Fills

[SOL]

I see some confusion in this thread and elsewhere. Options are great when used wisely, but it is worth understanding them fully before over committing.

For example, it has been written that buying puts is potentially very dangerous. I personally I wouldn't assess buying options as 'dangerous', since the downside risk is absolutely limited.

Dangerous is selling uncovered calls (sometimes referred to as 'naked'). Upside limited, downside not exactly unlimited but could get nasty.

If I were a beginner, I would start by buying a call or a put. It's like making a bet - if it comes off you have a win and if it doesn't you lose some or all of your money. You can see how the price of the option varies from day to day with the underlying. You can see how the time premium erodes, and when. You can get interested in 'The Greeks', all without having to worry about any further downside risk even in the event of a bizarre market catastrophe.

Selling to open (writing) puts if you want to buy the shares and have the money set aside for that is also relatively safe. The outlier risk is some kind of major unexpected event like Enron.


Reminder
Buying a call: You have the right to buy a security at a predetermined price.
Selling a call: You have an obligation to deliver the security at a predetermined price to the option buyer if they exercise the option.
Buying a put: You have the right to sell a security at a predetermined price.
Selling a put: You have an obligation to buy the security at a predetermined price from the option buyer if they exercise the option.

Buying calls and puts is not dangerous per say, unless individuals start deploying large amounts of money. Many people over leverage themselves with options and that is dangerous

However, the safest strategies barring some abnormal development are to sell puts and covered calls.

[Yodean]

If I were a beginner, I would start by buying a call or a put. It's like making a bet - if it comes off you have a win and if it doesn't you lose some or all of your money. You can see how the price of the option varies from day to day with the underlying. You can see how the time premium erodes, and when. You can get interested in 'The Greeks', all without having to worry about any further downside risk even in the event of a bizarre market catastrophe.

Selling to open (writing) puts if you want to buy the shares and have the money set aside for that is also relatively safe. The outlier risk is some kind of major unexpected event like Enron.


Reminder
Buying a call: You have the right to buy a security at a predetermined price.
Selling a call: You have an obligation to deliver the security at a predetermined price to the option buyer if they exercise the option.
Buying a put: You have the right to sell a security at a predetermined price.
Selling a put: You have an obligation to buy the security at a predetermined price from the option buyer if they exercise the option.

Good succinct summary.

I think conceptually, buying calls and puts is definitively simpler, but on a practical level, for OptionNoobs like myself, these trades could be more dangerous, simply because one could lose all her money with these trades.

One will also need to have to have some knowledge of technical analysis, trend analysis, volatility, Greeks, etc. to set a decent strike and expiry, when buying calls and puts on one's own.

For SCC and SCSP, there is a degree of safety built in.

In the case of SCC, if you set your strike above your cost basis, you really can't lose money, but you do lose some potential upside if the stock spikes up unexpectedly.

For SCSP, as you pointed out, if you don't mind buying the stock at your strike, you can't really "lose." Generally.

The risks are Black Swans like Enron, Facebook, CHGG, etc. to name a few examples. There won't always be time to cancel or roll over those SCSP trades (at a significant loss) when the stock in question drops precipitously, days or weeks after you've filled those trades.

Also, if you SCC and SCSP enough a particular stock, you could theoretically reduce its cost basis to near zero - I find this kind of a pretty cool idea. Trying this with my massacred COIN position - hmmm, at current rate, this could take 66.6 years, lol ...

[harryg]

Yes all correct, but you grasp things very quickly. There was definitely some confusion.

You have mentioned a possible consideration of selling covered calls, which one might call opportunity cost. If you get assigned, you no longer have the shares. Of course you can deal with that or avoid it, but it is something to bear in mind if you think the shares have a good long-term future.

I have also played in the past with 'getting my cost down'. Just shenanigans of course, since the cost is what you paid originally. The more logical way to see option income is as extra dividends. Does anyone with shares keep adjusting their "original entry cost" every time they receive a dividend?

Scrap that, I expect some people do.

[Triplethought]

Would this strategy be best to use now, while volatility is high? I would think this strategy is best suited for stocks that are moving slowly in either direction?

I'm an OptionsWhiteBelt, and I've only been "Wheeling" using SCC and SCSP on a regular basis for the past few weeks, so keep this in mind when reading the following:

I've been making roughly anywhere from 30 - 50+ of these types of trades on a daily basis (SCC'ing, SCSP, rolling them over, etc., not all get filled), since I have a ton of stocks that I've accumulated in the last 18+ years.

I think there is a bit of a sweet spot in terms of volatility - ExcelNinja mentioned VIX 20 - 26, which is reasonable, but it really comes down to the individual stock's price action and characteristics. You want a certain amount of volatility because the premiums are better. But too much volatility may make it harder to estimate the optimum strike price. Etc.

Also, as mentioned before, you may use the SCSP to accumulate a stock position, or just for premium income. How you set up the trade will be different, depending on your goals. Likewise with SCC.

If I were starting out with limited funds and not a lot of already-held stock positions, I would probably start with just one good, blue chip, stock, and practice both SCC'ing it and SCSP'ing it to death. INTC's a good candidate, for a variety of reasons mentioned previously. Once you're comfortable, do it with two stocks. Etc.

The previously posted videos and the various posts from BossJedi and other subs were quite helpful, as well. BossJedi's stuff on SCC'ing and SCSP'ing (the March 8th post is really good) are a little more advanced, and took me a little while, and a few re-readings, to understand it fully. Worth the time.

Things may change quickly, but I'm easily making enough premium income to cover my margin interest costs, my living expenses, my friggin' Canadian Neo-marxist taxes, and my personal inflation rate (based on the DSI - Dim Sum Index), with a bit left over, without having to sell any of my stocks or using any of the stocks' dividends.

For others staring out, applying the SCC/SCSP/Wheel somewhat intelligently could easily become a part-time job that pays better than one's "real" job.

Man I wish I had time to dig into this. Sounds intriguing

[SOL]

Man I wish I had time to dig into this. Sounds intriguing

It is not as complex as you imagine and with your net worth, you could easily relax and make a fortune using this strategy. Remember when you make money, you have to factor in the opportunity cost. Opportunity cost as in giving up your free time to make more bucks. Is it really worth it if you are financially stable? that's the million-dollar question. In my opinion freedom to do what you want is priceless but then again I am just another fly on the wall

[Triplethought]

Man I wish I had time to dig into this. Sounds intriguing

It is not as complex as you imagine and with your net worth, you could easily relax and make a fortune using this strategy. Remember when you make money, you have to factor in the opportunity cost. Opportunity cost as in giving up your free time to make more bucks. Is it really worth it if you are financially stable? that's the million-dollar question. In my opinion freedom to do what you want is priceless but then again I am just another fly on the wall

5/10/22 Bought 1/6 lot BWXT at $47

This was before SOL issued the suspension of buys this morning.
For the record I left buy orders only on RGLD, PUI, SGOl, SAND and cancelled everything else until SOL issues his update.

I Bought APPL on my own. Sure looks like a good buy but it's hard to know where the fall will stop

From the MU update email this morning:
“All high risk pending plays are now on hold (Stock plays in Brick red and bright red text)”

So not all plays are on hold, only the high risk ones.

Yes but with SOL I've learned one needs to read between the lines a little bit and adjust to your own risk and cash position. Most of us have 20% or less of our portfolio in cash right now which I think is why we don't see a lot of
buy fills right now. In retrospect we maybe should have "mosy-ed for the exits" at bit sooner but almost all of our plays were deep red all year so heading for the exits would have just locked in the loss.

For me I'll nibble at any gold, silver, oil, or commodities plays SOL recommends that look to have hit lows but other than that I'll save my bullets. Whether that's a few weeks or several months I don't know but I feel that Sol's predicted 4th quarter flash crash has come a full 5 months earlier than he expected. To me it also looks like the FED will take a full year to realize they went too far in curbing inflation and reverse course. But I don't understand SOL's "velocity of money" argument so I could be wrong. In the next year either Covid or Ukraine or both may resolve, which could bounce us back faster but failing either of those I think we may have a year or more of staring at our losses.

[Triplethought]

Man I wish I had time to dig into this. Sounds intriguing

It is not as complex as you imagine and with your net worth, you could easily relax and make a fortune using this strategy. Remember when you make money, you have to factor in the opportunity cost. Opportunity cost as in giving up your free time to make more bucks. Is it really worth it if you are financially stable? that's the million-dollar question. In my opinion freedom to do what you want is priceless but then again I am just another fly on the wall

You guys are making me really think. One of my computer business competitors came to me this week and wants me to buy him out and is willing to do so with nothing down. My business broker friend said 7 listings came in this week of businessmen deciding to head for the exits. He's advising me not to over pay for the business, especially since I'm still waiting to close on another business.

I'm going to try to free up a day next week to figure out what the hell you guys are talking about here.

[Yodean]

To me it also looks like the FED will take a full year to realize they went too far in curbing inflation and reverse course. But I don't understand SOL's "velocity of money" argument so I could be wrong.

Fed's gonna bend the knee (they are the ultimate Dark WISC, so they are are pretending to be weak and dumb) and give some dovish signals in less than 3 - 6 months, I am guessing. Once the 10-yr. hits 3%, bad things happen, and we're there now.

The Fed will have to slow down the hikes or stop them completely, +/- reduce QT and start switching back to QE (likely by another name, an euphemistic acronym of some sort). Also, keep in mind that they have other devious means to control the markets - repo. operations, reverse repo. operations, etc. - so publicly they could continue to "jawbone" hawkish behavior on one hand, while with the other hand loosening ...

So Tech will likely rally big, sooner than most think. I still think it feels a bit like '98 ...

The velocity of money is interesting. You can't get true sustained monetary inflation or hyperinflation over a long period of time without the velocity of money increasing significantly. This hasn't happened yet.

But the CPI has risen quite a bit - that's impossible to deny. So look at what the various global events have caused, in terms of supply-shock disruption -----> increased CPI.

Leaving ideology aside for the moment, sanctions on Russia, Russian Special Operations, China's draconian "zero cv19 PCR test positivity lockdowns" have all contributed to supply chain disruptions and a general supply-shock Black Swan, leading to increased CPI.

When there's a lull in the Russian Special Operations, when the CCP decide to open up China again, etc. the CPI could potentially, and very quickly, roll over and stabilize.

[SOL]

@TTH, since you are mathematically inclined, this might help in regards to the velocity of money

The velocity of money is calculated as below:

VM = PQ / M
Where,

VM is the velocity of money
PQ denotes the GDP and
M is the money of supply.

VM is the rate at which money changes hands. The more frequently this occurs, the better as it suggests a healthy economy. A rising VM also indicates that inflation could be an issue if it starts to rise too fast.

https://youtu.be/BKEp1pzwTsg

Take look at the M2 velocity of money


As you can see it would take a massive spike an incredibly massive spike for it to trend above its long term (Up) trend line. This chart clearly indicates that all the current inflationary issues are man-made or MANFLATION

VM of M1 literally fell off the cliff after 2020


and the Feds stopped updating VM M3 as one of the things it displayed time deposits larger than 100K while M2 only displays Time Deposits less than 100K. It appears that they wanted to hide something? I wonder why such honest men would do that?

M3 was based on time deposits of $100,000 or more, repurchase agreements over $100,000 and longer than one day (called term RPs), and institutional money market mutual fund accounts.

One reason to hide this is that M3 tracks what the big boys are doing. While M1 and M2 track what the small to medium dudes are doing

[jlhooter]

Sol is PQ a single value used across VM1-3? Or is it different for each? If it is the same value then there is a different M1 M2 M3 meaning there is a different money supply for each. I am a bit dumb founded that there isn't a sigle VM across the board but not surprised.

[jlhooter]

Sol is PQ a single value used across VM1-3? Or is it different for each? If it is the same value then there is a different M1 M2 M3 meaning there is a different money supply for each. I am a bit dumb founded that there isn't a sigle VM across the board but not surprised.

After a quick search of FRED M1 M2 M3 they are different where M2 contains M1 and M3 contains M2 + RPs. Much more to it but cant wrap my head around it yet. I see that VM1 above is ~1.1 VM2 is 1 and I wonder if VM3 would be < 1 meaning there is a crap ton of money supply at that level. This really helps to embrace what the big players could be doing and how the FED plays this secret game by hiding VM3.

[SOL]

Sol is PQ a single value used across VM1-3? Or is it different for each? If it is the same value then there is a different M1 M2 M3 meaning there is a different money supply for each. I am a bit dumb founded that there isn't a sigle VM across the board but not surprised.

After a quick search of FRED M1 M2 M3 they are different where M2 contains M1 and M3 contains M2 + RPs. Much more to it but cant wrap my head around it yet. I see that VM1 above is ~1.1 VM2 is 1 and I wonder if VM3 would be < 1 meaning there is a crap ton of money supply at that level. This really helps to embrace what the big players could be doing and how the FED plays this secret game by hiding VM3.

PQ remains constant as its the GDP, what changes is the money supply which is represented by M1, M2 and M3 but they got rid of M3 data in 2006, until then it was rising very rapidly. One thing M3 would provide would be eurodollars, not to be confused with Euros. These are dollar reserves kept in Canada, UK and other countries and that is why they are called Euro dollars. If this data were around it would provide incredible insights. I am sure the pool of dollars outside the US has increased exponentially since 2006

https://fred.stlouisfed.org/series/M3


They also discontinued the weekly update M1 money stock charts
https://fred.stlouisfed.org/series/M1

However, they are still publishing the monthly


what is shocking is how fast the MI spiked. In 2020 it more than quadrupled. to put that into perspective it took 45 years to get to this level, and then it quadrupled in a year and it still continues to rise.

[Yodean]

@TTH, since you are mathematically inclined, this might help in regards to the velocity of money

The velocity of money is calculated as below:

VM = PQ / M
Where,

VM is the velocity of money
PQ denotes the GDP and
M is the money of supply.

Good to see some macro. stuff - I find it interesting. I know a lot of macro. investors don't necessarily do that well trading on macros and fundamentals alone, but some understanding is useful.

I think of it as the Equation of Cross Exchange (ECe).

M x V = P x Y

M = money supply;
V = velocity of money;
P = price (or inflation);
Y = real GDP;

Using basic math and holding 3 of the 4 variables constant, one may use the ECE in a variety of ways, to try to forecast. As always, in the real world, more than one variable may simultaneously change (i.e. "manflation"), but the ECE is still useful.

So, since talking about inflation is all the rage these days, using the ECE:

P=MV/Y, or inflation = (money supply x velocity)/(real GDP)

One way to think about this, using the above equation: although velocity of $$$ is low, if one increases the money supply enough (one of the numerators in the above equation), and decreases the real GDP enough (denominator), one may still get price inflation (the P), at least for a time.

This kind of played out post-cv19, for the most part:

- usually 1 - 9 months after a large increase in the money supply, equity markets ("risk on") start to rise.

- 6 - 18 months after a large increase in the money supply, there is evidence of economic expansion (increased GDP);

- about 24 months after a large increase in the money supply, CPI rises significantly;

The cv19 lockdowns, etc., decreased GDP, while central banks printed money (increased money supply), and in the USA and some other places, a lot of "helicopter" SSS and fiscal largess in general were seen. You could work those factors into the ECE.

Now, real GDP is rolling over a bit (as an aside, it's useful to look at PMIs to assess for economic expansion or deceleration), and China's "zero positive PCR testing for cv19" lockdowns and the Russian crisis/sanctions are causing a bit of a Black Swan supply-shock -----> contributing to decreased GDP (e.g. many cars are sitting around in factories almost finished, just waiting for chips, etc.). You could also work those factors into the denominator (GDP) in the above equation.

I've oversimplified things a bit here, but there's a lot you can do with the ECE.

[MarkD]

A couple of thoughts

1. China lockdowns were coordinated with PTB. Why? Warehouses in the USA are nearly full. My cousin is a corporate officer for a large logistics company and he confirmed this info.
2. Short haul truck rates are dropping and fuel prices are not.
3. Class 8 trucks ditto.
4. Longshoreman in Long Beach and the Northeast are attempting to negotiate new union agreements.
5. Hours worked by manufacturing employees are down from the peak. You can find this on FED FRED.
6. Layoff notices are being issued by many corps (Tech included).

I smell a rat regarding the Chicom Covid Lockdown 2.0 all coordinated for this and another reason: Wait until Jo / FUD / Congress get together with the PTB to "Save the Nation" and print another boatload.

[SOL]

A couple of thoughts

1. China lockdowns were coordinated with PTB. Why? Warehouses in the USA are nearly full. My cousin is a corporate officer for a large logistics company and he confirmed this info.
2. Short haul truck rates are dropping and fuel prices are not.
3. Class 8 trucks ditto.
4. Longshoreman in Long Beach and the Northeast are attempting to negotiate new union agreements.
5. Hours worked by manufacturing employees are down from the peak. You can find this on FED FRED.
6. Layoff notices are being issued by many corps (Tech included).

I smell a rat regarding the Chicom Covid Lockdown 2.0 all coordinated for this and another reason: Wait until Jo / FUD / Congress get together with the PTB to "Save the Nation" and print another boatload.

The china lockdown is suspicious especially since all of Asia is opening up. Vietnam has done away with the need of having a vaccine certificate, a simple PCR test will suffice. In general, the mood in Asia is trending up. So if Manflation is removed from the equation energy prices will drop, a host of workers will be fired and the Fed will come to the rescue with north of 5 trillion dollars. Top traders get some crumbs, the shadow players get almost everything and the chains on the masses become thicker.