list of ETF's the US Fed will be buying in the near future. can anyone give any advice as to if this info would be correct or not?

Can we trust this kind of info to make a profit, or is a lot of this stuff fake news?

https://www.zerohedge.com/markets/here- ... al-reserve


Yes, that article is a goldmine. Make sure you jump in the moment markets open for the chance of a mutli-bagger, if you're not quick everyone else will get there first and drive the prices right up.


Good luck!

GS

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Re: When should we get greedy?

#299806

Postby JDot » April 11th, 2020, 10:57 am

GoSeigen wrote:
JDot wrote:Just come across this article intended for a US audience, in which is claimed a list of ETF's the US Fed will be buying in the near future. can anyone give any advice as to if this info would be correct or not?

Can we trust this kind of info to make a profit, or is a lot of this stuff fake news?

https://www.zerohedge.com/markets/here- ... al-reserve


Yes, that article is a goldmine. Make sure you jump in the moment markets open for the chance of a mutli-bagger, if you're not quick everyone else will get there first and drive the prices right up.




FOMO right? :D

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Re: When should we get greedy?

#299809

Postby JDot » April 11th, 2020, 11:21 am

TheMotorcycleBoy wrote:
JDot wrote:Just come across this article intended for a US audience, in which is claimed a list of ETF's the US Fed will be buying in the near future. can anyone give any advice as to if this info would be correct or not?

Can we trust this kind of info to make a profit, or is a lot of this stuff fake news?


https://www.zerohedge.com/markets/here- ... al-reserve

There's no such thing as a free lunch.

Matt


Thanks Matt

Point noted!

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Re: When should we get greedy?

#299879

Postby TheMotorcycleBoy » April 11th, 2020, 2:15 pm

JDot wrote:
TheMotorcycleBoy wrote:
JDot wrote:Just come across this article intended for a US audience, in which is claimed a list of ETF's the US Fed will be buying in the near future. can anyone give any advice as to if this info would be correct or not?

Can we trust this kind of info to make a profit, or is a lot of this stuff fake news?


https://www.zerohedge.com/markets/here- ... al-reserve

There's no such thing as a free lunch.

Matt


Thanks Matt

Point noted!

Hi JDot,

Sorry I shouldn't have fobbed you off like that. What I should have said is that there are loads of articles like that. You have to be very careful in what you read and listen to. I had a very quick at it, and the only thing that was clear to me is that obviously the owners of the site and author have an agenda and that is to make $$$ from the advertising space at the side of the text.

We on TLF used to have a member (called "SentimentRules") here who unfortunately posted far too obsessively and was generally derided by many. Personally I found the derision a little nasty - but anyway people are people aren't they. However, in my opinion he has actually a fairly shrewd guy. A remember there was a post of his, and he was, I can't quite remember, either giving advice or sharing his investment philosophy. Anyway one thing he said which resonated in me, was "Never trust anyone". My take from that is always do you own research and only buy something for which you have a strong conviction. So regards those ETFs - I really know nowt, but presumably your broker/platform provider will have some pukka information on them, or maybe "MorningStar" has likewise. Also I note that on this place we have A Passive Investing board on which ppl chat about ETFs and other such. My advice would be for you to pick one or two ETFs that you like and perhaps post a well worded topic up there and see if anyone else has additional knowledge.

A couple of other investment idioms which I have picked up from folk here, which you might find interesting, and I'll share, are:

From GoSeigen, I don't remember his exact words but it was essentially "Balance risk and reward". That is, there's no free lunch, or that a strong return will/might imply a high risk. GS said this in the context of these mini-bonds Mel and I had spotted that offered, IDK, 7%-10% annual return. However, after further consideration I realised that there was considerable risk associated, i.e. money tied up for 3-5 years, no FSCS, fly-by-night firm etc. So given the risk 40% return would have been more appropriate!!

From TJH: "the time to buy is now". Now I don't take that as meaning, spend all your money now, but rather the importance of realising that i) the highs and lows of today will even out/disappear over a long enough time frame and ii) timing the market is futile/impossible/stressful.

Anyway, apologies for my earlier flippancy. All I can suggest is that you take time figuring out an investment strategy that suits you, do plenty of research (try to find pukka onlines sites, or at least search for countering arguments when you see something that seems "too good to be true") and if you have specific question (e.g. shares, bonds, ITs, ETS, analysis etc.) try to write a really concise thread and post to the right board on the site. If are stuck on "which board?" then post to the Biscuit Bar first to ask for posting/board advice.

HTH, Matt

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Re: When should we get greedy?

#299890

Postby tramrider » April 11th, 2020, 2:51 pm

TheMotorcycleBoy wrote:From TJH: "the time to buy is now". Now I don't take that as meaning, spend all your money now, but rather the importance of realising that i) the highs and lows of today will even out/disappear over a long enough time frame and ii) timing the market is futile/impossible/stressful.


"The time to buy is now" may not be true of the next few minutes or hours, but I suspect it will be strongly true sometime this month, compared with how prices will have risen by the end of the year. ;)

Tramrider

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Re: When should we get greedy?

#299917

Postby tjh290633 » April 11th, 2020, 4:30 pm

TheMotorcycleBoy wrote:We on TLF used to have a member (called "SentimentRules") here who unfortunately posted far too obsessively and was generally derided by many.

He turned up on ADVFN on various boards, but got universally filtered by most of the participants. He has obviously moved on elsewhere, where he wasn't talking to himself.

TJH


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