It depends what type of insider information you have. There’s a massive difference between knowing about legislation which may pass VS hearing about a buyout, biotech drug approval etc.
This is true. There are definitely situations where inside information is great. I just question whether it’s legislators knowing that (surprise) they should buy defense stocks. I’m telling you now, for free, without any inside information at all that no matter what seems to be happening they win every time in every environment but government shut downs.
I’m not making this particular point at you necessarily but more at the ‘uh oh Nancy just bought Lockheed Martin stock what does she know???’ posts I get fed on social media.
Yeah those posts are moronic. Her husband was succesful in his own right too. They also completely ignore shit like her selling NVDA at a loss right before it tripled over a few months.
Okay so you posted many points. I typed out a comprehensive post attempting to address them all but it came out a jumbled mess aided by a lovely bottle of Absolut my sister sent me for my bday. But I will try to address them all point by point because they are all good:
[quote=“ParlaySlow, post:1053, topic:68, full:true”]
There’s an important question which is: what is your expected return on the puts you are selling? [/quote]
I touched on this above, but, for me I would like to net 30% of the premium received. If I can get more, fantastic, but 30% on one trade is obviously a stellar return whether you’ve invested ten bucks or ten thousand. As a reminder, by selling a put you are receiving 100% of the premium, up front. That is the upside. The downside is that you must tie up enough collateral to cover exercise of the put until you buy to close, so there is also opportunity cost associated with a transaction like this: your money could have theoretically been providing you with a better return elsewhere. There are, of course, ways to mitigate this. For example, Fidelity pays interest on cash that is held in collateral for options trades. So you can still earn interest on it even when you can’t use it.
You’re basically just making a bet that based on the return distribution of the underlying stock during the holding period, that your counterparty is paying more than fair value for the premium. It’s a zero-sum (actually negative) game, and someone has the worst of it. [/quote]
Okay here I am not sure what the argument is here. Like, yes? We are in agreement, but not for (I think) reasons you assume.
You seem to be (correct me if I am wrong plz) examining this type of transaction with the critical eye of someone who, whilst walking down a street with his friend, encounters a shell game. You know it’s rigged of course, you’re not stupid. But your buddy is convinced he has the guy’s move down, and he can beat it, and you tried to tell him what is and what ain’t but booze and coke man why did you even bring this guy? So you chuckle silently to yourself after your companion, time again, guesses incorrectly as to which shell contains the ball. You stop laughing when you realize you now have to pay for everything. Fuck that guy right?
But…it’s obviously a zero sum game! This is no different that the stock market itself, upon which the underlying to options is based. Every share of a stock you buy (presumably because you KNOW it’s gonna moon) is being sold by someone who has every conviction you have, but in the opposite direction. He thinks this because he’s as much a clueless out-of-the-loop non insider idiot as you, and he’s thrilled to get some of his cheese back before this stock he wishes he’d never heard of craters, so he can buy his kids Christmas presents or his hookers and blow or whatever. The game is rigged brother. No arguments here. We are all pawns, we know fuck all and market makers own us, the only winning move is not to play Professor Falken. All conceded. But these realities don’t de-legitimize options…they help explain them. They’re another type of game at the casino. Buy 'n hold is the boomer bingo room, options are the roulette table. The literal only difference is that I am trading derivatives of assets rather than assets themselves. I view them as pseudo-shares, nothing more or less, and so should you.
In order to believe that’s not you then you either a) Believe that certain types of puts are systematically overpriced or, b) Have a way of predicting future share movement that is sharper than the market. The fact that you are holding the underlying cash to settle the trade, or you “don’t mind owning the stock” is irrelevant to whether the underlying options bet is plus or minus EV. [/quote]
I strongly disagree with the last part, though I know not all options traders agree. Hell, I’ve even traded options on stocks that I not only didn’t want to own, I paid MORE than I received in premium to assure that I would not. But that’s a fish move, and I don’t do it anymore (I do sometimes IV makes it impossible to resist). But yeah I’m totally gambooling when I do. But if you really don’t mind owning the stock, your worst enemy is I reckon your ability to evaluate stocks. And if that’s a probably, just buy an ETF and stay away from options obviously.
I mean, again, if this is how you view options trading then definitely don’t trade options. But I view options as a very real (and very often lucrative if you aren’t stupid about it) path into either making some nice free money or purchasing shares of stock at a discount to what I consider the FMV of that stock. At the end of the day, as I said above, it ultimately depends upon one’s risk tolerance.
If you want to argue that it’s better to buy and hold than to trade options, alright, I’ll listen. But if you want to argue that it’s less expensive to buy than to get assigned, I’d need you to show your math.
Strong agree that options are just another type of bet you can make in the market. You get/give significant leverage in exchange for an expiration date. For an options play to work you don’t just have to be right you have to be right about when.
The use cases I find for options are nearly always either synthesizing a long position by getting rid of the underlying stock and just getting the same amount of exposure to the upside in exchange for paying premiums (and lowering how much I can lose if it goes down dramatically by a lot) or hedging parts of my portfolio by buying puts on the index the stock is a part of.
The problem I’ve found is that in my old age I generally just think that the above is FPS and instead of paying the premiums you should just have all your positions be the right size to begin with. Just about the only scenario I see where you really have to use options is when you have a large position that started as a small position and you don’t want to pay a fuckton of taxes just to balance your portfolio. Then it’s time to put a collar on it maybe, but even then a lot of the time I think if you looked at the price of a long term collar you should be unloading that position every single time you have capital losses.
Fortunately the stock in my portfolio I can’t sell because taxes is BRK.B and I would be fine at 100% long BRK.B from a risk perspective. Absolutely not ever paying premiums to hedge that monstrosity either way. It’s basically at the same level of diversification protection as the S&P internally because diversification, like everything, has diminishing returns and both the S&P and BRK have way more than you can actually benefit from.
Yeah I would expect biotech approval insider info to yield massive massive returns, and buyouts should yield at least 25-50%. I would assume they also get some pretty huge short opportunities, knowing who may get hauled before Congress, having a heads up on potential black swans, etc.
I’m reasonably sure if you bought hard the day after a 5% downward move because of congressional testimony every time it happened you would beat the S&P by a lot. They’re a lot better at getting publicity than they are at actually getting anything done.
Having the inside scoop about which mergers and acquisitions will get blocked by FTC and which will go through is a huge edge that is probably there for a lot of congress people
2 Likes
think I read somewhere that MTG’s latest sidestepping involves her trading through her son?
edit: yes MSN
Democrats overall saw higher returns than Republicans in 2023, though House Republicans filed fewer financial transactions according to the analysis. Democrats had estimated gains of 31% collectively versus 18% for Republicans.
Maybe they actually believe the bullshit they’ve been selling for the past year that the economy is in the shitter and recession is omgz just around the corner and buy puts? Because like I see some of the clearly rwn morons on there who just keep losing money because they are convinced that the world is about to end for stonks. Like they get their financial news from Fox business who keeps telling them all of this so they just believe it and ignore the data that the Deep State releases. They are convinced the 4 red days we had last week portend the end of days, etc. I mean yeah, the market was a little overheated last year at times and the mag 7 put up ridiculous gains, so some skepticism was (still is) warranted. But if you bet against the mag 7/S&P in general for any significant trades you probably got fucked, or at least underperformed the ones who recognize reality.
Or maybe they’re just stupid idk
Puts on BA
Right but if you shorted the day before one was announced I bet you’d do pretty well…
I think we have some pretty different ideas about where investment returns “come from” if you believe that the retiree that is slowly selling off his portfolio is engaged in a zero-sum casino-style game with the early-career accumulator.
I doubt it honestly. The % of hearings that lead to a 5% move is pretty small. That filter was selected to only include probably the top 5-50 (no idea) worst hearings ever.
The trading itself he’s right about, but this is why I very clearly separate trading from investing in my head. Investing, to me, is just the capital allocation aspect of business… I view being a successful trader as being roughly equivalent to being a great insert occupation here and it’s only tangentially related to investing.
Trading is a type of business which means it can be invested in but the actual nuts and bolts are not an investment. What I mean by that is that the trading operation has working capital + property/plant/equipment + labor costs and then those inputs are used to generate revenue. You could invest in a trading business by fronting the working capital, buying the trading equipment (including the likely very expensive cost to get as close to the exchange as possible assuming you’re actually serious), and giving it your time for the labor… but that’s the investment part not the actual trades. The actual trades are the operation of the business and aren’t an ‘investment’ so much as the process by which the investment (the trading business itself) transforms the invested resources into returns. Being a great trader is being a great worker not being a great investor.
Investing returns, in my opinion, are mostly about owning stuff that produces returns over time. Yeah you’ll make a smart trade every now and then that nets you some extra juice but that’s not where most of the overall pie comes from and I’d be fine with subtracting that stuff from my long term results if I could find a way to do that.
Trading as a side hustle for people who have actually beaten a game like say poker over a large sample (and you guys know I mean 500k+ hands or like a decade of being a live pro) is honestly better than fine. If it turns out you’re fantastic at it it’s a golden ticket, and you’re unlikely to get got in the ways that normies usually get got when they try to donk around in the markets. I think investing as a side hustle is better because the skillset is much more broadly applicable to your work life and we all have to save for retirement, but that’s me.
My big issue with trading as a career is that it is obvious and as a result there are tons of overly ambitious sociopaths standing in line to find out if they are smart enough to do it. It’s very much an example of waiting in line at the front of the club when there’s a back door through the kitchen if you know one of the line cooks… and if you grew up less than fabulously wealthy your experience in the line in front of the club is going to be that of an ugly dude (you can change this into attractive woman by getting a math type degree from a good school in that the club itself is going to try to pimp you out to some rich guy buying bottle service), by himself, wearing obvious knock off brand clothing that screams poor. 999 times out of a thousand no one will ever even consider letting you in.
There are much softer games out there. The people you have to beat in trading are generally much more serious and have way more resources than who you have to beat in other businesses. That being said rich kids are stupid and if you can find something they love and take the other side in a systematically advantageous way there could potentially be a lot of money in that.
I think there’s a fundamental difference between investing and trading, but in any case your retiree example is is arguably doing neither. Like if you do everything right and get super lucky also, and retire with a nice nest egg, you’re probably just looking for a vehicle to provide you with the max monthly income and minimum tax liability. You’re not shoving money in Dow stocks to get a nice little safe return to leave for the grandkids, unless you’ve got like fuck you investments, and you’re definitely not going anywhere near options.
I don’t think I follow. Are you saying that by and large retirees don’t own stocks? And if they do, we can’t rightly call it “investing”?
No they do, and bonds and stuff as well. But I guess when I think of “investing” I think of people trying to build wealth through the market by mostly buying and holding, whether looking for growth or for retirement savings or whatever. But like, a retiree isn’t doing any of that, if they were able to do it right. They will put their cash into something that gives dividends to use as income to supplement whatever else, social security, etc. I suppose that is still “investing” because selecting the right one(s) is important. It’s just that the goals are different.
lol Uber
Article is paywalled and not on the web archive; why’d it fail? Doordash for booze (that’s what it is, right?) sounds like it should be a good business, at least to the extent that other gig economy delivery businesses haven’t died.
1 Like