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Markets still falling like whoa


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Lesson: Never leave the market. Just balance your portfolio to your situation and sit back. It’s tough not to worry, but hanging in there during tough times is what keeps you in there during great times. I went though this in the .com bust and in ‘08 and never pulled out. Very thankful for that today, even though I had serious thoughts to run to the sideline. The market always comes back and goes up. And to miss this recent bull run you’d have lost our on some serious gains.

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4 minutes ago, washparkhorn said:

Does anyone believe there is not an asset bubble presently?

The question is how to slowly deflate it or grow the economy to catch up. No?

 Of course there is a bubble.  The only real question is how much money can I lose watching SPY puts expire until reality catches up. 

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On 12/27/2019 at 10:39 PM, Tailgate said:

Lesson: Never leave the market. Just balance your portfolio to your situation and sit back. It’s tough not to worry, but hanging in there during tough times is what keeps you in there during great times. I went though this in the .com bust and in ‘08 and never pulled out. Very thankful for that today, even though I had serious thoughts to run to the sideline. The market always comes back and goes up. And to miss this recent bull run you’d have lost our on some serious gains.

The key part is in your second sentence that most people ignore. If you think there is strong evidence that the market can drastically fall, there is nothing wrong with changing your risk profile to be more conservative.  But it doesn’t mean that you have to gamble 100% on the market falling. 

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On 12/27/2019 at 11:33 AM, Alvin89 said:

Dumb question, is there an easy way to go about shorting the market when the inevitable downturn happens?

1. Open a margin account at TD Ameritrade or any other discount broker of your liking.

2.  Enter trade order to sell short whatever number of shares of $SPY you desire.

3.  Something something something

4.  Profit.

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On 12/27/2019 at 1:11 PM, elfenix said:

this is why i question when i hear stories on NPR about people having big retirement accounts but were wiped out in the great recession and now live in a broom closet.  did they sell everything at the bottom?

Two possibilities - sold at the bottom - locking in their losses with no subsequent reinvestment to grow as the market recovered......or more than likely they owned highly concentrated portfolios in companies that went bust or had all their 401(k) assets in company stock and the same thing happened.....company went bust and stock went to $0.

Think Enron......plenty of their employees had all their 401(k) assets in Enron itself and they lost it all.  Had they had their 401(k) in mutual funds they'd have lost their jobs but not their savings.

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1 hour ago, StassneyHorn said:

Stock market only goes up. Except for a month or two when it goes down.

Put me on TV.

The market is about to go down, political turmoil, trade wars, military actions, Brexit, interest rates rising (or was it falling, I forget which), trade deficits, sovereign debt crisis,...

Put me on TV

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On 12/27/2019 at 11:33 AM, Alvin89 said:

Dumb question, is there an easy way to go about shorting the market when the inevitable downturn happens?

Amongst other options, I'm surprised that no one has mentioned using the VIX to hedge against eventual downturn. You could buy long dated VIX calls and finance that purchase with selling similarly dated and slightly lower priced VIX puts. When the inevitable downturn occurs, the volatility will spike and increase the value of your calls(you sell those) and decrease the value of your puts(you buy those back at a lower price).

Profit. 

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56 minutes ago, hornhorn said:

Amongst other options, I'm surprised that no one has mentioned using the VIX to hedge against eventual downturn. You could buy long dated VIX calls and finance that purchase with selling similarly dated and slightly lower priced VIX puts. When the inevitable downturn occurs, the volatility will spike and increase the value of your calls(you sell those) and decrease the value of your puts(you buy those back at a lower price).

Profit. 

are u a wizard

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On 12/30/2019 at 3:37 PM, hornhorn said:

Amongst other options, I'm surprised that no one has mentioned using the VIX to hedge against eventual downturn. You could buy long dated VIX calls and finance that purchase with selling similarly dated and slightly lower priced VIX puts. When the inevitable downturn occurs, the volatility will spike and increase the value of your calls(you sell those) and decrease the value of your puts(you buy those back at a lower price).

Profit. 

VIX options don't really work that way.  Held to expiry, they do, but in the meantime, what you think should be a win is a loss.

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5 hours ago, jimmyjazz said:

VIX options don't really work that way.  Held to expiry, they do, but in the meantime, what you think should be a win is a loss.

Uh no they work exactly as I said they do. VIX closed at 12.56 on Friday, a 12 handle is one of the lowest points it has been since early 2019. In the last six months it has been as high as 23. I'm aware that it has hit 11 something as well but this is still pretty low. 

A contract for 17 call that expire in June 17 2020 is going for 2.55, let's say you buy 100 contracts: 10,000 X 2.55= 25,500. This is what you'll spend. 

A contract for 17 put that expire on June 17 2020 is going for 2.30, let's say you sold 100 contracts: 10,000 X 2.30= 23,000 This is what you'll receive. 

Net you spent $2,500. My bet is that VIX will spike up over 20 within the next few months at the very least, I'll remind you when it does and where these bets end up. Oh btw, it doesn't have to hit that high to make money. VIX can go to 15 next Friday and these trades make a great return.

Why don't we wait until May and see where this ends up. Cool? 

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Yesterday, I set out to discover exactly how the DJIA is calculated.  Turns out that it is pretty simple; it actually is an average.  They take 30 stocks, add up the price of all of the stocks, and divide by a "Dow divisor".  The value of the divisor is determined by the Wall Street Journal.  It's actually less than one, which means that the sum of all of the stock prices is actually multiplied by about seven to get the number you see.

So, the Dow changes if the company stock prices go up or down ... or if the folks at the WSJ decide to adjust the Dow divisor.  They are suppose to adjust the divisor to account for stock splits, dividends and other events that affect stock prices, but I couldn't figure out who or what exactly goes into this.  If the WSJ folks fail to take something into account, for example stock buybacks, the DJIA could rise or fall even though a company's value did not change.

Consider two Dow stocks, Boeing and Pfizer.  Boeing has the top price in the Dow today, around $330.  Pfizer is dead last around $40.  So a drop in Boeing of around $40 would do the same damage to the DJIA that Pfizer would do if it dropped to zero.  But Pfizer's market cap is actually higher than Boeing.  A $40 drop in Boeing would destroy about $22 billion in wealth, but a $40 drop in Pfizer would wipe out $220 billion.

It seems crazy to base a well known index on stock prices rather than market cap.  The top six Dow companies by price (Boeing, Apple, UnitedHealth, Goldman Sachs, Home Depot and McDonalds) combine for more than a third of the value of the DJIA.  The bottom six (Intel, Coca-Cola, Walgreens, Dow Chemical, Cisco and Pfizer) have less combined influence than either Boeing or Apple do alone.

 

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8 hours ago, hornhorn said:

Uh no they work exactly as I said they do.

. . .

My bet is that VIX will spike up over 20 within the next few months at the very least, I'll remind you when it does and where these bets end up. Oh btw, it doesn't have to hit that high to make money. VIX can go to 15 next Friday and these trades make a great return.

Why don't we wait until May and see where this ends up. Cool? 

I'll be rooting for you.  In my experience, the pricing on VIX options didn't change as much in response to surges or drops as one would expect.  That's purely anecdotal evidence which could have had something else baked in . . . I certainly haven't traded them much.

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1 hour ago, jimmyjazz said:

I'll be rooting for you.  In my experience, the pricing on VIX options didn't change as much in response to surges or drops as one would expect.  That's purely anecdotal evidence which could have had something else baked in . . . I certainly haven't traded them much.

Well, you can't say that things work exactly opposite of what I said and then say this. 

I'm offering you actual market prices with real timelines and an end result. When market starts to tank and volatility picks up VIX will go up and although corresponding option prices may not jump like stocks but a 3 percent correction in the market means a massive change in the VIX which results into a change in options pricing. 

Profit. 

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2 hours ago, Texas Jeff said:

Yesterday, I set out to discover exactly how the DJIA is calculated.  Turns out that it is pretty simple; it actually is an average.  They take 30 stocks, add up the price of all of the stocks, and divide by a "Dow divisor".  The value of the divisor is determined by the Wall Street Journal.  It's actually less than one, which means that the sum of all of the stock prices is actually multiplied by about seven to get the number you see.

So, the Dow changes if the company stock prices go up or down ... or if the folks at the WSJ decide to adjust the Dow divisor.  They are suppose to adjust the divisor to account for stock splits, dividends and other events that affect stock prices, but I couldn't figure out who or what exactly goes into this.  If the WSJ folks fail to take something into account, for example stock buybacks, the DJIA could rise or fall even though a company's value did not change.

Consider two Dow stocks, Boeing and Pfizer.  Boeing has the top price in the Dow today, around $330.  Pfizer is dead last around $40.  So a drop in Boeing of around $40 would do the same damage to the DJIA that Pfizer would do if it dropped to zero.  But Pfizer's market cap is actually higher than Boeing.  A $40 drop in Boeing would destroy about $22 billion in wealth, but a $40 drop in Pfizer would wipe out $220 billion.

It seems crazy to base a well known index on stock prices rather than market cap.  The top six Dow companies by price (Boeing, Apple, UnitedHealth, Goldman Sachs, Home Depot and McDonalds) combine for more than a third of the value of the DJIA.  The bottom six (Intel, Coca-Cola, Walgreens, Dow Chemical, Cisco and Pfizer) have less combined influence than either Boeing or Apple do alone.

 

Complete investing amateur here but the Dow Jones 30 average doesn’t seem like the best index to focus on.  Do 30 companies really indicate short or long term trends?  

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2 hours ago, hornhorn said:

Well, you can't say that things work exactly opposite of what I said 

I went back and looked at my original post, and I think I see where we're crossed up.  It's in my statement "what you think is a win is a loss", which was certainly overly broad and probably not true for a large VIX spike.  Sloppy writing on my part.  I have seen call prices drop with minor movements up in the VIX, though.  

If you get a surge in your time frame, you should profit, as long as you pull the trigger.  I wouldn't expect it to be a particularly handsome return, but like I said, for your sake I hope it is.

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3 minutes ago, jimmyjazz said:

I went back and looked at my original post, and I think I see where we're crossed up.  It's in my statement "what you think is a win is a loss", which was certainly overly broad and probably not true for a large VIX spike.  Sloppy writing on my part.  I have seen call prices drop with minor movements up in the VIX, though.  

Fair enough. 

3 minutes ago, jimmyjazz said:

If you get a surge in your time frame, you should profit, as long as you pull the trigger.  I wouldn't expect it to be a particularly handsome return, but like I said, for your sake I hope it is.

This isn't a set trade either. You can manage this trade as you move along unlike derivatives with stocks. You can wait around a month, say Feb 7th and if VIX hasn't spiked to your liking, you can move this trade another couple of months and set the same strike prices for August expiration. You may lose some theta but it isn't going to be much since the likelihood of VIX being lower than 12.56 is low. But you do that knowing that VIX has to spike at some point, its a certainty. And when it does, even in low twenties(which is where the VIX hovered all late July, August and early Sep 2019) you're going to see ridiculous returns. Like, few times your net investment. 

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