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When should we get greedy?

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

#317944

Postby johnhemming » June 12th, 2020, 3:44 pm

He does quite a bit of option trading. I don't personally want to do that much on options. I prefer to make assessments as to when I think the market is undervaluing something and then to buy it. This allows me not to have to concentrate on what is going on too much so I can get on with other things.

GoSeigen
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Re: When should we get greedy?

#317953

Postby GoSeigen » June 12th, 2020, 4:02 pm

johnhemming wrote:He does quite a bit of option trading. I don't personally want to do that much on options. I prefer to make assessments as to when I think the market is undervaluing something and then to buy it. This allows me not to have to concentrate on what is going on too much so I can get on with other things.


Yes, I do it on the side, though I do have a long-term more conventional portfolio.


My contributions about options on this thread started as a comment that when markets are highly volatile, it's difficult to pick the bottom or a direction of travel -- it's often better to do nothing.

I noted though, that those are often good times to trade options, because non-directional (i.e. market neutral) positions can be taken. One can then react to subsequent moves. [e.g. if one is long a put and a call and the market shoots up, one can sell the call. OTOH if one is short a put and a call and the market rises the short put might be covered. ]

My posts are an effort to document in real time the kind of trade I am making. Sorry if some of the language is jargon; that is the nature of the beast. I requested my posts be moved to a new board due to their non-newbie nature but the mods declined and other posters said they were interested. Thus I'll keep posting here but feel free to ignore my scribbles!

GS
P.S. Yesterday's straddle in profit. May add more today.

johnhemming
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Re: When should we get greedy?

#317960

Postby johnhemming » June 12th, 2020, 4:14 pm

I am quite pleased that you post your comments here. (even if I disagree with some of them)

TheMotorcycleBoy
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Re: When should we get greedy?

#317967

Postby TheMotorcycleBoy » June 12th, 2020, 4:24 pm

GoSeigen wrote:
johnhemming wrote:He does quite a bit of option trading. I don't personally want to do that much on options. I prefer to make assessments as to when I think the market is undervaluing something and then to buy it. This allows me not to have to concentrate on what is going on too much so I can get on with other things.


Yes, I do it on the side, though I do have a long-term more conventional portfolio.


My contributions about options on this thread started as a comment that when markets are highly volatile, it's difficult to pick the bottom or a direction of travel -- it's often better to do nothing.

I noted though, that those are often good times to trade options, because non-directional (i.e. market neutral) positions can be taken. One can then react to subsequent moves. [e.g. if one is long a put and a call and the market shoots up, one can sell the call. OTOH if one is short a put and a call and the market rises the short put might be covered. ]

My posts are an effort to document in real time the kind of trade I am making. Sorry if some of the language is jargon; that is the nature of the beast. I requested my posts be moved to a new board due to their non-newbie nature but the mods declined and other posters said they were interested. Thus I'll keep posting here but feel free to ignore my scribbles!

GS
P.S. Yesterday's straddle in profit. May add more today.

Keep posting GS!

I understand bits and pieces about options. But what I don't know is why the one to which you currently refer is called a "straddle".

Matt

GoSeigen
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Re: When should we get greedy?

#317979

Postby GoSeigen » June 12th, 2020, 4:39 pm

TheMotorcycleBoy wrote:
GoSeigen wrote:P.S. Yesterday's straddle in profit. May add more today.

Keep posting GS!

I understand bits and pieces about options. But what I don't know is why the one to which you currently refer is called a "straddle".

Matt


Straddle: you buy a call and a put at the same strike price (sell for the short version). If you draw a graph of the possible pay-off/cost it looks like a sharp mountain with the strike price straddling a peak located at the current market price. Hence the name straddle (I think!).

Image


With a strangle the puts and calls are out of the money, i.e. the strike is either side of the current price, like a pair of hands strangling the neck!

Option strategies have colourful names which takes some of the tedium out of learning about them.

GS

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Re: When should we get greedy?

#317981

Postby Lootman » June 12th, 2020, 4:46 pm

GoSeigen wrote:Option strategies have colourful names which takes some of the tedium out of learning about them.

One of my favourites is a "Risk Reversal". Probably has other names too.

It is a way of making a bullish bet at zero cost. If a share is (say) 30 then you sell a 28 Put and use the premium received to buy a 32 Call. Most times both will be about the same value so the net cost to you is zero.

If the share goes up, your Call will increase in value and you will get to keep the premium from the Put.

If the share does nothing you make nothing and lose nothing.

If the share falls below 28 then you buy the share at that lower price.

Obviously only worthwhile if you are happy to end up owning the share.

It is actually the mirror opposite of a Collar, where you sell an out-of-the-money Call to pay for buying protection via a long Put. Free protection as long as you are willing to have the share called away from you at a higher price.

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Re: When should we get greedy?

#318475

Postby redsturgeon » June 15th, 2020, 8:51 am

Last week for the first time in my life I went short on the FTSE100 with a 2x short ETF. I am watching it closely but it seems to be working so far.

John

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Re: When should we get greedy?

#318864

Postby BrummieDave » June 16th, 2020, 3:44 pm

redsturgeon wrote:Last week for the first time in my life I went short on the FTSE100 with a 2x short ETF. I am watching it closely but it seems to be working so far.

John


I may be misremembering, but I thought last time I read about your investments you were 100% cash?

If so, it's a big leap from there to a leveraged ETF... :shock:

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Re: When should we get greedy?

#318866

Postby redsturgeon » June 16th, 2020, 3:48 pm

Not really I have just dipped a toe in the water to have some skin in the game while waiting to make specific investments. Ive invested about 3% of my cash.

John

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Re: When should we get greedy?

#318916

Postby GoSeigen » June 16th, 2020, 8:35 pm

redsturgeon wrote:Not really I have just dipped a toe in the water to have some skin in the game while waiting to make specific investments. Ive invested about 3% of my cash.

John


Be aware John, that the return on 2x ETFs can be really bad, especially so when markets are volatile. Your timing has to be impeccable and you should make it your aim to be out far longer than in -- don't treat it as one to hold!

Personally, I still can't pick the direction, which is why I'm trading market neutral/symmetrical instruments right now. A couple of days ago I was hoping for S&P 2825, now it looks like 3225 is far more likely.

So I wish you lots of luck -- and well done for just dipping a toe and not going too mad...

GS

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Re: When should we get greedy?

#318918

Postby Lootman » June 16th, 2020, 8:42 pm

GoSeigen wrote:
redsturgeon wrote:Not really I have just dipped a toe in the water to have some skin in the game while waiting to make specific investments. Ive invested about 3% of my cash.

Be aware John, that the return on 2x ETFs can be really bad, especially so when markets are volatile. Your timing has to be impeccable and you should make it your aim to be out far longer than in -- don't treat it as one to hold!

Seconded. Although given that he is 97% in cash I suspect he can probably tolerate more risk and volatility in the one position he has.

I find it remarkable that anyone here is 100% out of the market. Or net short as in this case. The last time I was out of the market was 1985! Back then the S&P 500 was about 170. It is something like 3120 right now.

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Re: When should we get greedy?

#318923

Postby redsturgeon » June 16th, 2020, 9:05 pm

This is not intended to be longer than a few weeks at most. Just wanted to be in for the ride really and I can't see value anywhere.

John

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Re: When should we get greedy?

#318925

Postby GoSeigen » June 16th, 2020, 9:11 pm

redsturgeon wrote:This is not intended to be longer than a few weeks at most. Just wanted to be in for the ride really and I can't see value anywhere.

John


A few weeks may be too long: they only track correctly on a day to day basis. However, I know you can look after yourself so will not push the point any further.


GS

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Re: When should we get greedy?

#318928

Postby richfool » June 16th, 2020, 9:29 pm

Red Sturgeon wrote:Last week for the first time in my life I went short on the FTSE100 with a 2x short ETF. I am watching it closely but it seems to be working so far.

John


I stuck some in USA (Baillie Gifford US Growth trust) back in mid April, to take advantage of whatever recovery we get.

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Re: When should we get greedy?

#318932

Postby redsturgeon » June 16th, 2020, 9:49 pm

richfool wrote:
Red Sturgeon wrote:Last week for the first time in my life I went short on the FTSE100 with a 2x short ETF. I am watching it closely but it seems to be working so far.

John


I stuck some in USA (Baillie Gifford US Growth trust) back in mid April, to take advantage of whatever recovery we get.


Looks like a good call.

John

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Re: When should we get greedy?

#319126

Postby TheMotorcycleBoy » June 17th, 2020, 3:46 pm

I have to say that I don't feel sufficiently sophisticated to do shorting instruments or options. I've just been gradually (cost averaging for the past two months, and quite aggressively in March+April) buying more equities. But I've been *attempting* to be more selective in what I buy - i.e. cash rich, or moat-like firms, ones still paying divs.

Matt

johnhemming
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Re: When should we get greedy?

#319136

Postby johnhemming » June 17th, 2020, 4:27 pm

I have recently become aware of "Davey Day Trader Global" in the USA. Who appears to be quite entertaining and there is something strange going on with the momentum from his stock picks. He criticises Warren Buffett, but given the choice between Warren Buffett and Dave Portnoy I am inclined to go with Warren Buffett.

The US market is behaving oddly however. Part of the story of which is the behaviour of the federal banks.

https://twitter.com/stoolpresidente

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Re: When should we get greedy?

#319146

Postby redsturgeon » June 17th, 2020, 4:59 pm

johnhemming wrote:I have recently become aware of "Davey Day Trader Global" in the USA. Who appears to be quite entertaining and there is something strange going on with the momentum from his stock picks. He criticises Warren Buffett, but given the choice between Warren Buffett and Dave Portnoy I am inclined to go with Warren Buffett.

The US market is behaving oddly however. Part of the story of which is the behaviour of the federal banks.

https://twitter.com/stoolpresidente


I have been aware of the retail trader story coming out of the US for the past few weeks and it seems that they are responsible for much of the recent upturn in the markets. They have be using platforms like the Robin Hood app and I read one story of a 19 year old with no assets who was able to run up a $700k debt.

Here is more detail
https://ftalphaville.ft.com/2020/06/16/ ... narrative/

John

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Re: When should we get greedy?

#319150

Postby Lootman » June 17th, 2020, 5:11 pm

redsturgeon wrote:
johnhemming wrote:I have recently become aware of "Davey Day Trader Global" in the USA. Who appears to be quite entertaining and there is something strange going on with the momentum from his stock picks. He criticises Warren Buffett, but given the choice between Warren Buffett and Dave Portnoy I am inclined to go with Warren Buffett.

The US market is behaving oddly however. Part of the story of which is the behaviour of the federal banks.

https://twitter.com/stoolpresidente

I have been aware of the retail trader story coming out of the US for the past few weeks and it seems that they are responsible for much of the recent upturn in the markets. They have be using platforms like the Robin Hood app and I read one story of a 19 year old with no assets who was able to run up a $700k debt.

One factor in the last year or so is that trade commissions have basically been abolished in the US. The major brokerages now charge nothing for online trades, and of course there is no stamp duty there. So there is no frictional cost to trading in and out.

Couple that with the craze for fractional shares. Many successful companies in the US have very high share prices, in the hundreds or thousands of dollars, like Berkshire, Amazon, Google, Tesla etc. But now investors can put $5 in one share and $10 into another. Small amounts but when millions do it, it adds up.

This won't end well.

johnhemming
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Re: When should we get greedy?

#319166

Postby johnhemming » June 17th, 2020, 5:59 pm

Bankruptcy law varies from country to country, but in the end the intermediary carries the risk if people run up silly debts. From 1986 through to 2019 I was in the business of providing computer systems to stockbrokers and saw a number of examples of people losing large sums that they could never pay back and that hitting the broker.

This all comes into the game of counterparty risk.

I personally have always been uncomfortable with momentum stocks as it often goes wrong. It is, however, a useful thing for us in the UK to learn from.


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