The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: morethanconquerors on August 07, 2019, 06:48:00 AM
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So my spouse is going back to grad school. We took out student loans to cover their tuition for the year. Without really looking into it, we accepted the loan amounts that were approved through the Stafford loan process. It ended up being a $10,500 loan for the first semester, even though our bill for the first semester was only ~$4,600 (turns out they were including things like room and board in the $10.5 number...).
Well that left us with some extra cash. Recently, with market volatility going off the charts, I have been waiting for the right time to make a move and the extra cash has given me the capital needed. So yesterday, I bought 200 $SPY 8/9 $275 Puts for $.29 with the extra loan money. I'm expecting another fall with the China uncertainty and the currency midpoint falling back below 7. Hopefully will end the day with a few thousand in profit.
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I'm not sure it is the best move to consider an over borrowed student loan as "extra cash" and throw it into the market. Nothing stopping you from paying the loan money right back. I borrowed over a couple of times in college and just paid back the difference.
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Agreed or keep it for next semester.... either way good luck
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Why? Why? Why?
Student loan rates are not great. Why wouldn't you put it back onto the loan or save it for the next semester? I hope you don't lose your money. I hope you end up making a killing. If you get lucky, recognize that it is simply luck and please don't make an uneducated decision like that on borrowed money.
(Wrote that and saw they expire tomorrow. Sigh.)
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So yesterday, I bought 200 $SPY 8/9 $275 Puts for $.29 with the extra loan money.
Can someone please translate this into layman's terms for me? If $SPY goes below $275 by market close tomorrow...?
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So yesterday, I bought 200 $SPY 8/9 $275 Puts for $.29 with the extra loan money.
Can someone please translate this into layman's terms for me? If $SPY goes below $275 by market close tomorrow...?
OP has the option to sell 20,000 shares (100 shares per contract) of SPY at $275 regardless of the current price. Paid $0.29 per share for the privilege.
OP was betting on a 3% or more decline in the S&P 500 to happen within 3 days. Could have happened. But as luck would have it, the market went the other way. Now it would take more like a 6% decline tomorrow for the options to have any value at expiration. While that isn't outside the realm of possibility, it isn't looking too good for this bet.
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So yesterday, I bought 200 $SPY 8/9 $275 Puts for $.29 with the extra loan money.
Can someone please translate this into layman's terms for me? If $SPY goes below $275 by market close tomorrow...?
OP has the option to sell 20,000 shares (100 shares per contract) of SPY at $275 regardless of the current price. Paid $0.29 per share for the privilege.
OP was betting on a 3% or more decline in the S&P 500 to happen within 3 days. Could have happened. But as luck would have it, the market went the other way. Now it would take more like a 6% decline tomorrow for the options to have any value at expiration. While that isn't outside the realm of possibility, it isn't looking too good for this bet.
So the OP stands to lose $0.29 x 20,000 shares, or $5,800 if he the market doesn't have a serious correction tomorrow?
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Pretty much - bought the options at $0.29, can currently sell them at $0.01-0.02 and the value only goes down from there (they expire tomorrow) unless SPY gets below $275, which is fairly unlikely to happen in 1 day when it is currently at $293.
Not that it couldn't happen, but we're talking about the 500 largest US companies collectively losing 6%+ of market capitalization in one trading day. Hasn't happened very often before - something like 15-20 days in the last 6 decades or something like that.
If it does happen, it would be a huge win for OP - even getting down to $274.00 would make those options worth $20,000.
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I made that whistling sound between my front teeth while reading the OP. I'm a big fan of options... But they are not actually intended as a vehicle for high payout speculation. They get used that way and the people who gamble like that tend to get wiped out. There are dozens of strategies that let you use options to generate reliable income while reducing your risk. This was an ill-advised binary bet against the house.
I'll invite the OP to check out my blog (in the sig link) for more reliable ways to trade options for income while increasing your safety.
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I find the difference in risk tolerance between people to be fascinating. My father loves risk and played with stock picking and IPOs back in the day. I am on the opposite end of the spectrum and want my money in broad index funds and that is about it. I’m not even interested in a little play money to dabble with other “exotic” stuff like peer-to-peer lending as some in my family do.
I could lose the money the OP is talking about and never even notice it, but reading about this gamble puts me on edge.
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So... close but no cigar? $5,800 down the drain?
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Ouch! That's an expensive lesson.
Hopefully the OP learns as much from this trade as he does in the first semester of grad school since it cost him as much as one semester's tuition. (And that's lifelong non-dischargeable debt, too, btw.)
Even with today's shellacking the SPY is at $284.50
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Education is getting very expensive. $2900/day!
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Thismcamt be a real post. This was a horrific gamble. I hope it was fake news
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Okay I'm back, sorry.
So I ended up making a little money, but my plan didn't go as well as I wanted to. Market dropped during premarket trading and started rising a little after open, so I sold almost immediately on the 7th for $.31. I was sitting at $4,200 + $2,000. That play scared me gambling that much money, so I sat things out for a little bit, but then on Friday I got back in the game 😬.
Bought 100 $AMD 8/23 $30 puts for $.41
Not liking how the market is looking so far this morning. Was hoping for another red Monday, but as of now, $AMD jumped all the way up to $31.90, so I may be in trouble. Have a few more days for it to go down, but theta decay may get me this time. Will update when I make a move
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I hope you are 1) learning something through all of this or 2) the price of the roller coaster ride is worth the dopamine rush.
Pro tip: investing is supposed to be boring.
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Bet big to win big.
If your considering your financial future a “bet” what the heck.
Have you looked at how much you woulda made had you played your SPY put exactly correct on August 13/14?
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Okay I'm back, sorry.
So I ended up making a little money, but my plan didn't go as well as I wanted to. Market dropped during premarket trading and started rising a little after open, so I sold almost immediately on the 7th for $.31. I was sitting at $4,200 + $2,000. That play scared me gambling that much money, so I sat things out for a little bit, but then on Friday I got back in the game 😬.
Bought 100 $AMD 8/23 $30 puts for $.41
Not liking how the market is looking so far this morning. Was hoping for another red Monday, but as of now, $AMD jumped all the way up to $31.90, so I may be in trouble. Have a few more days for it to go down, but theta decay may get me this time. Will update when I make a move
I mean, at least casinos will give you free drinks...
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Why? Why? Why?
Student loan rates are not great. Why wouldn't you put it back onto the loan or save it for the next semester? I hope you don't lose your money. I hope you end up making a killing. If you get lucky, recognize that it is simply luck and please don't make an uneducated decision like that on borrowed money.
(Wrote that and saw they expire tomorrow. Sigh.)
Subsidized student loan rates can actually be very good. All of my loans that I took out for undergrad were under market rate (2-3% back in 2002-2006). I'm not sure if you can get those great subsidized rates for grad school, though.