Author Topic: Best long odds on a single bet? For charity!  (Read 240 times)

swashbucklinstache

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Best long odds on a single bet? For charity!
« on: June 10, 2020, 06:23:54 PM »
Similar thread: https://forum.mrmoneymustache.com/welcome-to-the-forum/almost-logical-to-gamble-$50-000-on-red/

Scenario, and the point of this post is not to question this part:
Retirement is covered at 1.5% withdrawal rate. OMY of (direct deposits - expenses) generates 150k liquid in your bank account. You are considering OMY to do a 1 time only charitable donation of 100k, but only if you also get a chance at a personal meaningful monetary reward: your twin brother retiring alongside you instead of at 55. You have 50k to work with, which is not enough to matter to your brother, but 1 million gets it done. You’re comfortable gambling this 50k and losing all of it, but no more.

1) Would YOU work OMY? Under your plan, if we zoomed you to your FIRE # and upped/lowered your after-expenses cashflow to +150k a year. What if you were 35?
2) If we told you that you had to do it, what’s the best way, as you define it, to gamble that 50k and turn it into a million dollar + payoff within 365 days on a single bet?

For #2, ideas I thought of, with shoddy arithmetic:

Option 0 to get it out of the way:
Call your brother, set him up with Vanguard, invest 50k. In 47 years he’ll expect to have 1 million dollars real. He’ll also be 82. Realizing a premium for time, but that’s not what we want.

Option 1:
A single fair spin at American Roulette. Bet a single number, which has 35-1 payout and a 2.63% chance of winning. That means you have a 2.63% chance of winning 1.75 million and a 97.37% chance of losing all your money. After taxes you score approximately 1.1 million dollars, since gambling winnings are taxed as income. 2.63% * 1,100,000 gives an expected value of 28,930.
We’re realizing our premium of accepting total loss and bad expected value, but no more. Are we paying a “lack of sophistication” premium, through odds or just taxes?

Option 2:
{I know nothing about options}
Buy a short term put of an individual stock. Take AMZN at 2651.91. According to https://www.optionsprofitcalculator.com/calculator/long-put.html on 6/10 you can buy puts at 2200 expiring on 6/19 at a cost of $1.21. This gets you 450 contracts at a cost of $50,215. These are taxed as income, so you need to make roughly 1.53 million in profit.
You can get that if the price is X on Y date
6/10 at 2300
6/11 at 2290
6/12 at 2270
6/13 at 2260
6/14 at 2240
6/15 at 2230
6/16 at 2210
6/17 at 2200
6/18 at 2180
6/19 at 2160
What percentage chance is there that Amazon drops 14% today or 19% in the next 9 days? Would you say it is better than 35-1? In the last 5 years a 1 day end of day drop of this magnitude has happened to AMZN 0 times, the closest being 8% in one day a few times, and a(n exactly) 9 day drop of 19% has happened 3 times, out of 1250 opportunities. AMZN has been pretty successful, so other stocks are more likely. I also probably screwed this math up by not knowing how options work.
Similar numbers exist for calls, I imagine.

Option 3
Same as above, but with a fund. 60% of your gains will be capital gains and 40% income, as I understand it. So you only need 1.26 million in profit. If you bought 8350 puts at 300 for SPY, expiring in two days, from SPY at 319.1 and it expired at 298.5 you’d make around 1.2 million. What are the odds of SPY dropping 6.5% over 3 days? It’s happened 14 times out of the last 1250 days. Notably, all but one of them was in the most recent dip, the other in 2015. Of course, this is a very long bull market.

Futures have unlimited downside risk, so they’re out. Maybe LEAPS to get long term gains? Both of these, if my questionable arithmetic is right, are worse than outright gambling? Maybe that's just a reflection of the bull market and a hand-picked stock.

Option 4:
Sports bet! This is taxed as regular income as well, so you’re looking for 1.65 million. That looks like a +3500 bet is what you need. The internet tells me that’s an implied 2.78% of victory, but then I got that from a gambling website. This is picking the Chicago Bears to win the next superbowl.

Any other options? Anything I definitely messed up? Have fun with it!

swashbucklinstache

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Re: Best long odds on a single bet? For charity!
« Reply #1 on: June 11, 2020, 02:27:05 PM »
Option 3
Same as above, but with a fund. 60% of your gains will be capital gains and 40% income, as I understand it. So you only need 1.26 million in profit. If you bought 8350 puts at 300 for SPY, expiring in two days, from SPY at 319.1 and it expired at 298.5 you’d make around 1.2 million. What are the odds of SPY dropping 6.5% over 3 days? It’s happened 14 times out of the last 1250 days. Notably, all but one of them was in the most recent dip, the other in 2015. Of course, this is a very long bull market.
Holy shit, 1 day later SPY closes at 300.61 for a 5.76% loss. If I had done this yesterday instead of posting here I'd have bagged 7 figures =) =)