The next person to offhandedly quote Keynes to me, explaining why my Tesla short is doomed for failure, gets boxed in the scrotum, then lit on fire. The 9th floor is declaring taboo any and all “mainstream” financial references. If you heard it in high school, that trash is not welcome here.
I wouldn’t care if it were even remotely applicable to what I am doing.
But it isn’t.
Do you understand what a put option is? It’s a contract, that costs a finite amount of money to establish up front. Its value is derived either absolutely through execution, or else by pawning it off prematurely to startled counter-parties who are sweating profusely at the thought of massive losses, for a fat premium of course.
Do you know what never comes up as a concern, remotely, when you have 2-3% of your account in a non-margin put position?
Solvency.
It’s crazy, but not fucking once lately have I worried, “OH MY GAWD, THE MARKET CAN STAY IRRATIONAL LONGER THAN I CAN STAY SOLVENT”.
Do you know why?
Because I’m fucking solvent.
These products have been cut in half since I bought them. I am solvent.
These products can go to absolute zero for all I care. I am solvent.
I am solvent because I’m not a complete dumb ass, and know how to take a negative view of something in a way that only has massive payoffs. I’m solvent because I understand how to set aside 1-2% of my account annum (less than I make in dividends) to buying something that has well defined losses attached.
I don’t need to know what will happen to Tesla to make it sell off. That is an adminicular point. I just need to believe that something none of us here can possibly expect will occur to shock people. It then requires only modest stipulation that, at current positioning, that something is more likely to be really bad than really good.
If my January 2014’s expire worthless (of which there is a strong possibility), then I will put another 1-2% of my account into January 2016 puts (I currently hold January 2014’s and January 2015’s).
Do you know what my upper bound is on losses?
6.1%, spread out over three and a half years.
Do you know what I will lose, in real terms, if I am wrong about Tesla?
Probably <6.1% in losses, spread out over three and a half years.
Do you know what I don't care about?
6.1% of losses, spread out over three and a half years.
I'm up ~20% this year alone. The amount of money we're talking here, 1-2% of my account annually, is just so de minimis…
Please, stop slaughtering economic quotes by using them out of context. It may shock you, but I actually am quite familiar with Keynesian-isms. That happens when you've followed the markets and finance for a long time. And frankly, if you can pick up a bit of financial advice out of a copy of the Rolling Stones, it probably isn't worth anything.
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Sounds like you’re asking for a Niall Ferguson quote instead.
Mr. Cain. What exactly leads to your glass half full view? You expected a downturn over the summer and the jobs report gave it. Is it the calendar shift that promotes optimism? Is it the price action? Obviously price is truth but food stamps just went all time high. Why you would be negative when the Dow stocks were ramping then now become positive with china stocks ramping is confusing.
I don’t know, I was pretty bullish during the bulk of the Dow run (Nov – May). I started calling for a summer slowdown over February, but that was me mentally prepping. My positioning was still very long. I used that thinking to scare myself into cash and hedging in slow increments.
I thought there would be more volatility this summer than really occured. That sort of makes me think that I’m on the wrong side of the trade. The market is shrugging off this bad data.
Then there’s a slurry of good data that’s ticking up. Look at the BDRI. Or EU bonds (stable). And the Fed’s spent just a monsterous amount of money. Lots of liquidity sloshing around.
I also was afraid of a few convergent issues starting in 2014 – HCR implementation, pension gap expirations, continuing retirement of boomers, etc
But we’re getting clarity on a lot of these issues, and I’m seeing the system back down from a few games of chicken (HCR delays, pension funding issues being addressed, municipal bankruptcies).
Recoveries are complicated things. Even after the monster rally off the 2009 lows, we’re not really pricing in a crazy recovery. That’s been a generally wise move on the market’s part (expectations of recovery early on were way off and much too premature). But if we start getting above average economic activity, many of these investments could pick up hard.
I’m not willing to risk 2-3% on a bad trade,
I made a lot of money long on Tesla. You are losing. What part of that don’t you understand?
The part that this trade is bad, obviously.
What is the potential upside of your trade is TSLA trades to where you think it should?
Who knows? That’s the beauty of thinly traded options. It’s all about how afraid the crowd can be made to be.