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21 million possible return--
But a BILLION dollars in equities to start with ---based on the article's analysis
You have to wonder who that might be...
And does a bet that big influence the robots buying/selling w/algorhythim trading?
....One investor has made a bearish bet those declines could continue, according to "Options Action" trader Mike Khouw....
That's kind of an overstatement, I think. The investor (he is not a trader) protected himself in case the doo-doo really gets in the fan. He bought an insurance policy by buying out-of-the-money Puts. SPY went along at 290, fell to 240 and is now at 247. It'll have to go to 235 (he paid 5$) before he starts to make money.
The Feb 15P SPY240's have a price in the 5$ range and there is an open interest of 130,000 contracts(). Feb 15th is after earnings come out, so I'd guess he wants to make sure he is protected.
Could be an investor or trader. It's not really that big of a trade if they are playing the premium/theta vs. intrinsic value game. They could be hedging a portfolio or playing the outright option. They spent roughly $210k in premium to control $21M, and may NEVER even exercise the option, but if all hell is breaking loose can simply sell to close if they were indeed long. Mike is a brilliant guy, but I've never made more money than by being contrary to him or on the other side of the market of his trades.
thanks for a more inside explanation
so you are saying the action hasn't made the investor any money yet?
Yes.
The investor will not make any money unless the SPY goes below 235$. A March 240 Put gives the holder the right to sell at 240$ any time before March 15th (3rd Friday). So anything below 240 will be good, right? - he, in effect buys it below 240 and then sells at 240.
But our guy paid 5$ for this right. So it has to go below 235$ in order for him to get all his money back.
In this case, we suspect that our rich guy is holding 1$ billion in assets. So if the market goes up, so will his portfolio. If the market goes down, his portfolio will too until SPY gets to 235$. And then, even though his portfolio is still going down, his 'protective put' (as it is called) starts going up. Kind of limits the pain.
Options are interesting and useful. But they are also sometimes irresistible for the over confident trader who thinks he knows which way a stock will go and now long it will take to get there. 'Analysts' are forever telling us that Stock A will be at Level B by date C. They are wrong nearly 100% of the time.
Yes.
The investor will not make any money unless the SPY goes below 235$. A March 240 Put gives the holder the right to sell at 240$ any time before March 15th (3rd Friday). So anything below 240 will be good, right? - he, in effect buys it below 240 and then sells at 240.
But our guy paid 5$ for this right. So it has to go below 235$ in order for him to get all his money back.
In this case, we suspect that our rich guy is holding 1$ billion in assets. So if the market goes up, so will his portfolio. If the market goes down, his portfolio will too until SPY gets to 235$. And then, even though his portfolio is still going down, his 'protective put' (as it is called) starts going up. Kind of limits the pain.
Options are interesting and useful. But they are also sometimes irresistible for the over confident trader who thinks he knows which way a stock will go and now long it will take to get there. 'Analysts' are forever telling us that Stock A will be at Level B by date C. They are wrong nearly 100% of the time.
But he buffered by going far enough out to see what happens after Dems take office and first qtr earnings r reported...
Location: Was Midvalley Oregon; Now Eastside Seattle area
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buyer-player of the Put, bought "insurance". The premium was $5 for 1.5 months with a stop loss at $240. The deductible is 247-240=7.
The deductible is ~3% (7/247). The premium is currently ~2% (5/247). It is a bearish option and this player is hedging and limiting his current position against a potentially big Market loss. If the Market moves up beyond 247+5 at expiration, player will be at breakeven with this Insurance since he would have lost the premium. As you can see, there is a cost to options.
Vs the direct alternative: Hold the SPY (42,100 contracts * 100sh/c = 421,000 sh) or Sell SPY shares.
This player may be using SPY options as an indirect hedge to specific holdings or other indexes that do not have high trade volumes
Last edited by leastprime; 12-30-2018 at 11:58 PM..
Well, fwiw, Carter Worth on Thursday - once again - said sell the rally, that "we haven't experienced enough pain yet" - if 4Q earnings even the slightest bit weak, there will be a massive selloff 10-15% below the last low. He's been saying this one way or another since first selloff in February when tariffs were first announced. He said then, the day after, there was absolutely no doubt 2019 would finish lower.
So, whomever bought those puts is hedging against weak/bad 4Q earnings reports which should start to come in middle of Jan and thereafter. He probably bought the Mar because they were cheaper and there would be less decay and he might be able to sell them for something should the bet be wrong??? I know just enough about options to hurt myself so I don't touch 'em.
Last edited by Ariadne22; 12-30-2018 at 11:58 PM..
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). Feb 15th is after earnings come out, so I'd guess he wants to make sure he is protected.
