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This article is interesting, but I really don't understand the details of it. Could you please demystify it a bit for all of us?

https://www.zerohedge.com/news/2023-08- ... s-20-years

Much like Beetlejuice, I believe you have to say his name three times to summon him.

RecyclerSteve! RecyclerSteve! RecyclerSteve!

I finally heard!

Sometimes I go 2-3 days without checking this site when things get busy. My daughter is coming here from out of town in a couple days and I’ve been busy doing both yard work and house work so our place is presentable.

Give me a bit of time to read the ZH link and I’ll see if I can make sense of it.

Thx for your patience.

Steve

“Puts are as cheap as they’ve been in 20 years.” (I’m skeptical about that statement and would like to see more proof. Even if they are indeed “cheap”, that could mean your chances of winning by buying them is likely very very small.

I totally agree with the point they make about NOT buying long dated puts as they can keep you married to a losing position for what might seem like an eternity.

I prefer SELLING options and collecting cash instead of buying them. You have to have a special level of approval to sell naked options. You can also do cash secured options, but you might be setting aside a very large sum of cash for some event that has little likelihood of happening.

Go onto YouTube and watch some videos about selling covered calls and selling naked puts. Videos will likely explain the concepts a lot better than my words.

I personally don’t like selling naked calls. I’ve only tried them perhaps 3-4 times and have been hit really hard with big losses on naked calls. Some people like trading spreads- I’m personally not a big fan, but can see where they might work for some.

Also, I already have long bearish options on stocks as I have stockpiles of silver, copper and nickel. Those are all long-term plays, so why do I need to allocate additional capital from my stock trading accounts to additional long-term bearish plays. The only real stock I own that could benefit is A-Mark Precious Metals (AMRK). I do trade Freeport McMoRan (FCX) from time to time, but that’s pretty much it.

With cash essentially paying a risk-free 5% or more, I can see where there would be LOTS of money on the sidelines right now. Also, we’ve got September/October right around the corner, which is often the weakest time of the year for the market. But that is short-term stuff.

The article mentions Black Swan (or unusual and very hard to predict) events. We had this happen when some regional banks failed in March. It was a very scary time for many, but that’s when big money can be made. I did stock and naked puts options trades on Charles Schwab (SCHW) and Zion’s Bank (ZION) as I was very comfortable that both would survive. It worked well overall, but there were some anxious moments as well.

If I knew more about Artificial Intelligence (AI), I would likely bet on AI stocks having run too far too fast. I am short Nvidia (NVDA) stock and stand to profit it it keeps heading south for a little while. A market cap of OVER A TRILLION dollars for a company many average people have never heard of is ridiculous IMHO. I will ABSOLUTELY NOT take a big position in the stock because I don’t have that appetite for risk.

That should give you some info to run with.

Nassim Taleb describes this scenario in his book, Fooled by Randomness.

He was part of a team of Wall Street investment advisers. Every Monday they met and discussed their best ideas.

They asked him what he thought markets would do that week. Like everyone else, he said they would probably go up a little bit.

Then they asked him what he was doing. He said he was buying deep, out of the money puts. These are bets that there will be a significant decline. (A long dated put just means you have many months or even a year or two before it expires; shorter duration bets are less expensive because there is less time for them to payoff).

Everyone was confused by the seeming contradiction. Nassim Taleb explained that it wasn't a contradiction at all. The most probable thing is that stocks will go up slightly. But the chance that they decline substantially is undervalued by the market, so he was making small bets there. In fact, he built his wealth and his investment advisory business around this idea.

He later wrote, and became famous for, the book "Black Swan" which is a much denser read and not directly relevant here.

Lemon Thrower:

Thx for sharing your thoughts. Much appreciated.

Thank you Steve. Its obvious your knowledge and experience about this is extensive.

For me, its best to just stick with PMs and await the moonshot, with conversion to income producing real estate at the end of the rainbow.

IdahoCopper wrote:Thank you Steve. Its obvious your knowledge and experience about this is extensive.

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Thx for your kind words. If I could just get you to tell that to my wife…

Big thanks to you Recyclersteve, I always enjoy learning from your posts. I agree completely with you about SELLING option instead of buying them. I wish folks would dig a little into selling covered calls (and cash secured puts)...one of the very few methods where the odds are heavily in your favor to make lots of small profits.

The end of the article speaks of: "... it pays off it is not because the market drops from some normal event like earnings or rates. It is almost always a black swan event" I can attest to this as back in 2019 into 2020, put options WERE sincerely dirt cheap, so I started buying monthly out of the money puts on SPY - going out 9 months to a year. In retrospect, maybe not the smartest thing BUT...I would buy options that were like, 50% out of the money for literally pennies (I bought some that were literally 7 cents! Which equates to $7/contract). So when covid hits in March 2020 (literally the definition of a black swan event) these options exploded! I sold all my contracts for handsome profits (which helped offset the losses I took on my stocks...ugh!). I stopped buying SPY put after that. The decay on long dated options really speeds up in the last 30-40 days.

Buying options may have it's place but not in my trading world. To anyone who here who is successful with buying options, more power to you! I am glad it works for you.

If in doubt, just buy some silver!

silverflake wrote:Big thanks to you Recyclersteve, I always enjoy learning from your posts. I agree completely with you about SELLING option instead of buying them. I wish folks would dig a little into selling covered calls (and cash secured puts)...one of the very few methods where the odds are heavily in your favor to make lots of small profits.

The end of the article speaks of: "... it pays off it is not because the market drops from some normal event like earnings or rates. It is almost always a black swan event" I can attest to this as back in 2019 into 2020, put options WERE sincerely dirt cheap, so I started buying monthly out of the money puts on SPY - going out 9 months to a year. In retrospect, maybe not the smartest thing BUT...I would buy options that were like, 50% out of the money for literally pennies (I bought some that were literally 7 cents! Which equates to $7/contract). So when covid hits in March 2020 (literally the definition of a black swan event) these options exploded! I sold all my contracts for handsome profits (which helped offset the losses I took on my stocks...ugh!). I stopped buying SPY put after that. The decay on long dated options really speeds up in the last 30-40 days.

Buying options may have it's place but not in my trading world. To anyone who here who is successful with buying options, more power to you! I am glad it works for you.

If in doubt, just buy some silver!

Thx for what you said, Silverflake!

Love that story about being long the SPY puts right before COVID happened! Just curious- roughly how far out of the money were the puts that you bought?

Steve, I would go 50% out of the money figuring even if the S&P fell even half that amount, the fear as reflected in the VIX would make those cheap options inflate. Actually, a lot of the time buying down 50% out of the money was sometimes as far down as there were options available. And be it known, my money was made on shear dumb luck (I don't like using the word luck when it refers to a global pandemic).

Buy silver and gold.