Is anyone gonna try and time the market soon?

[bthewalls]

Background: I’m nearing retirement (not early, alas, thanks to my ex-husbands midlife crisis). I’ve never so much as touched my retirement accounts before this year.

As a medical professional with an extensive molecular biology background, I put half my retirement account into cash before the drop because of Covid, and came out ahead.

I’m now considering going to cash sometime before the election and waiting to see how things shake out. Markets hate uncertainty and it’s likely to take some time for all the ballots to be counted. Considering that we will likely be in a third wave of Covid at the same time, I’m not expecting things to look good. “War game” type evaluations of the election have predicted riots in the streets in every scenario except for Biden winning by a large margin (which I doubt will happen). A

I fully understand that by doing so, I might miss out on some run up in the market. That’s traditionally the argument against market timing - that most gains are made in relatively few days out of the year. I get it. But given that I’m so close to retirement, the risk of a huge drop that doesn’t make a v-shaped recovery would have a huge negative impact, versus the opportunity to buy back in after a drop could significantly improve my retirement. These are much bigger impacts than the worst case scenario of missing out on a short term run up in stocks.

I feel that the coming likely disruption is more predictable than the typical “the market is overvalued” kind of market timing - we’ve all seen overvalued markets continue to grow for years past that point before the bubble pops.

The real question to me is when to get out. Now? Right before the election? Dollar cost average my way out over the next month?

(Btw I expect some kind of bump when a vaccine is released but that is not likely before the election despite Trump’s bluster. It’s a BARE MINIMUM to require two months follow up after the second injection. )

that ballsey.  personally I think weve missed the window.  I was only considering goinig to cash in my non index fund stuff that volitaile

Barry

[MustacheAndaHalf]

A 50% effective vaccine combined with mask wearing and social distancing could get the Ro below 1 and kill the pandemic. However it will take months if not years to immunize enough of the population. But there will probably be irrational exuberance in the markets once a vaccine is announced anyway.

I predict a bit more stupidity than that.  Masks are incredibly effective (97%?), but a lot of people will probably stop wearing masks once they have 50% protection from a vaccine.  During the pandemic many people have denied there's a problem, and gathered in large groups ... I don't expect a vaccine to make those people wiser.  We could even see a big outbreak after everyone is vaccinated, assuming the vaccine is only 50-70% effective.

Most people would have predicted years to reach this point, where we're expecting stage III trials to finish within months.  The expert view I've heard is first half of 2021, rather than years.

I prefer to establish selling and buying criteria before I begin market timing.  I'm waiting for a recovery in Covid sensitive stocks, at which point I'll sell.  For timing this election, will you buy back in on Nov 4th?   What if the election hasn't been decided a week later, on Nov 10th?

[waltworks]

Yeah, if you don't have specific criteria for what to do and when, you're just flailing around randomly.

-What price do I want to buy back in at?
-How long am I willing to wait for that price? How much am I willing to lose to inflation/lost dividends?
-Am I willing to buy back in if I *never* get my desired price?


-W

[bthewalls]

in terms of the theoretical debate.....is it possible, in anyway, that we are not about to see one of the biggest recessions in history?

QE, near zero interest, helicopter money, hugely priced equity (lets be real), big funds buying volumes of gold.....Surely its impossible to avoid a huge down turn?

maybe it possiblle to avoid a global down turn again, but I dont know enough about this stuff to see how we avoid it. 

Still only a small portion of the globe has had covid.....what happens in 6 months time...agree with previous posts about the time frame to have an effective distrubution of vaccine....but it could take years.

What happens when global covid hits 1billion.....2 billion? will this over pumped market stay inflated?

[Retire-Canada]

Surely its impossible to avoid a huge down turn?

The stock market is not the economy. The market can do fine while main street suffers. I don't pretend to know what will happen so I leave my money invested knowing that the vast majority of the time that's the better choice. The few times it's not the better choice I'll still be ahead because of all the times it was the better choice and I left my money invested.

The problem is there is frequently a reason to think there may be a significant market event on the horizon. Since I joined this forum in ~2014 it's been one thing after another that's been proposed as the next big one.

[waltworks]

Again, meh. It ain't the cold war. Covid is like a one-hit 70s band, seems like a big thing at the time and then 10 or 20 years later, the kids these days don't even KNOW Starland Vocal Band!

If you should be worried about something, it's civilization ending shit. Climate change, big solar flares, asteroid, nuclear war, etc.

Otherwise, just buy when you can and carry on. Easier on your mind and better for your wallet in almost every case to boot.

-W

[dondon]

Anyone gonna go to cash or partial cash at moment?

I went to cash in my short term portfolio in the beginning of September (mainly based on technicals) - but this one is more speculative and short term oriented. For the larger long-term portfolio, I have made some defensive adjustments in January (following the situation in China) and I have not made any adjustments since then - still fully invested. 

[bthewalls]

fair enough guys, makes sense.  maybe ive been over thinking it.

But this approach does mean that the big names in macro economics, dalio et al, are all well off the mark.  either they are wrong or we are, to a certain extent.

[Retire-Canada]

But this approach does mean that the big names in macro economics, dalio et al, are all well off the mark.  either they are wrong or we are, to a certain extent.

Saying everything is okay isn't sexy, doesn't get you booked on CNN/MSNBC/FOX and doesn't get you nearly as many clicks as FUD. Fear is a business/marketing strategy for financial experts.

This is worth a re-post: https://prosperion.us/commentary/meet-bob-worlds-worst-market-timer/

[waltworks]

fair enough guys, makes sense.  maybe ive been over thinking it.

But this approach does mean that the big names in macro economics, dalio et al, are all well off the mark.  either they are wrong or we are, to a certain extent.

LOL at Dalio being a "big name in macroeconomics".

I can guarantee if you go talk to an actual economist and get them to give you investment advice, they'll say buy index funds and don't do anything exciting.

I can also guarantee that talking heads and bloggers, some of whom (ie Dalio) were right just one time in the past, will say anything exciting they can think of to keep getting clicks/appearances/attention.

Boring and reliable doesn't sell. But it makes you rich.

-W

[MustacheAndaHalf]

fair enough guys, makes sense.  maybe ive been over thinking it.

But this approach does mean that the big names in macro economics, dalio et al, are all well off the mark.  either they are wrong or we are, to a certain extent.

LOL at Dalio being a "big name in macroeconomics".

I can guarantee if you go talk to an actual economist and get them to give you investment advice, they'll say buy index funds and don't do anything exciting.

I can also guarantee that talking heads and bloggers, some of whom (ie Dalio) were right just one time in the past, will say anything exciting they can think of to keep getting clicks/appearances/attention.

Boring and reliable doesn't sell. But it makes you rich.

-W

How many of those economists are above Ray Dalio on the Forbe's billionaires list?
If their advice "makes you rich", it doesn't seem to have worked for them.

[waltworks]

I actually know quite a few academic econometrics folks from my grad student days. They are (mostly) actually pretty much mustachians - millionaires without seeming rich, because they make small good decisions on a daily basis and stick with a boring plan.

Dalio was spectacularly right one time. His funds have sucked in general, and there's no evidence that he did anything much more than get really lucky. You'd expect a few of him no matter what, just from lots of rich people betting money on lots of potential outcomes of the market.

In any case, market timing usually doesn't work even if you do have a plan. OP has no such plan and spending his/her time following talking heads is a terrible idea if you're already a hesitant investor.

-W

[MustacheAndaHalf]

I actually know quite a few academic econometrics folks from my grad student days. They are (mostly) actually pretty much mustachians - millionaires without seeming rich, because they make small good decisions on a daily basis and stick with a boring plan.

How is anyone else supposed to verify your personal anecdotes about most economists being millionaires?

Dalio was spectacularly right one time. His funds have sucked in general, and there's no evidence that he did anything much more than get really lucky. You'd expect a few of him no matter what, just from lots of rich people betting money on lots of potential outcomes of the market.

Keeping a hedge fund running for 40 years takes more than getting "really lucky" or being "right one time".  His fund was the largest in the world in 2005, when it had $17.7 billion in assets.
https://money.cnn.com/2005/09/01/markets/hedgefund_billions/index.htm

Speaking of "no evidence", where's yours?  What's your evidence that a hedge fund that grew from someone's apartment to $138 billion in assets has performed badly the whole time?  How did the fund avoid going out of business, when most hedge funds have much shorter life spans?

I don't particularly agree with Dalio, but I disagree with someone lacking evidence for their statements even more.  A 45 year investment history is not "one time", and it's not "no evidence".

[waltworks]

https://assetbuilder.com/knowledge-center/articles/has-your-portfolio-beaten-the-worlds-most-famous-hedge-fund

Reversion to the mean is a bitch.

But you can, indeed, make a crap-ton of money taking 2-and-20 from rich people's investments. Dalio is very, very good at that.

-W

[frugaldrummer]

As for when I would buy back in - not on Nov 4th unless it is a landslide for Biden. (This was the only scenario when they war-gamed it out that didn't result in riots in the streets). Otherwise I would wait for the votes to be counted and a final decision rendered, which might be many weeks if it goes to the Supreme Court.

I might dribble it back in if the market isn't doing too badly, but I expect the uncertainty to cause a drop in the market.

As for the bigger picture of inflated stock prices/ impending doom - while I agree that things look overheated, as I said before, Ive seen a lot of overheated markets go on to make sizeable gains for a couple more years before the bubble bursts - the timing of those things are not predictable and I wouldn't try. This election is a definite event at a definite time that is almost certainly going to roil the markets until the election is settled. (Granted, I might miss a bump if it looks like Trump won on election night, but that could easily change with the counting of mail in ballots.  Any bump produced by that could also be fleeting as the economic realities of Covid effects on the economy will still be present.)

[GuitarStv]

As for when I would buy back in - not on Nov 4th unless it is a landslide for Biden. (This was the only scenario when they war-gamed it out that didn't result in riots in the streets).

There have been riots in the streets for a while now.  Electing Biden magically stops them?


:P

[waltworks]

I thought people learned their lesson about investing based on whether an R or a D wins a while ago, but I guess not.

To make it simpler, nothing you read in the newspaper is worth changing your investing strategy over. Really.

But hey, folks want to work for a bunch of extra years and pretend they can predict the future, I guess that's their choice.

-W

[MustacheAndaHalf]

https://assetbuilder.com/knowledge-center/articles/has-your-portfolio-beaten-the-worlds-most-famous-hedge-fund

Reversion to the mean is a bitch.

But you can, indeed, make a crap-ton of money taking 2-and-20 from rich people's investments. Dalio is very, very good at that.

Thanks for the reference.  I'm suspicious when an article cherry picks 8 years of performance, ignoring a fund's entire history.  Another article puts it in context:

"Bridgewater’s Pure Alpha strategy has generated an annualized return of 12 percent since its inception in December 1991. But it posted a long streak of mediocre returns from 2012 through 2017, producing gains in the low-single-digits each year."
https://www.institutionalinvestor.com/article/b1cpywndrkcyzk/Here-s-What-Ray-Dalio-Made-in-Bridgewater-s-Impressive-2018

I still wouldn't describe a 12% annual return for almost 30 years as luck or a one time thing, as you claimed earlier.  (The U.S. market returned 10.5% from 1991-2020, while international returned a much worse annualized 5.0% return, both according to portfolio visualizer data)  If anything, it shows Ray Dalio has been through previous recessions and crashes and done better than the market.

Doesn't Warren Buffet also have a pessimistic view right now?  That we have a deep recession ahead?
I haven't heard any recent interviews, just those back in Q1 of this year.

[waltworks]

That's before fees, I assume. Plus it's done crappy the last 3 years, since 2017. I calculate something around 10% since inception.... matching the S&P return, though you didn't pay 2/20 for that.

It is indeed a monumental accomplishment that a famous hedge fund manager, in his best performing fund (what has all weather done, like <8% since the 90s?), with all the hired talent and research available, managed to not lose his clients any money compared to some random dummy who bought index funds and forgot about them.

Holy crap! That's amazing!

Buffet has told small investors the same F'ing thing for 40 years. Buy/hold index funds.

-W

[bthewalls]

12 percent annual is pretty impressive over such a time period. Suppose in last 9? Ish years returns have been amazing in comparison.

Let’s assume there gonna be no crash, no staggering inflation or deflation, a COVID vaccine , economies fair out ok.....I have plenty or time to ride these out I.e. more than 10 years.

But if I was close to FIRE I’d be taking precautions now....only my opinion...

[bthewalls]

frugaldrummer - Most people view vaccines as 100% effective, while experts hope for 50% effectiveness.  I expect that large gap to be filled with worse than expected news, unfortunately.  Getting a 95% or higher effectiveness on the first try is wildly optimistic - but if that happens, the news could come out before the election.  (If 50 people get sick, and only 2 of them got the vaccine while 48 got a placebo, that's strong evidence of an effective vaccine despite only 50 people getting sick).  More likely, the vaccines are much weaker and will take longer to show their effectiveness.

still, having 50% of population out of the equation would be massive

[shinn497]

I seriously think the fact that people consistantly desire to time the market, despite the ever increasing evidence that it doesn't work, is the very reason that it never will work. If that makes sense.

[GuitarStv]

I seriously think the fact that people consistantly desire to time the market, despite the ever increasing evidence that it doesn't work, is the very reason that it never will work. If that makes sense.

It's like the lottery.  There's a small chance that you'll strike it rich, but the safest move is not to play.  But like the lottery, there will always be people lining up to buy tickets.

[waltworks]

I personally think the lottery is a little more appealing. Odds of success are even lower, but the payoff is at least huge enough to daydream about. A really, really successful market timing outing *might* get you a 50% gain. I suppose that's kinda fun to think about, but it's not like instantly having millions of dollars for no work.

I have no interest in either, but I have a bit more respect for playing the lotto. At least you're going in eyes wide open (in most cases) that you're playing for fun and are virtually certain to lose. And your losses, assuming you don't have a terrible gambling problem, are pretty limited.

Potential losses (missed gains) with market timing are huge, though you don't see them for years. Much more harmful, in it's own insidious way.

-W

[Buffaloski Boris]

I look at my own recent experience with overt market timing and note that it didn’t work out as I hoped.The problem is you have to get it right twice. I absolutely got it right on being largely out of the market at the beginning of the year (yay!). What I didn’t do was dive in with both feet at the end of March (not so yay). So am I any better off than I would have been if I had been fully invested and simply ignored it? Yeah, a little bit. But not enough to justify the time and aggravation.

[MustacheAndaHalf]

shinn497, waltworks - Then maybe a thread about market timing isn't for you?

frugaldrummer - Most people view vaccines as 100% effective, while experts hope for 50% effectiveness ...

still, having 50% of population out of the equation would be massive

It's a help from an epidemiological point of view - but consumers probably won't react well.  Some will realize that's not enough protection, and won't go back to normal.  It's not enough to open bars and restaurants to full capacity, nor reopen work and school as if the pandemic is over.

Others will treat the vaccine as 100% immunity, and gather in groups without wearing masks.  We already see that now, with no vaccine.  My guess is after people get vaccinated, it will not protect everyone, and we'll see outbreaks.

[waltworks]

I participate in every market timing thread, so that new forum members don't start thinking it's a good idea.

-W

[Psychstache]

I participate in every market timing thread, so that new forum members don't start thinking it's a good idea.

-W

The hero we need.

[bthewalls]

Someone mentioned with timing you gotta be right twice...makes a lot of sense.

I’m sitting tight....I know portfolio value with drop as market does but not much can be done but buy more at that time.

[MustacheAndaHalf]

waltworks - Which would you trust more: my opinion or historical data?  I assume you'd say "historical data", yet when you promote index investing you tend to provide your opinion.  Why not point people to historical data, to convince them indexing is better?  (Like SPIVA, which compares the S&P 500 against active funds).  That's definitely the approach used in the book "A Random Walk Down Wall Street".

Buffaloski Boris, bthewalls - Most market timing that I've heard about attempts to sell before a crisis, avoiding the damage, and then buy back near the bottom.  Although I timed the March bottom one day early, I'd grant the bottom is normally hard to time.

What about making the first timing decision during a crisis?  Meaning you don't sell before the crisis, but just wait for a deep enough crisis, and then make a timing decision.  I'm putting forth the idea that you switch 1/5th of your portfolio into the most beaten up individual stocks.  During the 2008 crisis, that would be banks, REITS and home builders.  During 2020, that would be retail, airlines, restaurants.

That makes the second timing decision much easier: wait for a recovery.  You bought the stocks after a significant drop, and you wait for a recovery.  Worth noting about drops & recoveries:
20% drop (4/5) needs a +25% recovery (5/4) ... 4/5 x 5/4 = 1
33% drop (2/3) needs a +50% recovery (3/2) ... 2/3 x 3/2 = 1
If index funds drop 20%, and you bought individual stocks that dropped 33%, you get a recovery that's twice as strong (+50% versus +25%).

It's still two market timing events, but "waiting for reversion to the mean" is easier and more likely than timing the bottom of a crisis.  So maybe that's an improved way to market time... I'll let you know in a year or so.  :)

[ChpBstrd]

@MustacheAndaHalf the difficulty of predicting market events in advance made me look for ways to profit after a drop. Holding a hedged portfolio and maintaining an IPS rule that you must sell your hedges anytime the market falls XX% seems like a good way to do so.

In practice this means holding your stocks in an options collar. When the market drops, your stocks fall and your options go up. You liquidate your options and buy more stock with the proceeds. XX% down might not be the bottom, but it’s enough to ensure you’ll beat the index from then on. Side benefits: It discourages predictive market timing and reduces volatility, allowing you to hold a more aggressive equity allocation without as much risk.

[bthewalls]

I’ve gone off the idea of timing anything now......too risky

I might stick to easier idea of buying in lumps in Interval when it hits minus10...minus 20 and so on...then return to dollar pointing...

I got march pretty good but was waiting for it...based on Dalio forecast

[MustacheAndaHalf]

ChpBstrd - A collar being an optimistic call and a protective put?  Most of the time, markets are headed upwards, so a protective put gets left behind.  I would expect that's rather costly to maintain over a multi-year bull market.

The reason I like the "switch to individual beaten up stocks" approach is I do nothing normally.  If there's no crisis, no action is required - there's no upkeep.  But it would take a very, very strong stomach.  Right as everyone says malls or dot-com companies are gone forever, a chunk of your portfolio has to be invested contrary to everyone's views.

bthewalls - When you said you got March good, what percentage/fraction of your portfolio was out of equities before March 9?  For me, back in March, when I predicted the crisis was worse than the market expected (like March 10 the US market was down -4%!)... I changed the allocation of about 1/6th of my portfolio.

[ChpBstrd]

ChpBstrd - A collar being an optimistic call and a protective put?  Most of the time, markets are headed upwards, so a protective put gets left behind.  I would expect that's rather costly to maintain over a multi-year bull market.

It’s a covered call plus a protective put. The sale of the call funds the purchase of the put. You can define the cost in terms of which strike prices you pick. E.g. with a call $8 above today’s price and a put $10 below, you might take a net credit on the deal. Similarly, if your call allows for lots of upside and your put is close to current price, you’ll have to pay something for the position.

IMO, the best way to execute this is to stick to very liquid options markets like SPY or QQQ and to go as far out as you can in terms of duration. Like 2 years or more. When you’re that far out the time decay is very slow AND the options are more sensitive to changes in volatility. That works out well when you are looking to enter the collar as stocks are high and rising, when volatility is low, and exit the collar when stocks are plunging and volatility is high. You buy your puts when everyone thinks they’re baggage and sell them when they turn to gold. I prefer to enter a hedge when VIX < 15 because calls are relatively more expensive than puts at those levels, whereas the opposite seems true when volatility is high. The ideal pricing is when you can enter a costless or even net credit collar with the put closer to the current price than the call.

If your IPS says to close the hedge when stocks are down XX%, this strategy involves going without protection for some period of time in the midst of a panic until volatility again gets cheap. This happened really quickly in 2018, but 2020 has been a longer wait.

[bthewalls]

bthewalls - When you said you got March good, what percentage/fraction of your portfolio was out of equities before March 9?  For me, back in March, when I predicted the crisis was worse than the market expected (like March 10 the US market was down -4%!)... I changed the allocation of about 1/6th of my portfolio.

Well it was an odd one....I’d blindly followed dalio a year before who forecasted large corrections in q1 2020 ish...but obviously Covid came about same time and delivered that dip (Bridgewater even underestimated as we all know).....but I had a pot ready and bought near bottom.

I had actually put property for sale year before waiting for the dip in attempt to free up 200k Uk sterling to dump in...didn’t get it sold before dip in March so pulled it back off ....that’s the story @mustacheandhalf.

I keep it real basic cause that’s all I know.  Option beyond me still....I get the theory though

[MustacheAndaHalf]

ChpBstrd - Oh, selling a covered call plus a buying a put.  Looking out one year, to options expiring Sept 30 2021, the options are cheaper than I expected (9% of the stock price for an at the money call).

It looks like the prices are stale, so taking the midpoint of the bid-ask spread:
CALL $355 costs $22.80
PUT $330 costs $28.74

A call and put at similar distance from the current stock price seem to have very different prices.  To afford a put costing under $23 requires dropping all the way down to the $300 range.  Right now, the covered call would sell at 4% above the current stock price, but the put would be 12% below the current stock price.

Do you buy options at a different duration?  Does the above seem strange?
https://finance.yahoo.com/quote/SPY/options?date=1632960000&p=SPY

[MustacheAndaHalf]

bthewalls - When you said you got March good, what percentage/fraction of your portfolio was out of equities before March 9?  For me, back in March, when I predicted the crisis was worse than the market expected (like March 10 the US market was down -4%!)... I changed the allocation of about 1/6th of my portfolio.

Well it was an odd one....I’d blindly followed dalio a year before who forecasted large corrections in q1 2020 ish...but obviously Covid came about same time and delivered that dip (Bridgewater even underestimated as we all know).....but I had a pot ready and bought near bottom.

I had actually put property for sale year before waiting for the dip in attempt to free up 200k Uk sterling to dump in...didn’t get it sold before dip in March so pulled it back off ....that’s the story @mustacheandhalf.

I keep it real basic cause that’s all I know.  Option beyond me still....I get the theory though

Ah, I think you did better using Dalio's advice, than Dalio did.  :)

Back in March, real estate was a very cold market.  But at least in the U.S., that changed during the summer months.  People locked down in their current houses discovered they didn't like it, and combined with very low mortgage rates, the U.S. real estate market was hotter at the start of summer than it normally would be.  But I guess selling now is well after the market panic opportunity back in March (I bought it, too: first on March 19-20 when I predicted the crash a day early.. and then I bought individual stocks as soon as I could switch investments).

Another perspective on covered call options, using SPY as an example to make a point or two.  If you own 100 shares of SPY ($342/share), that $34,200 in assets lets you get involved in just 1 options contract.  At least for SPY, options involves a sizable chunk of money.

And if you sold "a call option at $375", what you're doing is saying "if the S&P 500 goes up more than 10%, someone else can collect all of the profit above 10%".  They pay you 3.5% of the stock price (as of today), and they collect everything over 10%.  I'm not disputing that it might be profitable over time, but I'm pointing out in some years, people might feel like they missed out on a big stock gain.  So it's important to know how you'd react to that, in case you consider options later.

[bthewalls]

@ mustacheandhalf following dalio online for few years...Literally treadmill YouTube time

What you make of Peter sciff ongoing doomsday forecast of currency issues in USA And pending inflation ?...I’m in Northern Ireland but whatever happens in USA affects us all

Ta for optionS advice....but it’s way beyond me and I know my limits...

[ChpBstrd]

ChpBstrd - Oh, selling a covered call plus a buying a put.  Looking out one year, to options expiring Sept 30 2021, the options are cheaper than I expected (9% of the stock price for an at the money call).

It looks like the prices are stale, so taking the midpoint of the bid-ask spread:
CALL $355 costs $22.80
PUT $330 costs $28.74

A call and put at similar distance from the current stock price seem to have very different prices.  To afford a put costing under $23 requires dropping all the way down to the $300 range.  Right now, the covered call would sell at 4% above the current stock price, but the put would be 12% below the current stock price.

Do you buy options at a different duration?  Does the above seem strange?
https://finance.yahoo.com/quote/SPY/options?date=1632960000&p=SPY

Yep, this is a sign of fear in the market. There’s a lot more demand for puts than calls. I find VIX to be a good shorthand for how bad or good a deal it is to get into a collar.

My rule has been to wait for VIX to dip to around 15 (currently 26.36) before getting into a collar. This way it’s not so much timing as it is waiting for a sale. Essentially when volatility is low, you place a bet it will go back up.

Also, I’ll buy 2 years of duration when I can, and roll annually. This strategy keeps the time decay affordable and gives me time to ride out a rough patch of high vol if needed.

[MustacheAndaHalf]

bthewalls - I'm not familiar with Peter Sciff.  Why does inflation spike upwards, according to him?

The Federal Reserve has been wanting a bit of inflation for years, but inflation hasn't arrived... seems hard to trigger.  This year the Fed changed it's policy to recognize that sometimes unemployment is not accompanied by inflation.  The example of the 2008 crisis and current crisis motivated that policy change.


ChpBstrd - Wow, I can see that fear more clearly with the options dated Oct 20, 2020.  Counting all volume over 1,000 orders per option on Thursday, I get 48k calls purchased.  Adding up the puts... I stopped at 166k before counting any orders under 10,000.  More than triple the trading volume in put options.

One approach to valuing things is "mark to market", the value of cashing out at any given point.  A collar during low volatility (buy a put, sell a call) would break even.  When volatility goes up, isn't the collar still break even, if you mark to market?  The put option gets more valuable, but you're also short the call option you sold.. which has become more valuable.  I guess I don't see the profit there.

[ChpBstrd]

One approach to valuing things is "mark to market", the value of cashing out at any given point.  A collar during low volatility (buy a put, sell a call) would break even.  When volatility goes up, isn't the collar still break even, if you mark to market?  The put option gets more valuable, but you're also short the call option you sold.. which has become more valuable.  I guess I don't see the profit there.

Yes, if volatility moved and no other factors changed (an impossibility of course) then both the equidistant put and call would go up in price, so if you were long one and shot the other it would be a wash.

However, volatility usually spikes when stocks are falling, so in reality a collar would harvest some fraction of the move. E.g. if SPY fell $10 the options in the collar might appreciate $7 as both the short call position and the long put position appreciate. That’s where the profit is (in delta).

The reason I only enter collars during low volatility is the skew you observed. I would prefer to buy puts cheap and sell calls expensive, and I would like to have more potential upside than downside. Right now is a bad time to enter a collar because the market is offering neither. If I wanted to enter a cost-less collar, where the call I sell completely funds the put, and I wanted to allow myself 10% potential upside per year, I would end up with something like the following:

Buy 100 SPY for $345
Sell 1 Jan 2023 call at 415 (~20% higher) for 13.94
Buy 1 Jan 2023 put at 230 (~33% lower) for 13.86

As you can see, I’ve had to accept more potential downside than upside. To get both 20% upside and 20% downside, I’d have to pay about $10/share more for the 275 put. Not a good deal IMO. In calmer times, there’d be less of this skew. Everyone seems to agree all hell will break loose around the election and stocks could collapse, so the skew is way out of whack.

Now might be a better time to buy those cheap calls and sit with the rest in cash, while waiting for better pricing on hedged positions.

[bthewalls]

Sorry @MustacheAndaHalf......it’s peter schiff the guy is called.

He’s very vocal and does a lot of you tube....currently Forecasting ‘ the demise of the dollar is Nigh and hyperinflation, due to QE and reduced production of goods.’

https://youtu.be/7hJC-OZI6PA

[bthewalls]

folks, just on the topic of using options.  There seems to be an difference between usa and UK (where im from) system.  as follows:

What the difference between American and European options?
The vast majority of options are either American or European style. The key difference between the two is in regards to expiry. With American options, the holder has the right to exercise it anytime before expiration at the agreed-upon price. Conversely, European options can only be exercised at the pre-agreed upon date and price.
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To me, this sounds like in the UK, I would have alot less wiggle room as time passes.

[ChpBstrd]

folks, just on the topic of using options.  There seems to be an difference between usa and UK (where im from) system.  as follows:

What the difference between American and European options?
The vast majority of options are either American or European style. The key difference between the two is in regards to expiry. With American options, the holder has the right to exercise it anytime before expiration at the agreed-upon price. Conversely, European options can only be exercised at the pre-agreed upon date and price.
--------
To me, this sounds like in the UK, I would have alot less wiggle room as time passes.

Not necessarily. You have to research exactly what you're getting, as the naming convention is about a style, not a location. For example, all index options in the US (and I presume anywhere) are "European style" because it would make no sense to exercise an index option early (e.g. "I think I'll throw some time value in the trash instead of just selling my option because I want the difference between the strike and the index price now."). American style options may have a teeny bit more value than European style because of arbitrage opportunities around dividends.

[talltexan]

Anyone gonna go to cash or partial cash at moment?

Market timing can also be optimistic / bullish, like having a higher allocation to equities than normal.

This sounds logical, but--given the frequency of time that stocks earn a premium--it may well be the case that they run ahead of the target allocation most of the time, meaning that most of us are slightly more risky than what we desire the balance of the time.

[BTDretire]

Maybe again, But, maybe I already did.
 I got scared out of the market in mid/late February, and got scared back into the market in late March. This was with about 20% of my stash. It worked out well.
Did I time the market? Not on purpose. Will I do it again, maybe. Maybe, because of the election. Before or after?   ¯\_(ツ)_/¯
 

[3toesloth]

I'm attempting to time the market, mostly on accident. Sold my house in 2016 and put the money in an S&P fund. Made good returns on that and sold in 2018 because I saw that Shiller PE and other indicators were really high. Then I bought bonds and they went up a bunch (like 12% or so) so I sold them too. March this year I bought gold at around 1500 and sold most when it got around 2000. Now I can't think of anything to do but cash, but have bought back 50% into bonds thinking that I will hold them for years for the yield and they tend not to drop as far in a crash and are down short term when they do. Holding the other 50% in cash and just waiting for Shiller to return to normal. If normal doesn't happen once the election, Covid, and unemployment return to normal (2022) then I plan on buying a dividend stock fund and living on bond and dividend yield while retired until the next crash. I've missed out on some big returns, enough so that I probably could be ER now, but I can't justify buying shares at these valuations. I would be 50/50 at these valuations if I was anything besides a year or 2 from ER.

[ChpBstrd]

I'm attempting to time the market, mostly on accident. Sold my house in 2016 and put the money in an S&P fund. Made good returns on that and sold in 2018 because I saw that Shiller PE and other indicators were really high. Then I bought bonds and they went up a bunch (like 12% or so) so I sold them too. March this year I bought gold at around 1500 and sold most when it got around 2000. Now I can't think of anything to do but cash, but have bought back 50% into bonds thinking that I will hold them for years for the yield and they tend not to drop as far in a crash and are down short term when they do. Holding the other 50% in cash and just waiting for Shiller to return to normal. If normal doesn't happen once the election, Covid, and unemployment return to normal (2022) then I plan on buying a dividend stock fund and living on bond and dividend yield while retired until the next crash. I've missed out on some big returns, enough so that I probably could be ER now, but I can't justify buying shares at these valuations. I would be 50/50 at these valuations if I was anything besides a year or 2 from ER.

For a conservative investor like yourself, a few LEAPS call options would be good insurance against several more years of valuations like this, or an outright melt-up. If I learned anything in 2020 it is to buy oneself some upside while controlling the downside because nobody know WTF is going to happen next!

For example, you could pick up Call options on SPY expiring Jan 20, 2023. The current price of SPY is $347.50 but you could buy the call at the 330 strike for about $51.06 and leave the rest of your cash in bonds. In the historically unlikely event that SPY closes 5% lower than today’s price 826 days (2.25 years) from now, the most you could possibly lose would be the entire value of the option, which is about 15% of the cost of SPY. So by buying the option and putting the rest of your stock allocation in cash/bonds, instead of just buying SPY, you’re limiting you maximum potential risk while enjoying leveraged upside. The option I mentioned has 34.50 in time value, which is like a fee of $15.33/year, or 4.4% of the value of SPY.

That’s not a super-high annual ante for so much upside. Imagine if you had taken a similar deal two years ago at the $275 strike. And if it turns out we are in a tech bubble that bursts next year, you’d still be glad to be down 15% instead of 40-50%.

[3toesloth]

ChpBstrd
I've been thinking of getting into some kind of options/hedging. Going to need to look into that.
Thanks much