Stocks and Trading Thread - Channeling your inner Mono

[Tonitrus]

Part of my "cash-out" (and that's not the full cash-out that Yi suggested...IRA's would still stay, just a major shift to more conservative/stable investments as BB mentioned) apprehension, is that it feels like we're big into bubble territory.  The market values compared to Covid-effects just looks way too out of whack.  It's usually justified with post-Covid optimism...but that doesn't make a lot of sense...especially if the market can be considered overvalued even if the pandemic had never happened.

It just seems like there is bound to a be a fairly long, delayed economic effect where reality will hit and the markets will get pummeled for several months to a couple years, even if the "real" economy (jobs, etc.) is back on an upswing as Covid is more under control.  And as Habs suggested, trying to bet on the timing of when the peak is/will be, and when a slide might hit, is problematic.

Or...my thinking is all wrong.

[Habbaku]

FYI I'm making about $500/week writing covered calls against 75 grand in capital.

Damn good returns, I just wonder when that gravy train will end. As long as you're playing it safe (covered only), then I can't complain too much.

[Admiral Yi]

Damn good returns, I just wonder when that gravy train will end. As long as you're playing it safe (covered only), then I can't complain too much.

The gravy train ends when either a) the fanbois get tired of Tesla (which will be never) or b) the price rises so high selling a put =<$750 doesn't make any money.

[Admiral Yi]

Part of my "cash-out" (and that's not the full cash-out that Yi suggested...IRA's would still stay, just a major shift to more conservative/stable investments as BB mentioned) apprehension, is that it feels like we're big into bubble territory.  The market values compared to Covid-effects just looks way too out of whack.  It's usually justified with post-Covid optimism...but that doesn't make a lot of sense...especially if the market can be considered overvalued even if the pandemic had never happened.

It just seems like there is bound to a be a fairly long, delayed economic effect where reality will hit and the markets will get pummeled for several months to a couple years, even if the "real" economy (jobs, etc.) is back on an upswing as Covid is more under control.  And as Habs suggested, trying to bet on the timing of when the peak is/will be, and when a slide might hit, is problematic.

Or...my thinking is all wrong.

I heard one guy on CNBC say the 500 is 8.5% overvalued.  I've seen a bunch of clips that follow that up by saying it's sectoral, concentrated in tech.

If you sell covered calls against your tech stocks, you will generate cash, and the possibility of assignment, which would give you a bankroll with which to buy the upcoming dip, and trim your positions.

I don't see any reason that the correction would be the start of a prolonged slump, unless inflation (then interest rates) start to slump.

edit: rise, not slump

[DGuller]

I think the days of inflation are past us for the foreseeable future.  I think the way inflation manifests itself is through asset price bubbles.  The down times in the market will not be coming from interest rate increases, but rather from credit crunch.

[Josquius]

Has anyone been following this game stop insanity going on?

Someday ill understand all this short and put and other stuff. For now it seems bizzare but interesting.

[Admiral Yi]

That day is today!!!

A call is the option to buy a stock at an pre-agreed price.  A put is an option to sell a stock at a pre-agreed price

Short and long are antonyms.  Long means you benefit by a price increase.  Short means you benefit by a price decrease.  If you own shares, you are long that stock.

The owner of a call option benefits when the price rises, the are also long that stock.  The owner of a put option benefits when the price decreases, they are short that stock.

A short seller is someone who borrows someone else's stock, paying a daily premium, and sells it.  Their hope is the price will fall, and they can repurchase the stock (to return to the lender) more cheaply than they bought it.  A short seller is short the stock, duh.

[Josquius]

Thanks.
It's more the How's and whys that particularly confuse.
If you can get an agreement to pay the price of today in a month, gambling the price will rise, then why not just buy it today and sell it in a month?

[Admiral Yi]

Thanks.
It's more the How's and whys that particularly confuse.
If you can get an agreement to pay the price of today in a month, gambling the price will rise, then why not just buy it today and sell it in a month?

Because options are much cheaper than shares, and because you can sell the option before it expires for potentially massive profit.

[Admiral Yi]

Here's a concrete example.  I recently sold one Tesla call option with a January 8 expiry at a "strike price" of $750 for $3.54 per share.  VERY IMPORTANT to keep in mind that each option contract covers 100 shares.  So the buyer paid me $354, and he paid his broker a commission for executing the option.  My broker charges 65 cents per option.  I paid my broker 65 cents as well to execute my sell order.

That was the time Tesla's share rose c. $200 in two weeks.  Tesla *met* (not surpassed, just met) its announced target for delivering cars in 2020, and the share price rose $100.  Then the idiots stormed the Capitol, and the price rose another $100 per share.

That call option I had sold was now trading for something like $106 per share.  Which makes sense, because the right to buy a share at $750 is worth that when the stock is trading at $856.

106X100=10,600.  So the buyer of that call made a nice pile of loot in two weeks for an outlay of $354.

Please keep in mind no one is suggesting you buy calls in hopes of striking it rich overnight.  The consensus here is that they are a sucker's bet.  But you asked about the motivation, and the motivation is fast big money.

[crazy canuck]

Part of my "cash-out" (and that's not the full cash-out that Yi suggested...IRA's would still stay, just a major shift to more conservative/stable investments as BB mentioned) apprehension, is that it feels like we're big into bubble territory.  The market values compared to Covid-effects just looks way too out of whack.  It's usually justified with post-Covid optimism...but that doesn't make a lot of sense...especially if the market can be considered overvalued even if the pandemic had never happened.

It just seems like there is bound to a be a fairly long, delayed economic effect where reality will hit and the markets will get pummeled for several months to a couple years, even if the "real" economy (jobs, etc.) is back on an upswing as Covid is more under control.  And as Habs suggested, trying to bet on the timing of when the peak is/will be, and when a slide might hit, is problematic.

Or...my thinking is all wrong.

Habs is wise.  One of the reasons you should get some good professional advice, is it is too easy to get sucked along with people talking about how well they are doing in very short time increments (you will rarely hear about the times they got burned making short term bets) when you are really investing for long term goals.  One thing to think about is the analysis that came out a couple of weeks ago that looked at long term trends which concluded that one would have to be extraordinarily lucky and make the correct judgment in a few moments in time when it really mattered for market timing to work out better in the long run.

Despite all the best advice I got from they guy who does my investments, I held back a bunch of cash for way too long thinking the market would crash.  Thankfully I did not sell anything (he put his foot down on that) I just didnt invest new money.  I missed a lot of gains because of that.  The bit of silver lining is I had that cash on hand when the COVID crash occurred and so it was not a total loss, but I would have been better of just investing regularly earlier.

As BB suggested, get good advice about how invest at your age and stage.  Don't worry about what the Yi's of the world are doing.  If you want to take part in placing short term bets, then you might do what I do and set aside some play money that you would otherwise blow on other things.  It is fun to play around with the market.  But that is as far as it goes for me.

[Habbaku]

As BB suggested, get good advice about how invest at your age and stage.  Don't worry about what the Yi's of the world are doing.  If you want to take part in placing short term bets, then you might do what I do and set aside some play money that you would otherwise blow on other things.  It is fun to play around with the market.  But that is as far as it goes for me.

This exactly. I have the gambling gene in me, and so don't follow my own advice for literally every dollar I have. But I fully recognize that setting aside a portion of my money for gambling/entertainment is entirely separated from my goal of maximizing my returns without playing games. I strongly urge following CC's steps--get with a CFP ASAP and work out a proper plan to take all the controllable stress out of the equation, then come up with a (relatively small) portion of your overall investments to play games with if you really, really want to.

[Threviel]

The safest way to invest in the stock market for someone not very interested would be to find a free index fund following some big local stock index. The stock market has always gone up over time and it's reasonable to assume that that will continue and an index fund makes your savings follow that increase. A local index fund takes away any currency effects.

Then, when one approaches the time to use the money one takes out 10% for every year remaining. With ten years to time of use take out 10% and so on. This to mitigate volatility at the end of the savings period.

I use this tactic, but instead of an index fund I put my savings in a very cheap investment company index fund, betting that it will surpass index, which it has so far.

And I play with some small percentage of the total savings. Those investments have generally been my best investments, especially Paradox and Apple, but they are still only a small part of the total.

[Tonitrus]

I think TSLA is easily about 60-65% of my Roth IRA value right now...but that wasn't intended. 

[Tonitrus]

Did you pull the trigger Tonto, or did Gloomy Guller scare you off?

But, to test the waters, I did trade a covered call from that account on AAPL at an absurd 150/share (as I am not really that inclined to unload it) that expires in a couple weeks.  That one is worth a couple hundred bucks.

The market is trying hard to prove me wrong.