Put candidates for Bubble Stocks

[bizaro86]

Last year around this time I started getting antsy about the market valuation and bought puts on some well thought of companies that had relatively high financial leverage. That worked out ok for a completely different reason than I thought (although in hindsight Clorox was a bad pick...) Anyway, I'm getting that same antsy-about-the-market feeling, and I'm looking to express it with puts on companies that have high leverage to the current r/wallstreetbets style insanity.

I'd be very interested in hearing what other people are thinking on this, and if anyone has ideas for things you've come across that have upcoming lockups, etc. In the interest of adding value and not just taking, here is what I have so far:

ARKG - This is the Ark genomics fund. I'm sure some of these firms are really great. But I think if the bubble pops all the ARK funds will get killed. They have reflexivity as well, because outflows will put pressure on the holdings they need to sell, lowering their price, causing more outflows.
ARKK - same thesis as above for their diversified ETF
DASH - these guys deliver food. Some day COVID will end, and with it the huge tailwind. Combine that with a high-competition business, and I think their bubble gets popped. Obviously its up huge recently. Recent IPO, so VCs exiting once their lockup ends is a potential catalyst here.
LMND - fancy online insurance co. I think they'll probably get killed at some point on claims, as I doubt their G&A is actually that much cheaper. Another recent IPO.
NIO - Chinese electric cars. Valuation is very high.
TSLA - American electric cars. Valuation is very high.
SPAK - combination of post-deal SPAKs. This is probably my favorite of the bunch, because someone has a plan to aggregate the future issuances of crap for me. The SPAC bubble means the quality of SPAC deals will go way down, and the promote already makes post-deal SPACs a negative expected value game. Options here only go out to August, unfortunately, but they aren't that expensive compared to some of this stuff.
GME - added this today on the short squeeze. Because this business isn't very good and the short squeeze won't last forever.

On the risk side, you need to be right on timing and valuation. The puts on this stuff are all very expensive (maybe there is a bubble in puts on bubble stocks?!?!) I've allocated about 4% to this theme so far, and am adding everyday. I have the strikes and expirations staggered, which is why I didn't list them, as there are lots. Generally all very far out of the money with expirations ranging from May 2021 to Dec 2022. If this bubble keeps going for a whole year more I'm looking at a total loss on that percentage of my portfolio, which is acceptable. If there is a big crash, probably a 5X gain on it. I like the optionality of big gains at the bottom, because it's likely that I'd be able to re-deploy those gains into beaten down stuff at the bottom.

I'd be very interested in comments, ideas, and especially explanations of why I'm going to lose all my money.

[thowed]

I suppose the most obvious starting point is Keynes: 'the markets can remain irrational longer than you can remain solvent.'

It's not much help, but I'd suggest that you are the only person who know if you're capable of doing it.  It seems that Gregmal can trade Shorts.  I absolutely can't.  I'd say very few people can, so you need to be confident.

I agree that you've put a good Short-able list together, but I've just seen so many 'obvious' shorts go wrong over the years.

[Gregmal]

Thats a good component of my short/hedge basket. I'd add ZM and BYND although BYND Ive covered a little bit as Impossible is garnering a $4B valuation in private rounds, which if you translate that to a public valuation, doesnt make BYND seem as egregious. Although I still think its egregious, I'd just be mindful of what that could imply as far as short/intermediate downside may be.

Others, NVAX, FCEL, TLMD, JKS, FEYE and maybe..although I have some hesitations, CVNA and PTON.

And, no, you never lose all your money if you came prepared. If you cant take a short going against you 5-10x you shouldn't be shorting or are doing it wrong. I also think outright shorting to make money isnt ideal 95% of the time. It's more an attractive way to offset some risks being long if you pair/size it properly. 10 up, 3 down is still +7. The attractiveness is that if you are somewhat in the same ballpark from a timing perspective, both sides can work out. But up 3, up 6 for example, shouldn't be the expectation bc you'll leave disappointed more often than not.

[bizaro86]

I suppose the most obvious starting point is Keynes: 'the markets can remain irrational longer than you can remain solvent.'

It's not much help, but I'd suggest that you are the only person who know if you're capable of doing it.  It seems that Gregmal can trade Shorts.  I absolutely can't.  I'd say very few people can, so you need to be confident.

I agree that you've put a good Short-able list together, but I've just seen so many 'obvious' shorts go wrong over the years.

Thanks! I have a pretty good track record shorting historically, mostly because I only do it when I see a fat pitch (typically every couple of years I find one). I'm looking at this as more of a hedge/basket approach. I think the market as a whole is getting expensive-ish, and this gives me the confidence to remain invested, because in a crash this basket should overshoot to the downside.

But I agree that the market can remain irrational a long time. That's the primary reason I'm using puts vs direct shorts. At my current exposure my maximum loss is 4%, which doesn't threaten my solvency at all. Obviously a direct short of something that goes up 700% (TSLA, eg) could be very bad.

I'm also leaving room to double down if things continue to be absurd for another year. Maybe all the stimulus checks go into otm calls on fad stocks and it goes up for another year. In that case, I'll likely reload for over time.

[bizaro86]

Thats a good component of my short/hedge basket. I'd add ZM and BYND although BYND Ive covered a little bit as Impossible is garnering a $4B valuation in private rounds, which if you translate that to a public valuation, doesnt make BYND seem as egregious. Although I still think its egregious, I'd just be mindful of what that could imply as far as short/intermediate downside may be.

Others, NVAX, FCEL, TLMD, JKS, FEYE and maybe..although I have some hesitations, CVNA and PTON.

And, no, you never lose all your money if you came prepared. If you cant take a short going against you 5-10x you shouldn't be shorting or are doing it wrong. I also think outright shorting to make money isnt ideal 95% of the time. It's more an attractive way to offset some risks being long if you pair/size it properly. 10 up, 3 down is still +7. The attractiveness is that if you are somewhat in the same ballpark from a timing perspective, both sides can work out. But up 3, up 6 for example, shouldn't be the expectation bc you'll leave disappointed more often than not.

Thanks! I'll look at those names. Thinking of taking this up to 6-7% or so. I was actually joking about the "lose all my money" comment. I think I've followed FFH long enough to realize that naked shorts of momo stocks is too risky for my constitution.

I think the psychology is key here more than the valuation in some ways. I follow a forum for my favorite NHL team, and have started to see posts there about riding the SPAC boom. Once all the marginal $$ are in the game the end is near.

[LC]

Does anyone ever use short positions to accumulate high quality companies with extreme valuations?

Let's say I want to own Tesla but can't stomach paying 100X earnings or whatever it is nowadays. And further let's say I think a fair price is 75x earnings. Just to use random round numbers.

One could buy Tesla with $100 and then use options to short NIO for $25 of notional exposure. Or some other electric car company that you feel is "inferior" to Tesla.

So worst case is Tesla drops and NIO doesn't, ok sure. But I think more realistically in a downturn your Tesla position is hedged to your "fair value" price, and perhaps the more volatile hedge company pays off even further.

[Gregmal]

Thats definitely an interesting and creative idea. I feel like its also an idea inspired by being in a bubble! Whats a man got to do to buy some reasonable priced growth stocks!

But yea, that does kind of get to the core of where shorting out quality discrepancies within the valuations would make sense.

[LC]

I feel like its also an idea inspired by being in a bubble!

Dammit, yeah - you're right. Crackpot ideas from a money bubble.

[bizaro86]

Let's say I want to own Tesla but can't stomach paying 100X earnings or whatever it is nowadays. And further let's say I think a fair price is 75x earnings. Just to use random round numbers.

I really like this idea, and might use it to add an AirBNB position. Quality business that's overpriced right now. Have to think about what the right offsetting pair would be.

Worth mentioning that in round numbers TSLA is more like 1400x earnings.

[formthirteen]

QS, BLNK, BLDP, PLUG, FCEL? QS is already down +50% from the top.

I'm no expert and I don't know all the pitfalls to look out for, which is why I generally avoid buying options, but this bubble all the innovation happening everywhere seems like a generational opportunity for options speculators.