Author Topic: I market timed and did just fine  (Read 3924 times)

CCCA

  • Pencil Stache
  • ****
  • Posts: 569
  • Location: Bay Area, California
  • born before the 80's
    • FI programming
I market timed and did just fine
« on: March 26, 2018, 09:48:02 AM »
Given the news around Facebook, I decided to buy some puts on Thursday. Just a very small position of around $3000 assuming that the stock would continue to go down. I’ve never invested in options before but wanted to understand it a little mainly so I can use it to hedge long positions on the future.
Anyway I sold the position this morning for a gain of about 300% as FB is still falling due to more revelations about data collection.

Curious if others have done anything similar. I recognize this is a fluke event but seems an okay strategy to wait for similar events and essentially short the stock but with puts to limit the downside risk (the most I could have lost is my original $3k and in practice it would have been a little less).

AdrianC

  • Pencil Stache
  • ****
  • Posts: 993
  • Location: Cincinnati
Re: I market timed and did just fine
« Reply #1 on: March 26, 2018, 10:00:51 AM »
I recognize this is a fluke event but seems an okay strategy...
Contradiction?

solon

  • Handlebar Stache
  • *****
  • Posts: 1649
  • Age: 1819
  • Location: CO
Re: I market timed and did just fine
« Reply #2 on: March 26, 2018, 10:06:28 AM »
I think you got lucky. This only worked because of continuing trouble at Facebook. But what if Facebook had announced it had cleared up the miscommunications, locked down security, and advertisers were coming back on board? Then you would have lost.

And the scary part is, you don't know which way things will go before the fact.

Mr. Green

  • Handlebar Stache
  • *****
  • Posts: 1986
  • Age: 36
  • Location: Wilmington, NC
Re: I market timed and did just fine
« Reply #3 on: March 26, 2018, 10:09:05 AM »
I would argue that this is not market timing. You bought options because of a very real issue that you thought would impact a company's stock price in the future. Options are by nature taking a position on the future value of a stock. You could say you did it on a whim and that the reason for buying those options was a poor one but that is different than market timing. I wouldn't call it a fluke either, because you acted on information coming to light which very realistically could have major negative consequences for the company and, as a result, it's stock price.

Kyle B

  • 5 O'Clock Shadow
  • *
  • Posts: 95
Re: I market timed and did just fine
« Reply #4 on: March 26, 2018, 10:26:35 AM »
Well played.

NoStacheOhio

  • Handlebar Stache
  • *****
  • Posts: 2143
  • Location: Cleveland
Re: I market timed and did just fine
« Reply #5 on: March 26, 2018, 10:30:32 AM »
I would call this speculation, not market timing

alanB

  • Stubble
  • **
  • Posts: 224
  • Age: 32
  • Location: PA, US
Re: I market timed and did just fine
« Reply #6 on: March 26, 2018, 11:01:36 AM »
That is great, I would definitely quit while you are ahead ;)  Here are the downsides I see:
1) Sounds like a taxable account, returns should be adjusted for STCG taxes and fees
2) Too many losses in a row might kill long term returns in spite of having a sound strategy
3) Messing up orders could miss critical selling opportunities (I would personally worry about that, if you are very diligent not a problem)
4) Too many wins in a row could lead to overconfidence and deviation from your strategy
5) You might get so obsessed with options trading that you can't talk about any other topic and become a social outcast, forced to take a job on Wall Street where you work until you are 80 ;P

CCCA

  • Pencil Stache
  • ****
  • Posts: 569
  • Location: Bay Area, California
  • born before the 80's
    • FI programming
Re: I market timed and did just fine
« Reply #7 on: March 26, 2018, 11:03:42 AM »
I think you got lucky. This only worked because of continuing trouble at Facebook. But what if Facebook had announced it had cleared up the miscommunications, locked down security, and advertisers were coming back on board? Then you would have lost.

And the scary part is, you don't know which way things will go before the fact.


sure, of course I got lucky, but I figured it was a >50% chance lucky (kinda like rolling 10 dice and assuming the sum will be greater than 20).  that is always the case with anything.  Buy and hold for any given stock would have similar issues since you don't know if it will go up or down short or long term.  Puts seemed to be a good idea because these things always seem to take more than a few days to shake out and as I said, limiting the downside risk. 

CCCA

  • Pencil Stache
  • ****
  • Posts: 569
  • Location: Bay Area, California
  • born before the 80's
    • FI programming
Re: I market timed and did just fine
« Reply #8 on: March 26, 2018, 11:07:43 AM »
That is great, I would definitely quit while you are ahead ;)  Here are the downsides I see:
1) Sounds like a taxable account, returns should be adjusted for STCG taxes and fees
2) Too many losses in a row might kill long term returns in spite of having a sound strategy
3) Messing up orders could miss critical selling opportunities (I would personally worry about that, if you are very diligent not a problem)
4) Too many wins in a row could lead to overconfidence and deviation from your strategy
5) You might get so obsessed with options trading that you can't talk about any other topic and become a social outcast, forced to take a job on Wall Street where you work until you are 80 ;P


Thanks for a list of the downsides.  I figured someone here would chime in and help me focus my thinking about these things.  Yes, #4 is what I'm worried about.  Luckily I can trade options in my Fidelity Roth so I don't have any tax liability on trades within that account.  And options seems like a good idea within a Roth anyway because of the potential leverage there (my taxable accounts have more money than my Roth).  I risked only $3000 (a small portion of my roth) but made a 300% gain. 


no chance on #5 happening, but funny nonetheless!

CCCA

  • Pencil Stache
  • ****
  • Posts: 569
  • Location: Bay Area, California
  • born before the 80's
    • FI programming
Re: I market timed and did just fine
« Reply #9 on: March 26, 2018, 11:14:32 AM »
I would argue that this is not market timing. You bought options because of a very real issue that you thought would impact a company's stock price in the future. Options are by nature taking a position on the future value of a stock. You could say you did it on a whim and that the reason for buying those options was a poor one but that is different than market timing. I wouldn't call it a fluke either, because you acted on information coming to light which very realistically could have major negative consequences for the company and, as a result, it's stock price.


Thanks for your thoughts about the difference.  I guess my impression was that lots of people on the forum were down on market timing because it assumed that you knew more about future prices than the market had priced in.  And to some extent, what I just did seems to have the same attributes. 

CCCA

  • Pencil Stache
  • ****
  • Posts: 569
  • Location: Bay Area, California
  • born before the 80's
    • FI programming
Re: I market timed and did just fine
« Reply #10 on: March 26, 2018, 11:21:35 AM »
I recognize this is a fluke event but seems an okay strategy...
Contradiction?


Maybe, I guess I was thinking this wouldn't be something I try to replicate daily, but if something similarly big like this FB news happens (e.g. Elon Musk decides to quit TSLA), it might not be a bad idea to take some small gambles on these things again with low downside risk. 

Fireball

  • Stubble
  • **
  • Posts: 235
Re: I market timed and did just fine
« Reply #11 on: March 26, 2018, 11:51:36 AM »
I recognize this is a fluke event but seems an okay strategy...
Contradiction?


Maybe, I guess I was thinking this wouldn't be something I try to replicate daily, but if something similarly big like this FB news happens (e.g. Elon Musk decides to quit TSLA), it might not be a bad idea to take some small gambles on these things again with low downside risk.

It's called contrarian investing IIRC. When I stock pick, which is pretty rare, this is the strategy I follow. For example, I invested in Equifax, Deutsche Bank and Chevron in the past couple of years. When my I'm up or down 30%, I sell.  It's a fun exercise and I limit my investment to $1,000.  Not a strategy that I trust to make me rich, plus there aren't very many companies that meet the criteria at any given time.

CorpRaider

  • Bristles
  • ***
  • Posts: 435
    • The Corpraider Blog
Re: I market timed and did just fine
« Reply #12 on: March 26, 2018, 11:54:46 AM »
To paraphrase Joel Greenblatt, "If you run through a dynamite factory with a lit match, you might survive, but you're still an idiot." 

haha! 

CCCA

  • Pencil Stache
  • ****
  • Posts: 569
  • Location: Bay Area, California
  • born before the 80's
    • FI programming
Re: I market timed and did just fine
« Reply #13 on: March 26, 2018, 11:55:42 AM »
I recognize this is a fluke event but seems an okay strategy...
Contradiction?


Maybe, I guess I was thinking this wouldn't be something I try to replicate daily, but if something similarly big like this FB news happens (e.g. Elon Musk decides to quit TSLA), it might not be a bad idea to take some small gambles on these things again with low downside risk.

It's called contrarian investing IIRC. When I stock pick, which is pretty rare, this is the strategy I follow. For example, I invested in Equifax, Deutsche Bank and Chevron in the past couple of years. When my I'm up or down 30%, I sell.  It's a fun exercise and I limit my investment to $1,000.  Not a strategy that I trust to make me rich, plus there aren't very many companies that meet the criteria at any given time.


thanks for putting a name to it, and for explaining your strategy.  So it also involves puts?


Where's an Enron when you need one?  ;) 

alanB

  • Stubble
  • **
  • Posts: 224
  • Age: 32
  • Location: PA, US
Re: I market timed and did just fine
« Reply #14 on: March 26, 2018, 11:57:37 AM »
Luckily I can trade options in my Fidelity Roth so I don't have any tax liability on trades within that account.  And options seems like a good idea within a Roth anyway because of the potential leverage there (my taxable accounts have more money than my Roth).  I risked only $3000 (a small portion of my roth) but made a 300% gain. 

Oh ok, thanks for clarifying.  I always get confused which trades you can make within Roth, yea buying puts makes more sense there.  I don't know whether your strategy will work or not, but I wish you good luck!  You will definitely need some luck.  I am also not crazy about hedging long positions, I think diversification and appropriate asset allocation are good enough. 

Rob_bob

  • Stubble
  • **
  • Posts: 223
  • Location: Oregon
Re: I market timed and did just fine
« Reply #15 on: March 26, 2018, 12:03:15 PM »
Years ago I used to sell Covered Call Options.  I liked getting paid money.

GuitarStv

  • Senior Mustachian
  • ********
  • Posts: 14192
  • Age: 38
  • Location: Toronto, Ontario, Canada
Re: I market timed and did just fine
« Reply #16 on: March 26, 2018, 12:08:35 PM »
I once put a quarter into a slot machine because I had a good feeling.  I got back 4.50$  Stuff like that happens.  It's very important not to confuse luck with skill though.

simonsez

  • Pencil Stache
  • ****
  • Posts: 805
  • Age: 33
Re: I market timed and did just fine
« Reply #17 on: March 26, 2018, 12:12:19 PM »
I think you got lucky. This only worked because of continuing trouble at Facebook. But what if Facebook had announced it had cleared up the miscommunications, locked down security, and advertisers were coming back on board? Then you would have lost.

And the scary part is, you don't know which way things will go before the fact.


sure, of course I got lucky, but I figured it was a >50% chance lucky (kinda like rolling 10 dice and assuming the sum will be greater than 20).  that is always the case with anything.  Buy and hold for any given stock would have similar issues since you don't know if it will go up or down short or long term.  Puts seemed to be a good idea because these things always seem to take more than a few days to shake out and as I said, limiting the downside risk.
Do you mean 35?  The expected value of a single roll is 3.5.

josh4trunks

  • 5 O'Clock Shadow
  • *
  • Posts: 62
Re: I market timed and did just fine
« Reply #18 on: March 26, 2018, 12:36:06 PM »
Doesn't "market timing" imply you made a bet on the total, or a portion of the stock market? But, you made a made a bet on a single company's current vs future valuation. Could have ended up either way.

My theory is you had more than a 50% of wining your bet because the stock market isn't 100% efficient for every stock all the time. If you stay current on the news and act quickly, maybe you can take advantage of opportunities like this? But, on the other side of table, aren't there automated bots that buy/sell based on the news, you would think this would remove any lag of news being priced in.

I'm too chicken either way, and will stick to my buy the whole market strategy.

Brother Esau

  • Pencil Stache
  • ****
  • Posts: 502
Re: I market timed and did just fine
« Reply #19 on: March 26, 2018, 12:39:00 PM »
Lucky for you that - Top is In.

libertarian4321

  • Handlebar Stache
  • *****
  • Posts: 1372
Re: I market timed and did just fine
« Reply #20 on: March 26, 2018, 01:11:30 PM »
Congratulations!

You did so well on market timing, you may want to try these similar "investing" strategies:

1)  buying cybercurrency
2)  betting on the ponies
3)  Vegas, baby!  Roulette is the best investment strategy around!

SwitchActiveDWG

  • Stubble
  • **
  • Posts: 176
Re: I market timed and did just fine
« Reply #21 on: March 26, 2018, 01:47:30 PM »
As long as it's play money. Investment strategies like this are widely practiced and are often a slippery slope.

CCCA

  • Pencil Stache
  • ****
  • Posts: 569
  • Location: Bay Area, California
  • born before the 80's
    • FI programming
Re: I market timed and did just fine
« Reply #22 on: March 26, 2018, 07:15:32 PM »
I think you got lucky. This only worked because of continuing trouble at Facebook. But what if Facebook had announced it had cleared up the miscommunications, locked down security, and advertisers were coming back on board? Then you would have lost.

And the scary part is, you don't know which way things will go before the fact.


sure, of course I got lucky, but I figured it was a >50% chance lucky (kinda like rolling 10 dice and assuming the sum will be greater than 20).  that is always the case with anything.  Buy and hold for any given stock would have similar issues since you don't know if it will go up or down short or long term.  Puts seemed to be a good idea because these things always seem to take more than a few days to shake out and as I said, limiting the downside risk.
Do you mean 35?  The expected value of a single roll is 3.5.


that was my point.  I thought there was a much greater than 50% chance that Facebook would decline. 

privatefarmer

  • 5 O'Clock Shadow
  • *
  • Posts: 65
Re: I market timed and did just fine
« Reply #23 on: March 27, 2018, 12:33:57 AM »
I think you got lucky. This only worked because of continuing trouble at Facebook. But what if Facebook had announced it had cleared up the miscommunications, locked down security, and advertisers were coming back on board? Then you would have lost.

And the scary part is, you don't know which way things will go before the fact.


sure, of course I got lucky, but I figured it was a >50% chance lucky (kinda like rolling 10 dice and assuming the sum will be greater than 20).  that is always the case with anything.  Buy and hold for any given stock would have similar issues since you don't know if it will go up or down short or long term.  Puts seemed to be a good idea because these things always seem to take more than a few days to shake out and as I said, limiting the downside risk.

how do you figure >50% chance? as far as day-to-day volatility, the market goes up I think 51% of the time, down 49% of the time. After accounting for costs, (even before accounting for costs) I don't see how a put is >50% probability.

Anyhow, it's essentially a 50-50 bet. You got lucky, I would take your winnings and stop playing. If it's "play money" then do whatever with it I guess but I could think of more fun things to do than buying options...
« Last Edit: March 27, 2018, 12:38:20 AM by privatefarmer »

privatefarmer

  • 5 O'Clock Shadow
  • *
  • Posts: 65
Re: I market timed and did just fine
« Reply #24 on: March 27, 2018, 12:37:01 AM »
I think you got lucky. This only worked because of continuing trouble at Facebook. But what if Facebook had announced it had cleared up the miscommunications, locked down security, and advertisers were coming back on board? Then you would have lost.

And the scary part is, you don't know which way things will go before the fact.


sure, of course I got lucky, but I figured it was a >50% chance lucky (kinda like rolling 10 dice and assuming the sum will be greater than 20).  that is always the case with anything.  Buy and hold for any given stock would have similar issues since you don't know if it will go up or down short or long term.  Puts seemed to be a good idea because these things always seem to take more than a few days to shake out and as I said, limiting the downside risk.
Do you mean 35?  The expected value of a single roll is 3.5.


that was my point. I thought there was a much greater than 50% chance that Facebook would decline.

okay

1) all available info is already priced into the stock/option
2) you are trying to predict human behavior, not stock fundamentals. Fear/greed drive day-to-day volatility. Nobody can reliably and consistently predict what other people are going to think/do tomorrow or anytime in the future. Short-term market fluctuations are solely caused by human behavior. The long-term trend is due to companies becoming more and more profitable over time.

CCCA

  • Pencil Stache
  • ****
  • Posts: 569
  • Location: Bay Area, California
  • born before the 80's
    • FI programming
Re: I market timed and did just fine
« Reply #25 on: March 27, 2018, 02:00:37 AM »
I think you got lucky. This only worked because of continuing trouble at Facebook. But what if Facebook had announced it had cleared up the miscommunications, locked down security, and advertisers were coming back on board? Then you would have lost.

And the scary part is, you don't know which way things will go before the fact.


sure, of course I got lucky, but I figured it was a >50% chance lucky (kinda like rolling 10 dice and assuming the sum will be greater than 20).  that is always the case with anything.  Buy and hold for any given stock would have similar issues since you don't know if it will go up or down short or long term.  Puts seemed to be a good idea because these things always seem to take more than a few days to shake out and as I said, limiting the downside risk.
Do you mean 35?  The expected value of a single roll is 3.5.


that was my point. I thought there was a much greater than 50% chance that Facebook would decline.

okay

1) all available info is already priced into the stock/option
2) you are trying to predict human behavior, not stock fundamentals. Fear/greed drive day-to-day volatility. Nobody can reliably and consistently predict what other people are going to think/do tomorrow or anytime in the future. Short-term market fluctuations are solely caused by human behavior. The long-term trend is due to companies becoming more and more profitable over time.


I don't really buy into  the "all available info is already priced in" argument.  It doesn't make any sense to me in light of (1) there can be no news on a stock that would affect profitability but still there can be large swings of the stock price.  and (2) good (or bad) news can come out but it can take many days for the price to settle up (or down) to the new level.  That's like the old economist saying there can't be a $20 bill on the ground. 


On your point number 2, sure.  That's what the stock market is, a large market of people that act in ways that are clearly not totally rational.  However, if Apple gets kicked out of China or GM has major explosion issues from its new vehicle, you can bet that the stock will go down on human behavior that is betting changes to the stock fundamentals (whether or not the fundamentals actually do change). 


Anyway, not sure why I'm arguing about this since I'm certainly not advocating that people should stock pick or short stocks or buy options.  Just came to point out that it doesn't always have to turn out badly.  But of course I realize that it still can.     

CCCA

  • Pencil Stache
  • ****
  • Posts: 569
  • Location: Bay Area, California
  • born before the 80's
    • FI programming
Re: I market timed and did just fine
« Reply #26 on: March 27, 2018, 02:09:45 AM »
I think you got lucky. This only worked because of continuing trouble at Facebook. But what if Facebook had announced it had cleared up the miscommunications, locked down security, and advertisers were coming back on board? Then you would have lost.

And the scary part is, you don't know which way things will go before the fact.


sure, of course I got lucky, but I figured it was a >50% chance lucky (kinda like rolling 10 dice and assuming the sum will be greater than 20).  that is always the case with anything.  Buy and hold for any given stock would have similar issues since you don't know if it will go up or down short or long term.  Puts seemed to be a good idea because these things always seem to take more than a few days to shake out and as I said, limiting the downside risk.

how do you figure >50% chance? as far as day-to-day volatility, the market goes up I think 51% of the time, down 49% of the time. After accounting for costs, (even before accounting for costs) I don't see how a put is >50% probability.

Anyhow, it's essentially a 50-50 bet. You got lucky, I would take your winnings and stop playing. If it's "play money" then do whatever with it I guess but I could think of more fun things to do than buying options...
We can disagree on the probabilities (and apparently we do), but as I pointed out before, even if it was 50-50 on probability, the payoffs were very different (and therefore the expected value was as well). 
I made a 300% gain on a 7% decline in Facebook.  I'm going to guess that a 7% increase in FB would not have resulted in a 50% loss of my original position. 


Anyway, I'm not trying to sell a "system" here.  Just thought people might be interested and I wanted to hear some educated discussion about it.  I know it worked out in my favor and know it isn't fool proof and that it might not the next time I try something like this. 

ooeei

  • Handlebar Stache
  • *****
  • Posts: 1143
Re: I market timed and did just fine
« Reply #27 on: March 27, 2018, 09:11:12 AM »
Enjoy becoming a billionaire, as if you can do this consistently that's what you'll be soon.

Kyle B

  • 5 O'Clock Shadow
  • *
  • Posts: 95
Re: I market timed and did just fine
« Reply #28 on: March 27, 2018, 11:02:58 AM »
We can disagree on the probabilities (and apparently we do), but as I pointed out before, even if it was 50-50 on probability, the payoffs were very different (and therefore the expected value was as well). 
I made a 300% gain on a 7% decline in Facebook.  I'm going to guess that a 7% increase in FB would not have resulted in a 50% loss of my original position. 


Anyway, I'm not trying to sell a "system" here.  Just thought people might be interested and I wanted to hear some educated discussion about it.  I know it worked out in my favor and know it isn't fool proof and that it might not the next time I try something like this.

I like your thread and hope you'll post more in this vein.

Jon_Snow

  • Magnum Stache
  • ******
  • Posts: 3201
  • Location: An Island in the Salish Sea (or Baja)
  • I am no manís chair.
Re: I market timed and did just fine
« Reply #29 on: March 27, 2018, 11:12:58 AM »
I'm currently FIRE'd (have been for coming up 4 years now) and am in this position in considerable part due to what could be considered market timing strategies. *shrugs*

CCCA

  • Pencil Stache
  • ****
  • Posts: 569
  • Location: Bay Area, California
  • born before the 80's
    • FI programming
Re: I market timed and did just fine
« Reply #30 on: March 27, 2018, 09:57:01 PM »
I'm currently FIRE'd (have been for coming up 4 years now) and am in this position in considerable part due to what could be considered market timing strategies. *shrugs*


care to elaborate.  Curious as to what you did.

SwitchActiveDWG

  • Stubble
  • **
  • Posts: 176
Re: I market timed and did just fine
« Reply #31 on: March 28, 2018, 05:04:23 AM »
I'm currently FIRE'd (have been for coming up 4 years now) and am in this position in considerable part due to what could be considered market timing strategies. *shrugs*

Lots of people are retired off gambling winnings. Itís always interesting to hear about and perhaps you personally did things that reduced the luck factor due to your intellect or strategy.

But these approaches are an uphill battle mathematically.