Corner of Berkshire & Fairfax Message Board

General Category => Strategies => Topic started by: jeffsreng on March 12, 2020, 02:15:40 PM

Title: Do you have the balls?
Post by: jeffsreng on March 12, 2020, 02:15:40 PM
Are you willing to sell all your positions now regardless if you're up or down and use all that capital to bet on one stock or one dream position?

I'm thinking about it....
Title: Re: Do you have the balls?
Post by: longlake95 on March 12, 2020, 02:24:25 PM
Thats not in my wheel house. You better be sure the one company you pick is worth it...
Title: Re: Do you have the balls?
Post by: nodnub on March 12, 2020, 02:31:03 PM
Are you willing to sell all your positions now regardless if you're up or down and use all that capital to bet on one stock or one dream position?

I'm thinking about it....

Do you have the brains not to?   :)

1 stock is pretty extreme concentration of risk.  Black swan events can hit a single stock easily.
Just a bit of diversification (say 3-4 positions) will probably help you.
Title: Re: Do you have the balls?
Post by: rb on March 12, 2020, 02:34:28 PM
I don't want to sell cause I really, really like my portfolio right now. But if we have another day like today one can dump another 10% of net worth into BRK and call it a day. You can make good money, be lazy and not give a fuck.
Title: Re: Do you have the balls?
Post by: no_free_lunch on March 12, 2020, 02:34:56 PM
No.

I have been saving and investing for 20 years.  How long have you been at it?  I only bring it up as it makes a really big difference how many sweat years you have behind that equity.  If I was 24 and just finished paying off student loans and have $5k then I probably would.
Title: Re: Do you have the balls?
Post by: jeffsreng on March 12, 2020, 02:36:44 PM
No.

I have been saving and investing for 20 years.  How long have you been at it?  I only bring it up as it makes a really big difference how many sweat years you have behind that equity.  If I was 24 and just finished paying off student loans and have $5k then I probably would.

37 years in Mr. Market
Title: Re: Do you have the balls?
Post by: thepupil on March 12, 2020, 02:36:49 PM
no. certainly not unhedged. I have high risk tolerance, high concentration and low drawdown sensitivity. But absolutely not. even if it were a  pile of cash with a beautiful business, you simply never know what can happen with 1 ticker/company.

Title: Re: Do you have the balls?
Post by: Castanza on March 12, 2020, 02:38:47 PM
If you're under 30 have no debt, a good 401k contribution, a decent job and no kids why not...

100% BRK or 100% MSFT if they reach bargain basement prices probably would work out well.
Title: Re: Do you have the balls?
Post by: Jurgis on March 12, 2020, 02:41:14 PM
I don't want to sell cause I really, really like my portfolio right now. But if we have another day like today one can dump another 10% of net worth into BRK and call it a day. You can make good money, be lazy and not give a fuck.

You think BRK will outperform SP500 from here? Or from 10% down from here?



@OP: There's gonna be a ball before Fairfax annual meeting. Unless Sanjeev cancels it and tells you that value investors don't have balls.  ::)
Title: Re: Do you have the balls?
Post by: jeffsreng on March 12, 2020, 02:44:16 PM
I don't want to sell cause I really, really like my portfolio right now. But if we have another day like today one can dump another 10% of net worth into BRK and call it a day. You can make good money, be lazy and not give a fuck.

You think BRK will outperform SP500 from here? Or from 10% down from here?



@OP: There's gonna be a ball before Fairfax annual meeting. Unless Sanjeev cancels it and tells you that value investors don't have balls.  ::)

Don't worry about beating the S&P or BRK-A.  Just focus on your own internal score card.
Title: Re: Do you have the balls?
Post by: SharperDingaan on March 12, 2020, 03:11:37 PM
If you're a young person, with not much money, and most of your working life ahead of you - your bigger risk is NOT engaging.
The only issue is how aggressive you choose to be.

The Donald and his administration are quite the handicap, and getting worse, rapidly.
But handily, Corona hits the elderly hardest. mortality is quite high, and the Donald is 78. This is also an election year, so he's going to have to press a lot of flesh, if he wants to be elected. And every time, a new roll of the dice! ... so what are the odds that over 9 months+ of this, at least one of the rolls results in a contraction  ;)

If you can lower the handicap, don't you get a better result?
Vice ...... have we got a job for you!!!

SD


Title: Re: Do you have the balls?
Post by: johnpane on March 12, 2020, 03:14:20 PM
Just focus on your own internal score card.

Just focus on your balls.
Title: Re: Do you have the balls?
Post by: jeffsreng on March 12, 2020, 03:38:54 PM
Just focus on your own internal score card.

Just focus on your balls.

Nice.  I love competition.
Title: Re: Do you have the balls?
Post by: Spekulatius on March 12, 2020, 06:15:07 PM
If you're a young person, with not much money, and most of your working life ahead of you - your bigger risk is NOT engaging.
The only issue is how aggressive you choose to be.

The Donald and his administration are quite the handicap, and getting worse, rapidly.
But handily, Corona hits the elderly hardest. mortality is quite high, and the Donald is 78. This is also an election year, so he's going to have to press a lot of flesh, if he wants to elected. And every time, a new roll of the dice! ... so what are the odds that over 9 months+ of this, at least one of the rolls results in a contraction  ;)

If you can lower the handicap, don't you get a better result?
Vice ...... have we got a job for you!!!

SD

SD, as we know him, uplifting and practical.
Title: Re: Do you have the balls?
Post by: Jurgis on March 12, 2020, 07:25:30 PM
I don't want to sell cause I really, really like my portfolio right now. But if we have another day like today one can dump another 10% of net worth into BRK and call it a day. You can make good money, be lazy and not give a fuck.

You think BRK will outperform SP500 from here? Or from 10% down from here?



@OP: There's gonna be a ball before Fairfax annual meeting. Unless Sanjeev cancels it and tells you that value investors don't have balls.  ::)

Don't worry about beating the S&P or BRK-A.  Just focus on your own internal score card.

My own internal score card is beating S&P.


And cruashing value investors balls.
Title: Re: Do you have the balls?
Post by: boilermaker75 on March 12, 2020, 09:21:50 PM
I don't want to sell cause I really, really like my portfolio right now. But if we have another day like today one can dump another 10% of net worth into BRK and call it a day. You can make good money, be lazy and not give a fuck.

You think BRK will outperform SP500 from here? Or from 10% down from here?



@OP: There's gonna be a ball before Fairfax annual meeting. Unless Sanjeev cancels it and tells you that value investors don't have balls.  ::)

Don't worry about beating the S&P or BRK-A.  Just focus on your own internal score card.

With the cash horde that Warren has to deploy I think BRK will do better than the S&P.
Title: Re: Do you have the balls?
Post by: meiroy on March 12, 2020, 10:11:57 PM

Here's something for your balls to think about, you do realize that BRK's CEO is within the most vulnerable age group to the virus?

Title: Re: Do you have the balls?
Post by: undervalued on March 12, 2020, 10:37:17 PM
Lol from crushing balls to thinking balls, may the best balls win.
Title: Re: Do you have the balls?
Post by: DooDiligence on March 13, 2020, 05:50:15 AM
Don't stare at the balls.

https://imgur.com/gallery/rmFgBLv
Title: Re: Do you have the balls?
Post by: boilermaker75 on March 13, 2020, 06:40:10 AM
Don't stare at the balls.

https://imgur.com/gallery/rmFgBLv

or you will miss the gorilla,

https://www.youtube.com/watch?v=IGQmdoK_ZfY
Title: Re: Do you have the balls?
Post by: DooDiligence on March 13, 2020, 06:52:07 AM
Don't stare at the balls.

https://imgur.com/gallery/rmFgBLv

or you will miss the gorilla,

https://www.youtube.com/watch?v=IGQmdoK_ZfY

I counted correctly but completely missed the gorilla.

Analogous to how I became fully invested literally a few days before this market sinkhole 1st appeared.

Remaining calm, even though the curtain has changed color & there's a gorilla eating my lunch.
This animal can't take my home away from me because I'm debt free.

 ;)
Title: Re: Do you have the balls?
Post by: Jurgis on March 13, 2020, 07:13:20 AM
Don't stare at the balls.

https://imgur.com/gallery/rmFgBLv

or you will miss the gorilla,

https://www.youtube.com/watch?v=IGQmdoK_ZfY

What gorilla?
Title: Re: Do you have the balls?
Post by: DooDiligence on March 13, 2020, 04:09:15 PM
Don't stare at the balls.

https://imgur.com/gallery/rmFgBLv

or you will miss the gorilla,

https://www.youtube.com/watch?v=IGQmdoK_ZfY

What gorilla?

Mr. Market
Title: Re: Do you have the balls?
Post by: no_free_lunch on March 14, 2020, 11:54:30 AM
Did you ever tell us what this dream stock was?
Title: Re: Do you have the balls?
Post by: jeffsreng on March 14, 2020, 11:56:39 AM
I will once I make money or go broke 8)  Buffett and Munger never disclose their position real-time.
Title: Re: Do you have the balls?
Post by: TwoCitiesCapital on March 14, 2020, 11:59:19 AM
Is it Fairfax? Given that you asked a so similar question in a Fairfax related thread?
Title: Re: Do you have the balls?
Post by: jeffsreng on March 14, 2020, 12:01:15 PM
No.  I'm studying hard on Pier 1 Imports.  There's my clue.
Title: Re: Do you have the balls?
Post by: LC on March 14, 2020, 12:26:11 PM
Why ask the question if you're unwilling to provide information to answer it?
Title: Re: Do you have the balls?
Post by: jeffsreng on March 14, 2020, 12:40:24 PM
I will once I exist my position.  I will show you the statement as well.

I want to know if anyone in history that you know would go short on one position only...
Title: Re: Do you have the balls?
Post by: Cigarbutt on March 14, 2020, 01:36:38 PM
I will once I exist my position. I will show you the statement as well.

I want to know if anyone in history that you know would go short on one position only...
Is the company you're shorting characterized by the following:
Last December, the CEO (and other executives) was selling shares in part to fund a marital dissolution and since then the share price is down 50%?
"I will once I exist my position." Was the bolded part a Freudian slip?
Title: Re: Do you have the balls?
Post by: StevieV on March 14, 2020, 01:44:44 PM
I myself would not go all-in on one company, either long or short.  It would be an extremely stupid thing for me to do, as I have proven I can certainly be wrong.

I'm reminded of the Buffett quote on leverage: "“If you're smart you don't need it. If you're dumb you got no business using it"

If you're a smart enough investor, why do you need to go all-in on one position?

Personally, I've got no business going all in on one position.
Title: Re: Do you have the balls?
Post by: tede02 on March 14, 2020, 02:16:17 PM
At this stage, my answer is probably not. I would probably put upwards of 25% in one idea if I had ultra high confidence. But there's too much randomness in the world. You might be right on something and then a one-off event like the coronovirus or 9/11 hits.
Title: Re: Do you have the balls?
Post by: DTEJD1997 on March 14, 2020, 08:59:47 PM
Why limit yourself to just one company, one position?

I am simply overwhelmed with ideas & opportunities.  There are things that were too expensive for years & Years & YEARS that I am able to buy.  Good, well run, well capitalized, solid companies.  Why not take a position in 3-4-5 or 8-9-10 of them?

Go down the quality chain and there is some stuff that is simply incredible as to it's valuation.  Companies that are making TONS of money, but might have a bit more debt than prudent.  Figure out which ones have structured debt properly and take a flyer?  If I'm right, looking at 5X returns 2-3 years from now?

So why limit yourself to just one position?  build your own portfolio, if you are good, you'll be right much more than you are wrong, AND the positions you are right on will provide YEARS of excellent returns for the portfolio.

Title: Re: Do you have the balls?
Post by: stahleyp on March 15, 2020, 03:07:09 AM
I don't believe Buffett ever put all of his net worth into one single company. I guess you could say Berkshire but at least he ran that.
Title: Re: Do you have the balls?
Post by: Orchard on March 15, 2020, 07:24:19 AM
I will once I make money or go broke 8)  Buffett and Munger never disclose their position real-time.
They also don't make a post with your title on a message board.
Title: Re: Do you have the balls?
Post by: jeffsreng on March 15, 2020, 11:44:04 AM
You want to think differently and independently.  Don't follow the herd into usual portfolio management theory, kelly formula or especially cloning others.
My risk/reward is better with my one BIG position.  I want to see if others have the same thinking.  When there is chaos, there is BIG opportunity.
Title: Re: Do you have the balls?
Post by: thepupil on March 15, 2020, 12:02:13 PM
hahahah you own big lots
Title: Re: Do you have the balls?
Post by: jeffsreng on March 15, 2020, 12:03:21 PM
Nope.  Think bigger.  I'm gunning for 1000X return.
Title: Re: Do you have the balls?
Post by: Gamecock-YT on March 15, 2020, 03:15:20 PM
waiting for some more bailout warrants to go all in on.
Title: Re: Do you have the balls?
Post by: ERICOPOLY on March 16, 2020, 12:10:35 PM
I don't know what the name of this strategy is...  if anyone knows a name for it that's all I'm after.

Hypothetical trading behavior as follows:  You begin with enough cash to buy the common without margin, but instead you expect volatility and don't care about potentially losing $5.50 per share between now and 2022.  So you begin by purchasing enough LEAPS calls to represent the notional value of the amount of common you could otherwise purchase with your remaining cash.  You keep doing that every time the stock drops $10.
WFC at $50.  Pay $5.50 for 2022 at-the-money leaps.
WFC at $40.  Pay another $5.50 for 2022 at-the-money leaps.
WFC at $30.  Pay another $5.50 for 2022 at-the-money leaps
WFC at $20.  Pay another $5.50 for 2022 at-the-money leaps
WFC at $10.  Pay another $5.50 for 2022 at-the-money leaps
etc.. etc...

You just keep accumulating calls.

2022 is on the other side of an estimated timeline for a vaccine to be widely available (12-18 months)

Jokes aside, is there a name for this kind of a trading strategy?

Title: Re: Do you have the balls?
Post by: alwaysdrawing on March 16, 2020, 12:31:27 PM
I don't know what the name of this strategy is...  if anyone knows a name for it that's all I'm after.

Hypothetical trading behavior as follows:  You begin with enough cash to buy the common without margin, but instead you expect volatility and don't care about potentially losing $5.50 per share between now and 2022.  So you begin by purchasing enough LEAPS calls to represent the notional value of the amount of common you could otherwise purchase with your remaining cash.  You keep doing that every time the stock drops $10.
WFC at $50.  Pay $5.50 for 2022 at-the-money leaps.
WFC at $40.  Pay another $5.50 for 2022 at-the-money leaps.
WFC at $30.  Pay another $5.50 for 2022 at-the-money leaps
WFC at $20.  Pay another $5.50 for 2022 at-the-money leaps
WFC at $10.  Pay another $5.50 for 2022 at-the-money leaps
etc.. etc...

You just keep accumulating calls.

2022 is on the other side of an estimated timeline for a vaccine to be widely available (12-18 months)

Jokes aside, is there a name for this kind of a trading strategy?

Bagholding?
Title: Re: Do you have the balls?
Post by: ERICOPOLY on March 16, 2020, 12:33:52 PM
I don't know what the name of this strategy is...  if anyone knows a name for it that's all I'm after.

Hypothetical trading behavior as follows:  You begin with enough cash to buy the common without margin, but instead you expect volatility and don't care about potentially losing $5.50 per share between now and 2022.  So you begin by purchasing enough LEAPS calls to represent the notional value of the amount of common you could otherwise purchase with your remaining cash.  You keep doing that every time the stock drops $10.
WFC at $50.  Pay $5.50 for 2022 at-the-money leaps.
WFC at $40.  Pay another $5.50 for 2022 at-the-money leaps.
WFC at $30.  Pay another $5.50 for 2022 at-the-money leaps
WFC at $20.  Pay another $5.50 for 2022 at-the-money leaps
WFC at $10.  Pay another $5.50 for 2022 at-the-money leaps
etc.. etc...

You just keep accumulating calls.

2022 is on the other side of an estimated timeline for a vaccine to be widely available (12-18 months)

Jokes aside, is there a name for this kind of a trading strategy?

Bagholding?

Have they put you on a respirator yet?
Title: Re: Do you have the balls?
Post by: alwaysdrawing on March 16, 2020, 12:37:20 PM
I don't know what the name of this strategy is...  if anyone knows a name for it that's all I'm after.

Hypothetical trading behavior as follows:  You begin with enough cash to buy the common without margin, but instead you expect volatility and don't care about potentially losing $5.50 per share between now and 2022.  So you begin by purchasing enough LEAPS calls to represent the notional value of the amount of common you could otherwise purchase with your remaining cash.  You keep doing that every time the stock drops $10.
WFC at $50.  Pay $5.50 for 2022 at-the-money leaps.
WFC at $40.  Pay another $5.50 for 2022 at-the-money leaps.
WFC at $30.  Pay another $5.50 for 2022 at-the-money leaps
WFC at $20.  Pay another $5.50 for 2022 at-the-money leaps
WFC at $10.  Pay another $5.50 for 2022 at-the-money leaps
etc.. etc...

You just keep accumulating calls.

2022 is on the other side of an estimated timeline for a vaccine to be widely available (12-18 months)

Jokes aside, is there a name for this kind of a trading strategy?

Bagholding?

Have they put you on a respirator yet?

Got your fill of tangible book equity bank stocks before a depression?
Title: Re: Do you have the balls?
Post by: enoch01 on March 16, 2020, 12:43:13 PM
i like the sentiment on this thread
Title: Re: Do you have the balls?
Post by: stahleyp on March 16, 2020, 12:44:01 PM
i like the sentiment on this thread

I haven't seen you on here in forever!
Title: Re: Do you have the balls?
Post by: mcliu on March 16, 2020, 12:46:37 PM
Great depression coming. Human population wiped out. Banks bankrupt. Stocks go to 0. Followed by nuclear war. Money is worthless.
Long gold, bunker, food. Maybe some weapons as hedge for zombies.
Title: Re: Do you have the balls?
Post by: enoch01 on March 16, 2020, 12:47:34 PM
i like the sentiment on this thread

I haven't seen you on here in forever!

hi paul, happy to be back
Title: Re: Do you have the balls?
Post by: enoch01 on March 16, 2020, 12:49:38 PM
Great depression coming. Human population wiped out. Banks bankrupt. Stocks go to 0. Followed by nuclear war. Money is worthless.
Long gold, bunker, food. Maybe some weapons as hedge for zombies.

please be kind and swab your gold coins with sanitizer before you use them at the market
Title: Re: Do you have the balls?
Post by: Castanza on March 16, 2020, 12:58:12 PM
Great depression coming. Human population wiped out. Banks bankrupt. Stocks go to 0. Followed by nuclear war. Money is worthless.
Long gold, bunker, food. Maybe some weapons as hedge for zombies.

I did pickup some ammo (not for this purpose) Saturday. The store was unbelievable packed. You had everyone there from the preppers wearing WWI style gas masks to the "show me where the bullets go" former anti-gun guy. There are a lot of irrational people out there (see Samsclub wine bottle stabbing). I'd recommend avoiding the masses simply because of the crazies running around.

I hope you all stay safe out there.

______________________________________

LEAPS are certainly looking interesting, but I have a hard time believing we are anywhere near the bottom. IV is so high right now on many equities you'd likely be losing money even if your position was itm.

Title: Re: Do you have the balls?
Post by: ERICOPOLY on March 16, 2020, 01:12:07 PM
I don't know what the name of this strategy is...  if anyone knows a name for it that's all I'm after.

Hypothetical trading behavior as follows:  You begin with enough cash to buy the common without margin, but instead you expect volatility and don't care about potentially losing $5.50 per share between now and 2022.  So you begin by purchasing enough LEAPS calls to represent the notional value of the amount of common you could otherwise purchase with your remaining cash.  You keep doing that every time the stock drops $10.
WFC at $50.  Pay $5.50 for 2022 at-the-money leaps.
WFC at $40.  Pay another $5.50 for 2022 at-the-money leaps.
WFC at $30.  Pay another $5.50 for 2022 at-the-money leaps
WFC at $20.  Pay another $5.50 for 2022 at-the-money leaps
WFC at $10.  Pay another $5.50 for 2022 at-the-money leaps
etc.. etc...

You just keep accumulating calls.

2022 is on the other side of an estimated timeline for a vaccine to be widely available (12-18 months)

Jokes aside, is there a name for this kind of a trading strategy?

Bagholding?

Have they put you on a respirator yet?

Got your fill of tangible book equity bank stocks before a depression?

Ahh.  What we've got here is a gloater.
Title: Re: Do you have the balls?
Post by: alwaysdrawing on March 16, 2020, 01:21:11 PM
I don't know what the name of this strategy is...  if anyone knows a name for it that's all I'm after.

Hypothetical trading behavior as follows:  You begin with enough cash to buy the common without margin, but instead you expect volatility and don't care about potentially losing $5.50 per share between now and 2022.  So you begin by purchasing enough LEAPS calls to represent the notional value of the amount of common you could otherwise purchase with your remaining cash.  You keep doing that every time the stock drops $10.
WFC at $50.  Pay $5.50 for 2022 at-the-money leaps.
WFC at $40.  Pay another $5.50 for 2022 at-the-money leaps.
WFC at $30.  Pay another $5.50 for 2022 at-the-money leaps
WFC at $20.  Pay another $5.50 for 2022 at-the-money leaps
WFC at $10.  Pay another $5.50 for 2022 at-the-money leaps
etc.. etc...

You just keep accumulating calls.

2022 is on the other side of an estimated timeline for a vaccine to be widely available (12-18 months)

Jokes aside, is there a name for this kind of a trading strategy?

Bagholding?

Have they put you on a respirator yet?

Got your fill of tangible book equity bank stocks before a depression?

Ahh.  What we've got here is a gloater.

Let's see what the next year brings.  I'm betting we haven't seen anything yet.

Oh and by the way, I've been saying the same thing for a couple weeks.
Title: Re: Do you have the balls?
Post by: TwoCitiesCapital on March 16, 2020, 02:05:48 PM
I don't know what the name of this strategy is...  if anyone knows a name for it that's all I'm after.

Hypothetical trading behavior as follows:  You begin with enough cash to buy the common without margin, but instead you expect volatility and don't care about potentially losing $5.50 per share between now and 2022.  So you begin by purchasing enough LEAPS calls to represent the notional value of the amount of common you could otherwise purchase with your remaining cash.  You keep doing that every time the stock drops $10.
WFC at $50.  Pay $5.50 for 2022 at-the-money leaps.
WFC at $40.  Pay another $5.50 for 2022 at-the-money leaps.
WFC at $30.  Pay another $5.50 for 2022 at-the-money leaps
WFC at $20.  Pay another $5.50 for 2022 at-the-money leaps
WFC at $10.  Pay another $5.50 for 2022 at-the-money leaps
etc.. etc...

You just keep accumulating calls.

2022 is on the other side of an estimated timeline for a vaccine to be widely available (12-18 months)

Jokes aside, is there a name for this kind of a trading strategy?

The initial approach is just a simple barbell type portfolio. The other approach is Dollar-cost-averaging.

Not sure there's a name for the combined concept. Seems like a novel approach with high potential for massive gains/losses in the intermediate term.

I'd prefer in-the-money options until vol premiums come down and then might be more comfortable rolling to @ the money ones.
Title: Re: Do you have the balls?
Post by: alwaysdrawing on March 16, 2020, 02:36:38 PM
I don't know what the name of this strategy is...  if anyone knows a name for it that's all I'm after.

Hypothetical trading behavior as follows:  You begin with enough cash to buy the common without margin, but instead you expect volatility and don't care about potentially losing $5.50 per share between now and 2022.  So you begin by purchasing enough LEAPS calls to represent the notional value of the amount of common you could otherwise purchase with your remaining cash.  You keep doing that every time the stock drops $10.
WFC at $50.  Pay $5.50 for 2022 at-the-money leaps.
WFC at $40.  Pay another $5.50 for 2022 at-the-money leaps.
WFC at $30.  Pay another $5.50 for 2022 at-the-money leaps
WFC at $20.  Pay another $5.50 for 2022 at-the-money leaps
WFC at $10.  Pay another $5.50 for 2022 at-the-money leaps
etc.. etc...

You just keep accumulating calls.

2022 is on the other side of an estimated timeline for a vaccine to be widely available (12-18 months)

Jokes aside, is there a name for this kind of a trading strategy?

The initial approach is just a simple barbell type portfolio. The other approach is Dollar-cost-averaging.

Not sure there's a name for the combined concept. Seems like a novel approach with high potential for massive gains/losses in the intermediate term.

I'd prefer in-the-money options until vol premiums come down and then might be more comfortable rolling to @ the money ones.

You also forgot the last one:  WFC at $0.  Pay another $5.50 for 2022 at-the-money leaps
Title: Re: Do you have the balls?
Post by: Jurgis on March 16, 2020, 02:51:30 PM
There's gonna be a ball before Fairfax annual meeting. Unless Sanjeev cancels it and tells you that value investors don't have balls.  ::)

QFT.
Title: Re: Do you have the balls?
Post by: Studesy on March 16, 2020, 04:04:28 PM
I don't know what the name of this strategy is...  if anyone knows a name for it that's all I'm after.

Hypothetical trading behavior as follows:  You begin with enough cash to buy the common without margin, but instead you expect volatility and don't care about potentially losing $5.50 per share between now and 2022.  So you begin by purchasing enough LEAPS calls to represent the notional value of the amount of common you could otherwise purchase with your remaining cash.  You keep doing that every time the stock drops $10.
WFC at $50.  Pay $5.50 for 2022 at-the-money leaps.
WFC at $40.  Pay another $5.50 for 2022 at-the-money leaps.
WFC at $30.  Pay another $5.50 for 2022 at-the-money leaps
WFC at $20.  Pay another $5.50 for 2022 at-the-money leaps
WFC at $10.  Pay another $5.50 for 2022 at-the-money leaps
etc.. etc...

You just keep accumulating calls.

2022 is on the other side of an estimated timeline for a vaccine to be widely available (12-18 months)

Jokes aside, is there a name for this kind of a trading strategy?

So at the current price, these LEAPS cost roughly 20% annualized (leverage cost + embedded put + lost dividends). In other words all else equal, WFC's share price will need to increase at 20% annualized over the next 1.85 years in order to break even.  Why not just buy WFC outright and find cheaper leverage in another issue whether via options or margin+hedge??
Title: Re: Do you have the balls?
Post by: samwise on March 16, 2020, 04:35:57 PM
I don't know what the name of this strategy is...  if anyone knows a name for it that's all I'm after.

Hypothetical trading behavior as follows:  You begin with enough cash to buy the common without margin, but instead you expect volatility and don't care about potentially losing $5.50 per share between now and 2022.  So you begin by purchasing enough LEAPS calls to represent the notional value of the amount of common you could otherwise purchase with your remaining cash.  You keep doing that every time the stock drops $10.
WFC at $50.  Pay $5.50 for 2022 at-the-money leaps.
WFC at $40.  Pay another $5.50 for 2022 at-the-money leaps.
WFC at $30.  Pay another $5.50 for 2022 at-the-money leaps
WFC at $20.  Pay another $5.50 for 2022 at-the-money leaps
WFC at $10.  Pay another $5.50 for 2022 at-the-money leaps
etc.. etc...

You just keep accumulating calls.

2022 is on the other side of an estimated timeline for a vaccine to be widely available (12-18 months)

Jokes aside, is there a name for this kind of a trading strategy?

The word you are looking for is probably Martingale.
https://en.m.wikipedia.org/wiki/Martingale_(betting_system)
Title: Re: Do you have the balls?
Post by: ERICOPOLY on March 16, 2020, 10:44:08 PM
I don't know what the name of this strategy is...  if anyone knows a name for it that's all I'm after.

Hypothetical trading behavior as follows:  You begin with enough cash to buy the common without margin, but instead you expect volatility and don't care about potentially losing $5.50 per share between now and 2022.  So you begin by purchasing enough LEAPS calls to represent the notional value of the amount of common you could otherwise purchase with your remaining cash.  You keep doing that every time the stock drops $10.
WFC at $50.  Pay $5.50 for 2022 at-the-money leaps.
WFC at $40.  Pay another $5.50 for 2022 at-the-money leaps.
WFC at $30.  Pay another $5.50 for 2022 at-the-money leaps
WFC at $20.  Pay another $5.50 for 2022 at-the-money leaps
WFC at $10.  Pay another $5.50 for 2022 at-the-money leaps
etc.. etc...

You just keep accumulating calls.

2022 is on the other side of an estimated timeline for a vaccine to be widely available (12-18 months)

Jokes aside, is there a name for this kind of a trading strategy?

The word you are looking for is probably Martingale.
https://en.m.wikipedia.org/wiki/Martingale_(betting_system)

It differs a bit...  I think...

Let me simplify the example and just say you buy the same number of calls each time the stock declines by $10.

So you have put a total of $27.50 at risk by the time you've gone through 5 iterations of call purchases.  That's 'all' you've lost if the stock goes completely kaput to $0, for example.  You still have $22.50 in cash per share that you never allocated. 

Maximum loss is 55%, despite the common losing 100%.

The S&P500 will also likely be down 55% in that kind of outcome and you can put your remaining 45% in the S&P500 like it never happened and get the capital back upon eventual market recovery.
Title: Re: Do you have the balls?
Post by: meiroy on March 16, 2020, 11:19:45 PM

Unless one expects to make x20 on the calls and have the mental endurance to actually hold them while they go from x2 to x6 to x10... I think it's much better to purchase bull spreads, especially when they are so expensive. This way you reduce the costs and can match it to your assumptions (e.g. I'll sell at x2 or x4 etc.). So if WFC is at 27 and one expects it to go to 37, then why pay for the upside from 37?

I'd wager that it at some point it would run up fast to a low valuation and this is where you make your money, with the options so expensive, holding it as it climbs up the ladder will lose the time value after already losing the volatility boost.

my 0.02 cents.

Title: Re: Do you have the balls?
Post by: RadMan24 on March 17, 2020, 05:45:30 PM
I had leaps on Oxy prior to oil crash at 50 and 60, I just sold and took 40-50% haircut and bought stock at $12. Removes the expiration risk, and i got longer time to make money back. I presume most leaps are like this, given the volatility, selling puts seems to be a better move if one wants to own the stock at these, or lower levels.

Barron's had a great piece over the weekend with some good ideas. meryl witmer is a tried and true value investor - would recommend reading her picks and take on the market.
Title: Re: Do you have the balls?
Post by: LC on March 17, 2020, 06:12:38 PM
Quote
given the volatility, selling puts seems to be a better move if one wants to own the stock at these, or lower levels.

Agreed. And if vol really spikes, you can sell OOM covered calls to recoup some premium.
Title: Re: Do you have the balls?
Post by: ERICOPOLY on March 17, 2020, 06:16:29 PM

Unless one expects to make x20 on the calls and have the mental endurance to actually hold them while they go from x2 to x6 to x10... I think it's much better to purchase bull spreads, especially when they are so expensive. This way you reduce the costs and can match it to your assumptions (e.g. I'll sell at x2 or x4 etc.). So if WFC is at 27 and one expects it to go to 37, then why pay for the upside from 37?

I'd wager that it at some point it would run up fast to a low valuation and this is where you make your money, with the options so expensive, holding it as it climbs up the ladder will lose the time value after already losing the volatility boost.

my 0.02 cents.

Why not wait to write the covered call until AFTER it has run to 37 if a run to 37 is what you are expecting?  This way you take all of the invested money off the table and have it on hand to repeat the trick if WFC drops back to 27.  Then if it goes back to 37 you have twice the gain.  And if things will be volatile for a while, you might get yet a third repeat.
Title: Re: Do you have the balls?
Post by: ERICOPOLY on March 17, 2020, 06:22:17 PM
I have found bull spreads very annoying in the past when I've used them because when the stock climbs the volatility disappears on the call you bought and it rises rather painfully on the one you sold.  As the stock goes from $27 to $37, you might lose $3 of volatility on the $27 and find that the $37 concurrently gains $3 in volatility.  So for a stock rise of $10 you only immediately benefit by $4 (and you get more after a long and boring decay).
Title: Re: Do you have the balls?
Post by: clutch on March 18, 2020, 11:18:56 AM
As I have deployed all my cash in my investment accounts, the question becomes whether I should deposit more with some of my incoming cash flows.

Just a couple of days ago, I was sure to do this, but now, I'm getting a bit scared. I should have enough emergency savings and my job should be fine (I hope), but now I worry about my parents who are not as well prepared as myself. I'm leaning toward keeping more cash.

So, yeah, I don't have the balls ...
Title: Re: Do you have the balls?
Post by: Kaegi2011 on March 18, 2020, 09:03:26 PM
I have found bull spreads very annoying in the past when I've used them because when the stock climbs the volatility disappears on the call you bought and it rises rather painfully on the one you sold.  As the stock goes from $27 to $37, you might lose $3 of volatility on the $27 and find that the $37 concurrently gains $3 in volatility.  So for a stock rise of $10 you only immediately benefit by $4 (and you get more after a long and boring decay).

Eric - do you have a real example of when this has happened?  I'm not doubting it, but just trying to figure out in my head why this is the case as the delta differential between the two should remain the same as one gets deep ITM and one gets to ATM (And of course converge if both are deep ITM). 

Also, how do you think about the instance where you can do 2x/3x/4x the contracts for the same amount of capital using a bull spread vs. an outright call?
Title: Re: Do you have the balls?
Post by: ERICOPOLY on March 18, 2020, 10:45:21 PM
I have found bull spreads very annoying in the past when I've used them because when the stock climbs the volatility disappears on the call you bought and it rises rather painfully on the one you sold.  As the stock goes from $27 to $37, you might lose $3 of volatility on the $27 and find that the $37 concurrently gains $3 in volatility.  So for a stock rise of $10 you only immediately benefit by $4 (and you get more after a long and boring decay).

Eric - do you have a real example of when this has happened?  I'm not doubting it, but just trying to figure out in my head why this is the case as the delta differential between the two should remain the same as one gets deep ITM and one gets to ATM (And of course converge if both are deep ITM). 

Also, how do you think about the instance where you can do 2x/3x/4x the contracts for the same amount of capital using a bull spread vs. an outright call?

I guess take 2022 WFC calls as an example.  Today the $27.50 last sold for $6.20 and the $37.50 last sold for $3.30.  Assuming you can also get those prices, you have a $2.90 capital outlay that will be worth $10 at expiry if the stock is at least as high as $37.50 by expiry.  So roughly the full 3.45x return in two years. 

If it ran to $37.50 tomorrow morning, I estimate you'd gain $7 on the call you are long and lose $3 on the call you are short. 

Essentially, the $2.90 invested is now worth $6.90 perhaps?  2.37x return.  It can grow to about a 3.45x return maximum.  In my experience, I have never been able to realize that full 3.45x return.  I get too nervous about the chance of 100% capital loss at that point, with limited further gain to justify holding it to term.  I feel the strong need to bag the profit at that point when the risk/reward changes significantly.  For all the initial risk, I never get the full reward.




Title: Re: Do you have the balls?
Post by: Kaegi2011 on March 19, 2020, 05:14:56 AM
I have found bull spreads very annoying in the past when I've used them because when the stock climbs the volatility disappears on the call you bought and it rises rather painfully on the one you sold.  As the stock goes from $27 to $37, you might lose $3 of volatility on the $27 and find that the $37 concurrently gains $3 in volatility.  So for a stock rise of $10 you only immediately benefit by $4 (and you get more after a long and boring decay).

Eric - do you have a real example of when this has happened?  I'm not doubting it, but just trying to figure out in my head why this is the case as the delta differential between the two should remain the same as one gets deep ITM and one gets to ATM (And of course converge if both are deep ITM). 

Also, how do you think about the instance where you can do 2x/3x/4x the contracts for the same amount of capital using a bull spread vs. an outright call?

I guess take 2022 WFC calls as an example.  Today the $27.50 last sold for $6.20 and the $37.50 last sold for $3.30.  Assuming you can also get those prices, you have a $2.90 capital outlay that will be worth $10 at expiry if the stock is at least as high as $37.50 by expiry.  So roughly the full 3.45x return in two years. 

If it ran to $37.50 tomorrow morning, I estimate you'd gain $7 on the call you are long and lose $3 on the call you are short. 

Essentially, the $2.90 invested is now worth $6.90 perhaps?  2.37x return.  It can grow to about a 3.45x return maximum.  In my experience, I have never been able to realize that full 3.45x return.  I get too nervous about the chance of 100% capital loss at that point, with limited further gain to justify holding it to term.  I feel the strong need to bag the profit at that point when the risk/reward changes significantly.  For all the initial risk, I never get the full reward.

Thanks, Eric.  So using the same example, are you saying that you would be less inclined to exit a long 27 call only position if it opened at 37 tomorrow? 

Also using the same example, you're saying you'd rather pay $6.20 for a call vs. $5.80 net for 2 call spreads? 

Again, just trying to understand the rationale.  The appeal for me of a LEAP is 1) the cheap leverage assuming vol isn't insane, and 2) way much more upside in case the stock does break out significantly, so I'm generally not using bull spreads.  However, the thought that I can leg into the market as it is today with the uncertainties using less capital (in case I need it later to double down), and also to help pay for some of the expensive vol, makes it more of an appealing alternative. 
Title: Re: Do you have the balls?
Post by: ERICOPOLY on March 19, 2020, 07:21:45 AM
Thanks, Eric.  So using the same example, are you saying that you would be less inclined to exit a long 27 call only position if it opened at 37 tomorrow? 

It all depends on the rest of the portfolio, and the reason for the market rally.  I would sell off a bunch if it was just a rally due to a short selling ban, but I would hold if it was a rally due to a vaccine or effective antiviral therapy being approved by the FDA, because under that assumption $70 is possible in two years and a 7x return on the calls.
Title: Re: Do you have the balls?
Post by: stahleyp on March 19, 2020, 09:33:36 AM
Eric,

How are you positioned now?
Title: Re: Do you have the balls?
Post by: Hoodlum on March 19, 2020, 01:04:32 PM
Expect a lot of rating warning and downgrades in the coming days.

https://www.reuters.com/article/us-health-coronavirus-ratings-moody-s-ex/exclusive-moodys-readying-for-mass-global-downgrade-of-virus-hit-firms-idUSKBN2162VI

“We are undertaking a global review of ratings that are impacted by the virus,” Managing Director of Global Strategy & Research Anne Van Praagh and Christina Padgett, Associate Managing Director of Corporate Finance Research, said in an interview.

“By the end of the week we will have a fair amount of rating actions,” Van Praagh added, saying it was likely to impact whole groups of companies or sectors all being impacted in the same way.

Earlier this week Moody’s said that about 9% of the 920 companies it rated in Europe, the Middle East and Africa had a “high exposure” to the effects of the coronavirus outbreak, with another 54% having moderate exposure.

It also estimated that about 16% of the more than 2,000 companies it rates in North America would be at high risk of rating move under the now widely expected scenario of a global recession.

“We have the virus, the big fall in commodity prices and now (the pressure in) the capital markets. This combination of events is unprecedented, so we have to come at it from several different angles,” Padgett said.

The first flurry of downgrades could take a few weeks. As well as sectors like airlines, oil and gas and travel, shipping, hotels and entertainment and leisure will all be heavily impacted too.
Title: Re: Do you have the balls?
Post by: ERICOPOLY on March 19, 2020, 01:20:03 PM
Eric,

How are you positioned now?

At-the-money calls, out-of-the-money calls, and cash.  I will have a lot of cash at some point here, because of a full redemption at Dec 31st prices -- still waiting for the audit to complete before releasing the cash to me.


Title: Re: Do you have the balls?
Post by: stahleyp on March 19, 2020, 02:28:36 PM
Eric,

How are you positioned now?

At-the-money calls, out-of-the-money calls, and cash.  I will have a lot of cash at some point here, because of a full redemption at Dec 31st prices -- still waiting for the audit to complete before releasing the cash to me.

Thanks. What percent of cash will you have once the redemption pays out? I'm getting more bullish but willing to listen to counter views.
Title: Re: Do you have the balls?
Post by: ERICOPOLY on March 19, 2020, 03:01:13 PM
Eric,

How are you positioned now?

At-the-money calls, out-of-the-money calls, and cash.  I will have a lot of cash at some point here, because of a full redemption at Dec 31st prices -- still waiting for the audit to complete before releasing the cash to me.

Thanks. What percent of cash will you have once the redemption pays out? I'm getting more bullish but willing to listen to counter views.

If prices remain steady, about 63% cash, or 80% if I count the Dhandho that I expect to be liquidating at some point between now and 2022 expiry.  If that liquidation drags out I will keep rolling those calls if necessary.

I am mulling over the idea of building cash over next 19 months by writing out-of-the-money puts month to month.  That will either build cash or accomplish my desire of a lower entry point. 


Title: Re: Do you have the balls?
Post by: enoch01 on March 19, 2020, 03:08:04 PM
how ballsy does one need to be to sell volatility currently?
Title: Re: Do you have the balls?
Post by: ERICOPOLY on March 19, 2020, 03:32:28 PM
how ballsy does one need to be to sell volatility currently?

Depends on how much you are risking.  I'm speaking about cash-covered puts.


Title: Re: Do you have the balls?
Post by: ERICOPOLY on March 19, 2020, 03:45:55 PM
I already have ATM calls.  Take for example the $20 strike WFC put, expiring a month from now on April 17th.  The bid is $1.25.

19 months x 1.25 == $23.75.   That's so high you certainly don't need to commit all of the cash to the endeavor.
Title: Re: Do you have the balls?
Post by: gary17 on March 19, 2020, 09:42:39 PM
Hi Eric
would it be better to sell puts or sell calls
i guess sell puts commit you to buying
and sell calls selling
be curious how you think about the two options !
tia
Gary
Title: Re: Do you have the balls?
Post by: ERICOPOLY on March 19, 2020, 10:01:20 PM
Hi Eric
would it be better to sell puts or sell calls
i guess sell puts commit you to buying
and sell calls selling
be curious how you think about the two options !
tia
Gary

I am trying to buy low and sell high, so I'd rather be buying lower than selling not-so-high.
Title: Re: Do you have the balls?
Post by: LightWhale on March 19, 2020, 10:38:58 PM
Eric,

How are you positioned now?

At-the-money calls, out-of-the-money calls, and cash.  I will have a lot of cash at some point here, because of a full redemption at Dec 31st prices -- still waiting for the audit to complete before releasing the cash to me.

Are these ATM calls LEAPS or near term? I'm assuming the latter, but finding it hard to decide for myself which ones to go for.
Thanks.
Title: Re: Do you have the balls?
Post by: ERICOPOLY on March 19, 2020, 10:51:23 PM
Eric,

How are you positioned now?

At-the-money calls, out-of-the-money calls, and cash.  I will have a lot of cash at some point here, because of a full redemption at Dec 31st prices -- still waiting for the audit to complete before releasing the cash to me.

Are these ATM calls LEAPS or near term? I'm assuming the latter, but finding it hard to decide for myself which ones to go for.
Thanks.

LEAPS.  With a 12-18 month window on a vaccine, I want long-term expiry.
Title: Re: Do you have the balls?
Post by: gary17 on March 19, 2020, 11:03:42 PM
 i guess if you sell calls.... since you own the stock you are getting the dividends
but selling puts ... it's a future contract to buy at a lower price.. so you won't get any dividends .
Title: Re: Do you have the balls?
Post by: PJM on March 20, 2020, 12:59:29 AM
I already have ATM calls.  Take for example the $20 strike WFC put, expiring a month from now on April 17th.  The bid is $1.25.

19 months x 1.25 == $23.75.   That's so high you certainly don't need to commit all of the cash to the endeavor.
Am new to options world so just trying to understand it better.

You are assuming that your puts will expire out-of-money, but what if WFC falls to 20 before expiry. In that case will you just take the hit and roll over the options to new OTM put or will you take delivery of WFC. If your puts gets hit 2-3 times over the 19 months period you stand to loose all the money from option writing even if WFC price bounces back.

Also with your ATM LEAPS that you buy, at what point would you roll them over especially if WFC price does not move much or goes down over the next 18 months.

Thanks in advance.
Title: Re: Do you have the balls?
Post by: LightWhale on March 20, 2020, 04:16:12 AM
This thread is turning into 'Ask Eric! II'  :)  And it's about time.
Title: Re: Do you have the balls?
Post by: Kaegi2011 on March 20, 2020, 06:02:38 AM
I already have ATM calls.  Take for example the $20 strike WFC put, expiring a month from now on April 17th.  The bid is $1.25.

19 months x 1.25 == $23.75.   That's so high you certainly don't need to commit all of the cash to the endeavor.
Am new to options world so just trying to understand it better.

You are assuming that your puts will expire out-of-money, but what if WFC falls to 20 before expiry. In that case will you just take the hit and roll over the options to new OTM put or will you take delivery of WFC. If your puts gets hit 2-3 times over the 19 months period you stand to loose all the money from option writing even if WFC price bounces back.

Also with your ATM LEAPS that you buy, at what point would you roll them over especially if WFC price does not move much or goes down over the next 18 months.

Thanks in advance.

This may be helpful for you to get some background on the strategy.  You kinda have to commit to it a bit (e.g., if the put is in the money, cash settle and write put again at lower strike).  Otherwise you might get bounced around. 

http://www.cboe.com/micro/buywrite/bondarenko-oleg-putwrite-putw-2019.pdf

Title: Re: Do you have the balls?
Post by: ERICOPOLY on March 20, 2020, 07:11:57 AM
You are assuming that your puts will expire out-of-money, but what if WFC falls to 20 before expiry. In that case will you just take the hit and roll over the options to new OTM put or will you take delivery of WFC. If your puts gets hit 2-3 times over the 19 months period you stand to loose all the money from option writing even if WFC price bounces back.

Also with your ATM LEAPS that you buy, at what point would you roll them over especially if WFC price does not move much or goes down over the next 18 months.

Thanks in advance.

I see two distinct questions here that you are asking:

#1.  I will hold WFC at least until it is at $60 or $70 if I get 'put' the shares at $20.

#2.  After January, the 2023 series will be available.  I can't roll anything until after that time, but I won't be waiting for the last month to do so.  A few months before expiry there will still be a good amount of volatility premium. 

I probably didn't need to buy 2 yr leaps at-the-money LEAPS, given my liquidity.  I could have and perhaps should have waited for a less volatile time to roll them, or waited for price dislocations and rolled them when they were not at-the-money.  Oh well.  Or maybe I made the correct choice in paying $5.65 a share for the $27.50 calls.  I thought they were not too expensive, all things considered.

Title: Re: Do you have the balls?
Post by: stahleyp on March 20, 2020, 01:05:52 PM
Sold most of what I had purchased over the last couple of days thanks to Eric and muscle. If the ballsiest investor I've ever known has so much cash, I might be missing something. I've been adding calls. Some lady at my wife's work just came down with this...so yeah. They still don't have enough masks for people.
Title: Re: Do you have the balls?
Post by: ERICOPOLY on March 21, 2020, 07:37:29 AM
Sold most of what I had purchased over the last couple of days thanks to Eric and muscle. If the ballsiest investor I've ever known has so much cash, I might be missing something. I've been adding calls. Some lady at my wife's work just came down with this...so yeah. They still don't have enough masks for people.

I am down quite a bit, but my goal is to be able to afford more shares than I could afford back when the year began (and I was counting the Dhandho investment in that figure).

Right now, I can afford that many shares with my incoming cash + my accounts present vale (without counting the Dhandho investment).

So I feel like I'm kicking ass right now despite being down by a lot.

Whether I include or not include the Dhandho has infected my thinking to some degree, but I kind of think of that as in liquidation (because it is).  I was offered the opportunity to cash out completely earlier this year, but I turned it down because I want the share of the fund manager.  Mohnish is incredible at talking the panties off of ladies (I mean, raising cash from investors).  Perhaps he is great at the ladies too, but I cannot confirm that.  I want a share of that future income, whatever it may be.
Title: Re: Do you have the balls?
Post by: Mephistopheles on March 21, 2020, 10:53:06 AM
Eric,

Glad that you have resurfaced. I feel nostalgia for 2011 BAC-WTA days.

A few questions:

1. What is your opinion on buying ATM WFC calls vs. buying WFC equity on margin + puts?

2. Why at the money calls vs. in the money or out of the money?

Thanks

I have bought up a mixed bag of atm, in the money, out of the money calls on BAC, WFC, USB, BRK
Title: Re: Do you have the balls?
Post by: ERICOPOLY on March 22, 2020, 12:45:34 AM
Eric,

Glad that you have resurfaced. I feel nostalgia for 2011 BAC-WTA days.

A few questions:

1. What is your opinion on buying ATM WFC calls vs. buying WFC equity on margin + puts?

2. Why at the money calls vs. in the money or out of the money?

Thanks

I have bought up a mixed bag of atm, in the money, out of the money calls on BAC, WFC, USB, BRK


1.  No affinity -- I only have one account to trade in now, my Roth IRA, so margin+puts isn't a possibility for me
2.  When it was near $48 I bought $47.50 strike calls.  Near $40 I bought $40 strike calls.  Near $27.50 I bought $27.50 strike calls.  Intend to hold them all, and I intend to buy more for certain if there is a further drop.

Along the way I had some shorter term in-the-money $30 strike calls, but traded out of them (at a loss) when I could sell the volatility at-the-money (softened the loss I took).




Title: Re: Do you have the balls?
Post by: plato1976 on March 22, 2020, 11:15:31 AM
June 18, 2021 @27.5 call is 4.15/5.20 bid/ask
Jan 21, 2022 @27.5 call is 4.95/5.65 bid/ask
feels the call will be much cheaper (less premium) when vol goes down, but we can say wfc may rebound a lot when volatility goes down from this level


Eric,

Glad that you have resurfaced. I feel nostalgia for 2011 BAC-WTA days.

A few questions:

1. What is your opinion on buying ATM WFC calls vs. buying WFC equity on margin + puts?

2. Why at the money calls vs. in the money or out of the money?

Thanks

I have bought up a mixed bag of atm, in the money, out of the money calls on BAC, WFC, USB, BRK


1.  No affinity -- I only have one account to trade in now, my Roth IRA, so margin+puts isn't a possibility for me
2.  When it was near $48 I bought $47.50 strike calls.  Near $40 I bought $40 strike calls.  Near $27.50 I bought $27.50 strike calls.  Intend to hold them all, and I intend to buy more for certain if there is a further drop.

Along the way I had some shorter term in-the-money $30 strike calls, but traded out of them (at a loss) when I could sell the volatility at-the-money (softened the loss I took).
Title: Re: Do you have the balls?
Post by: ERICOPOLY on March 22, 2020, 02:15:43 PM
June 18, 2021 @27.5 call is 4.15/5.20 bid/ask
Jan 21, 2022 @27.5 call is 4.95/5.65 bid/ask
feels the call will be much cheaper (less premium) when vol goes down, but we can say wfc may rebound a lot when volatility goes down from this level

Agreed.  I feel they are worth their price.
Title: Re: Do you have the balls?
Post by: samwise on March 23, 2020, 08:46:21 PM
Eric would you recommend this strategy for other stocks or etfs like SPY? Why just WFC.
Title: Re: Do you have the balls?
Post by: undervalued on March 25, 2020, 11:58:28 AM
https://www.barrons.com/articles/how-bill-ackman-turned-27-million-into-2-6-billion-during-the-coronavirus-crisis-51585147940 (https://www.barrons.com/articles/how-bill-ackman-turned-27-million-into-2-6-billion-during-the-coronavirus-crisis-51585147940)

Umm, is this strategy available to the average investor? How do you replicate this for the average guy? 100x returns is insane, and he did it in like a month.
Title: Re: Do you have the balls?
Post by: ERICOPOLY on March 25, 2020, 12:04:18 PM
Eric would you recommend this strategy for other stocks or etfs like SPY? Why just WFC.

Well, I'm not recommending it to anyone.  I have WFC because I just do.
Title: Re: Do you have the balls?
Post by: LC on March 25, 2020, 12:53:59 PM
https://www.barrons.com/articles/how-bill-ackman-turned-27-million-into-2-6-billion-during-the-coronavirus-crisis-51585147940 (https://www.barrons.com/articles/how-bill-ackman-turned-27-million-into-2-6-billion-during-the-coronavirus-crisis-51585147940)

Umm, is this strategy available to the average investor? How do you replicate this for the average guy? 100x returns is insane, and he did it in like a month.

The guy probably bought CDS on airlines hotels travelcos cruiselines etc.
Title: Re: Do you have the balls?
Post by: thepupil on March 25, 2020, 12:59:04 PM
I would guess he bought OTM payer swaptions on CDX HY and CDX IG series.

On March 23rd, we completed the exit of our hedges generating proceeds of $2.6 billion for the Pershing Square funds ($2.1 billion for PSH), compared with premiums paid and commissions totaling $27 million, which offset the mark-to-market losses in our equity portfolio. Our hedges were in the form of purchases of credit protection on various global investment grade and high yield credit indices. Because we were able to purchase these instruments at near-all-time tight levels of credit spreads, the risk of loss from this investment was minimal at the time of purchase.
Title: Re: Do you have the balls?
Post by: Jurgis on March 25, 2020, 02:15:56 PM
https://www.barrons.com/articles/how-bill-ackman-turned-27-million-into-2-6-billion-during-the-coronavirus-crisis-51585147940 (https://www.barrons.com/articles/how-bill-ackman-turned-27-million-into-2-6-billion-during-the-coronavirus-crisis-51585147940)

Umm, is this strategy available to the average investor? How do you replicate this for the average guy? 100x returns is insane, and he did it in like a month.

I'm not gonna look it up, but I'm pretty sure you could have done 100x by buying simple OOM puts before the market tanked.
Title: Re: Do you have the balls?
Post by: spartansaver on March 25, 2020, 02:31:42 PM
https://www.barrons.com/articles/how-bill-ackman-turned-27-million-into-2-6-billion-during-the-coronavirus-crisis-51585147940 (https://www.barrons.com/articles/how-bill-ackman-turned-27-million-into-2-6-billion-during-the-coronavirus-crisis-51585147940)

Umm, is this strategy available to the average investor? How do you replicate this for the average guy? 100x returns is insane, and he did it in like a month.

I'm not gonna look it up, but I'm pretty sure you could have done 100x by buying simple OOM puts before the market tanked.

Mine didn't go up 100x.

Purchased Aug. SPY 300 strike at the end of January and the max they were up was around 11x. I think if I'd gone much further out of the money you could have hit the 100x. I'm not even sure its possible to get 100x anymore on S&P puts due to the massive premium for volatility.
Title: Re: Do you have the balls?
Post by: Jurgis on March 25, 2020, 02:36:19 PM
https://www.barrons.com/articles/how-bill-ackman-turned-27-million-into-2-6-billion-during-the-coronavirus-crisis-51585147940 (https://www.barrons.com/articles/how-bill-ackman-turned-27-million-into-2-6-billion-during-the-coronavirus-crisis-51585147940)

Umm, is this strategy available to the average investor? How do you replicate this for the average guy? 100x returns is insane, and he did it in like a month.

I'm not gonna look it up, but I'm pretty sure you could have done 100x by buying simple OOM puts before the market tanked.

Mine didn't go up 100x.

Purchased Aug. SPY 300 strike at the end of January and the max they were up was around 11x. I think if I'd gone much further out of the money you could have hit the 100x. I'm not even sure its possible to get 100x anymore on S&P puts due to the massive premium for volatility.

Fair enough.
Title: Re: Do you have the balls?
Post by: TwoCitiesCapital on March 25, 2020, 02:39:24 PM
https://www.barrons.com/articles/how-bill-ackman-turned-27-million-into-2-6-billion-during-the-coronavirus-crisis-51585147940 (https://www.barrons.com/articles/how-bill-ackman-turned-27-million-into-2-6-billion-during-the-coronavirus-crisis-51585147940)

Umm, is this strategy available to the average investor? How do you replicate this for the average guy? 100x returns is insane, and he did it in like a month.

I'm not gonna look it up, but I'm pretty sure you could have done 100x by buying simple OOM puts before the market tanked.

Mine didn't go up 100x.

Purchased Aug. SPY 300 strike at the end of January and the max they were up was around 11x. I think if I'd gone much further out of the money you could have hit the 100x. I'm not even sure its possible to get 100x anymore on S&P puts due to the massive premium for volatility.

You might've gotten close if you'd done SPY 200s in January -- but I'm just speculating w/o actually looking to see what the premiums were verse what they peaked at.

I'd also add - the main benefit to Ackman's trade, and the reason he was able to achieve 100x, was because he timed it right. These trades are negative carry requiring cash settlement every month/quarter. If it had taken another 2-3 months to hit the U.S. than Ackman expected, he would have likely put up another $20 million and his 10x return becomes 5x and so on and so forth.
Title: Re: Do you have the balls?
Post by: thepupil on March 25, 2020, 02:58:00 PM
the hedging instrument was not equity index puts. The Pershing Square letter says they purchased hedges on credit and investment grade indices.

CDX IG went from 40 bps to 150 bps, straight to summer 2011 levels. I imagine one could have bought an option to get short at 100 bps for nothing.

The way you make a ton of money on a hedge is when something with extremely low spread volatility suddenly has it (like subprime) Equity vol was low but has a frequent bid from institutions like annuity sellers and insurance co’s.

There are also bespoke tranches of these indices where he could have done something like betting the IG basket would have 10 defaults on 125 names (this outcome would be priced to an extremely low probability).

Ackman likely blew up some European structured credit fund or trading desk.

Title: Re: Do you have the balls?
Post by: samwise on March 25, 2020, 08:26:29 PM
Eric would you recommend this strategy for other stocks or etfs like SPY? Why just WFC.

Well, I'm not recommending it to anyone.  I have WFC because I just do.

Fair enough. I shouldn’t have used the word  recommendation.

What I should have asked is: in what circumstances can one use this strategy? Have you used it before. Will the options prices actually be what you expect as prices crater, or will the implied vol rise.
 
WFC is cheap, I certainly like the LEAPS on it. But I looked at DFS, which is even cheaper on earnings, around mid 20s, the calls were in the 10s, which seemed pretty expensive to me. So in your hypothetical strategy, when (or if) WFC goes to 3x PE, you may not get that option price you had in the strategy.