The perfect trade

[Cardboard]

BAC's attractiveness has been discussed ad nauseam on this site for years. Unfortunately, it now suffers from a disease called interest rates not going up.

 

This disease is offset by retained earnings which continue to grow and solidify the business plus return of capital in the form of buybacks and dividends.

 

If you had bought BAC at every time it touched $27 this year and sold it at $30, you would have made 11% each time not accounting for the dividend. This could have been repeated 4 times already or a 44% return and we are now closing in on $27 again (almost touched it this morning).

 

The risk is that you get stuck with a high quality company trading cheaply if it goes well below $27 or fails to return quickly to $30. Or that you miss out on some larger upside above $30 if it doesn't fall back. Still how do you beat 44% in 9 months in a large mega cap with such little downside risk?

 

Of course if there is a calamity then BAC could go bankrupt or be down a lot from $27 but, what would happen to the rest of the market?

 

This could have worked with the other large bank stocks as well such as WFC, C, JPM and USB but, the channel is not as clear.

 

While I know that hindsight is 20/20, I think that one could do much worst than trying this out.

 

Cardboard

 

 

[Foreign Tuffett]

The rationale for this trade idea is almost completely backwards-looking, but the stock market is forward- looking.

[Castanza]

BAC's attractiveness has been discussed ad nauseam on this site for years. Unfortunately, it now suffers from a disease called interest rates not going up.

 

This disease is offset by retained earnings which continue to grow and solidify the business plus return of capital in the form of buybacks and dividends.

 

If you had bought BAC at every time it touched $27 this year and sold it at $30, you would have made 11% each time not accounting for the dividend. This could have been repeated 4 times already or a 44% return and we are now closing in on $27 again (almost touched it this morning).

 

The risk is that you get stuck with a high quality company trading cheaply if it goes well below $27 or fails to return quickly to $30. Or that you miss out on some larger upside above $30 if it doesn't fall back. Still how do you beat 44% in 9 months in a large mega cap with such little downside risk?

 

Of course if there is a calamity then BAC could go bankrupt or be down a lot from $27 but, what would happen to the rest of the market?

 

This could have worked with the other large bank stocks as well such as WFC, C, JPM and USB but, the channel is not as clear.

 

While I know that hindsight is 20/20, I think that one could do much worst than trying this out.

 

Cardboard

 

I've been religiously writing ATM cash covered puts on this all year collecting premiums. I got assigned shares a few times. I also hedged a few times buying puts that offset premiums a bit but also gave some additional protection to the downside. Been averaging about 2-3% a month on the capital. Not quite as good as your strategy but if you're not looking to hold shares I don't think it's a bad strategy. You do miss the div though.

 

Curious how many others on here sell covered calls or cash covered puts? In this environment it seems quite easy to do confidently. I saw Boilermaker has been doing something similar in an IRA I believe.

 

Although I haven't been doing it strictly on BAC.

[clutch]

Another strategy completely based on hindsight.  :-\

[Cardboard]

"The rationale for this trade idea is almost completely backwards-looking, but the stock market is forward- looking."

 

Well I agree with you and don't expect this to repeat forever and as I mentioned hindsight is 20/20.

 

However, how do you solve or get out of the low interest rate situation? Forward looking today is that they are going down. A year and a half ago, they were supposed to go up.

 

It seems to me that this situation or tug of war will go on for a long time with weak economic growth and lots of debt around the world.

 

In the meantime, valuation is low and the business keeps on getting stronger over time. So it becomes a fight between the low interest rate headwind, valuation for bank assets and a growing business value.

 

Point is that buy and hold does not seem adequate here. If you like such stocks, then it is only the fear of missing out that prevent you from getting out at the top of the range which is pretty clear for all of them.

[Gregmal]

Another strategy completely based on hindsight.  :-\

 

Another strategy based on buying a starter position in a quality company perhaps at prices slightly higher than one would like and then either making some quick money or then build into it at lower prices. Seems like a way to make money. Some people don't like to make money I guess

[muscleman]

BAC's attractiveness has been discussed ad nauseam on this site for years. Unfortunately, it now suffers from a disease called interest rates not going up.

 

This disease is offset by retained earnings which continue to grow and solidify the business plus return of capital in the form of buybacks and dividends.

 

If you had bought BAC at every time it touched $27 this year and sold it at $30, you would have made 11% each time not accounting for the dividend. This could have been repeated 4 times already or a 44% return and we are now closing in on $27 again (almost touched it this morning).

 

The risk is that you get stuck with a high quality company trading cheaply if it goes well below $27 or fails to return quickly to $30. Or that you miss out on some larger upside above $30 if it doesn't fall back. Still how do you beat 44% in 9 months in a large mega cap with such little downside risk?

 

Of course if there is a calamity then BAC could go bankrupt or be down a lot from $27 but, what would happen to the rest of the market?

 

This could have worked with the other large bank stocks as well such as WFC, C, JPM and USB but, the channel is not as clear.

 

While I know that hindsight is 20/20, I think that one could do much worst than trying this out.

 

Cardboard

 

This is absolutely the wrong way to think about it. If you don't have a stop loss, then you are risking 100% of the capital to make 11%. It could make you feel good but you have to be right 9 out of 10 times just to break even. Sooner or later your portfolio will be filled with failed BACs, each down 50%-90%, and no cash in your portfolio. (Who would have thunk of GE going down that much last year?)

 

You can do technical analysis and trading instead of FA, and it works, but it definitely won't work in the way you described it.

 

 

[Gregmal]

BAC's attractiveness has been discussed ad nauseam on this site for years. Unfortunately, it now suffers from a disease called interest rates not going up.

 

This disease is offset by retained earnings which continue to grow and solidify the business plus return of capital in the form of buybacks and dividends.

 

If you had bought BAC at every time it touched $27 this year and sold it at $30, you would have made 11% each time not accounting for the dividend. This could have been repeated 4 times already or a 44% return and we are now closing in on $27 again (almost touched it this morning).

 

The risk is that you get stuck with a high quality company trading cheaply if it goes well below $27 or fails to return quickly to $30. Or that you miss out on some larger upside above $30 if it doesn't fall back. Still how do you beat 44% in 9 months in a large mega cap with such little downside risk?

 

Of course if there is a calamity then BAC could go bankrupt or be down a lot from $27 but, what would happen to the rest of the market?

 

This could have worked with the other large bank stocks as well such as WFC, C, JPM and USB but, the channel is not as clear.

 

While I know that hindsight is 20/20, I think that one could do much worst than trying this out.

 

Cardboard

 

This is absolutely the wrong way to think about it. If you don't have a stop loss, then you are risking 100% of the capital to make 11%. It could make you feel good but you have to be right 9 out of 10 times just to break even. Sooner or later your portfolio will be filled with failed BACs, each down 50%-90%, and no cash in your portfolio. (Who would have thunk of GE going down that much last year?)

 

You can do technical analysis and trading instead of FA, and it works, but it definitely won't work in the way you described it.

 

And in that case he'll have plenty in common with all the buy and hold value investors who would inevitably ride BAC to 0 as well...

[LC]

The way I think of it is like this:

 

First, you have a fair value which you believe BAC is worth.

 

Lets say you think fair value or intrinsic value etc. is $35/share, well then you are buying at 77% of FV and selling at 85% of IV.

 

So I agree with Cardboard this sounds like a pretty decent strategy (or as he put it, one could do much worse). And I think it can be generalized and improved in two ways:

 

1) Limit this to companies you would 'buy-and-hold'

2) Expand this to multiple companies because really you taking advantage of volatility

 

[writser]

Cardboard you are a very smart trader. Using your concept I started looking for similar situations. I think I found an even better one: buy Microsoft at $137, sell at $139. You could have done that about six times the last two months. So that would be around 1.05^6^6 = 68% annualized. That seems even better. The only risk is that you get stuck with a very high quality company below $137, or risk further upside above $139.

 

Of course if there is a calamity then Microsoft could go bankrupt or be down a lot but Bill Gates would probably bail out the company. Also, if there is a calamity, what would happen to the rest of the market?

 

While I know that hindsight is 20/20, I think that one could do much worst than trying this out. Especially with all the brokers going to $0 commission it seems like we can make a lot of money here. Many thanks for your idea. Do you have more suggestions? I'm looking forward to a fruitful discussion.

 

Writser

[Gregmal]

Thats another good point. $0 commissions and 3% margin rates....Seems look a really good or really bad environment, entirely dependent upon one's trading abilities I suppose.

[Castanza]

Cardboard you are a very smart trader. Using your concept I started looking for similar situations. I think I found an even better one: buy Microsoft at $137, sell at $139. You could have done that about six times the last two months. So that would be around 1.05^6^6 = 68% annualized. That seems even better. The only risk is that you get stuck with a very high quality company below $137, or risk further upside above $139.

 

Of course if there is a calamity then Microsoft could go bankrupt or be down a lot but Bill Gates would probably bail out the company. Also, if there is a calamity, what would happen to the rest of the market?

 

While I know that hindsight is 20/20, I think that one could do much worst than trying this out. Especially with all the brokers going to $0 commission it seems like we can make a lot of money here. Many thanks for your idea. Do you have more suggestions? I'm looking forward to a fruitful discussion.

 

Writser

 

Why wouldn't you just do this with cash covered puts? Weekly premium ATM is $1.89. If you get assigned then it's no different than your situation. Plus you can simply buy an OTM put as a hedge which offsets your premium a bit, but provides good downside protection. That's safer than placing a large amount of capital into a single company. Both strategies are capital intensive.

 

 

[boilermaker75]

BAC's attractiveness has been discussed ad nauseam on this site for years. Unfortunately, it now suffers from a disease called interest rates not going up.

 

This disease is offset by retained earnings which continue to grow and solidify the business plus return of capital in the form of buybacks and dividends.

 

If you had bought BAC at every time it touched $27 this year and sold it at $30, you would have made 11% each time not accounting for the dividend. This could have been repeated 4 times already or a 44% return and we are now closing in on $27 again (almost touched it this morning).

 

The risk is that you get stuck with a high quality company trading cheaply if it goes well below $27 or fails to return quickly to $30. Or that you miss out on some larger upside above $30 if it doesn't fall back. Still how do you beat 44% in 9 months in a large mega cap with such little downside risk?

 

Of course if there is a calamity then BAC could go bankrupt or be down a lot from $27 but, what would happen to the rest of the market?

 

This could have worked with the other large bank stocks as well such as WFC, C, JPM and USB but, the channel is not as clear.

 

While I know that hindsight is 20/20, I think that one could do much worst than trying this out.

 

Cardboard

 

I've been religiously writing ATM cash covered puts on this all year collecting premiums. I got assigned shares a few times. I also hedged a few times buying puts that offset premiums a bit but also gave some additional protection to the downside. Been averaging about 2-3% a month on the capital. Not quite as good as your strategy but if you're not looking to hold shares I don't think it's a bad strategy. You do miss the div though.

 

Curious how many others on here sell covered calls or cash covered puts? In this environment it seems quite easy to do confidently. I saw Boilermaker has been doing something similar in an IRA I believe.

 

Although I haven't been doing it strictly on BAC.

 

I do it all the time with BRKB, WFC, BAC, and AMGN when AMGN 170-puts have sufficient premium.

[Castanza]

BAC's attractiveness has been discussed ad nauseam on this site for years. Unfortunately, it now suffers from a disease called interest rates not going up.

 

This disease is offset by retained earnings which continue to grow and solidify the business plus return of capital in the form of buybacks and dividends.

 

If you had bought BAC at every time it touched $27 this year and sold it at $30, you would have made 11% each time not accounting for the dividend. This could have been repeated 4 times already or a 44% return and we are now closing in on $27 again (almost touched it this morning).

 

The risk is that you get stuck with a high quality company trading cheaply if it goes well below $27 or fails to return quickly to $30. Or that you miss out on some larger upside above $30 if it doesn't fall back. Still how do you beat 44% in 9 months in a large mega cap with such little downside risk?

 

Of course if there is a calamity then BAC could go bankrupt or be down a lot from $27 but, what would happen to the rest of the market?

 

This could have worked with the other large bank stocks as well such as WFC, C, JPM and USB but, the channel is not as clear.

 

While I know that hindsight is 20/20, I think that one could do much worst than trying this out.

 

Cardboard

 

I've been religiously writing ATM cash covered puts on this all year collecting premiums. I got assigned shares a few times. I also hedged a few times buying puts that offset premiums a bit but also gave some additional protection to the downside. Been averaging about 2-3% a month on the capital. Not quite as good as your strategy but if you're not looking to hold shares I don't think it's a bad strategy. You do miss the div though.

 

Curious how many others on here sell covered calls or cash covered puts? In this environment it seems quite easy to do confidently. I saw Boilermaker has been doing something similar in an IRA I believe.

 

Although I haven't been doing it strictly on BAC.

 

I do it all the time with BRKB, WFC, BAC, and AMGN when AMGN 170-puts have sufficient premium.

 

It's interesting to think about this at scale and why people choose to not do it. I mean if you had say 500k you could basically generate a 50-60k yearly income off this strategy with minimal risk. I mean even with say weekly SPY 280 puts (86% profit chance) you generate a $94 premium. Just say 25% for taxes so a 70.5 premium. You could do about 18 contracts a week and generate about 5k a month in income. Yeah you would get the shaft if the market tanked, but that would happen to your retirement accounts regardless.

 

Why is this?

[LC]

Because it is the same strategy that people used in the housing market in 2005.

 

The assumption is "the market will keep going up - it has for 100s of years!"

 

Then you are put to.

[TwoCitiesCapital]

BAC's attractiveness has been discussed ad nauseam on this site for years. Unfortunately, it now suffers from a disease called interest rates not going up.

 

This disease is offset by retained earnings which continue to grow and solidify the business plus return of capital in the form of buybacks and dividends.

 

If you had bought BAC at every time it touched $27 this year and sold it at $30, you would have made 11% each time not accounting for the dividend. This could have been repeated 4 times already or a 44% return and we are now closing in on $27 again (almost touched it this morning).

 

The risk is that you get stuck with a high quality company trading cheaply if it goes well below $27 or fails to return quickly to $30. Or that you miss out on some larger upside above $30 if it doesn't fall back. Still how do you beat 44% in 9 months in a large mega cap with such little downside risk?

 

Of course if there is a calamity then BAC could go bankrupt or be down a lot from $27 but, what would happen to the rest of the market?

 

This could have worked with the other large bank stocks as well such as WFC, C, JPM and USB but, the channel is not as clear.

 

While I know that hindsight is 20/20, I think that one could do much worst than trying this out.

 

Cardboard

 

I've been religiously writing ATM cash covered puts on this all year collecting premiums. I got assigned shares a few times. I also hedged a few times buying puts that offset premiums a bit but also gave some additional protection to the downside. Been averaging about 2-3% a month on the capital. Not quite as good as your strategy but if you're not looking to hold shares I don't think it's a bad strategy. You do miss the div though.

 

Curious how many others on here sell covered calls or cash covered puts? In this environment it seems quite easy to do confidently. I saw Boilermaker has been doing something similar in an IRA I believe.

 

Although I haven't been doing it strictly on BAC.

 

I do it all the time with BRKB, WFC, BAC, and AMGN when AMGN 170-puts have sufficient premium.

 

It's interesting to think about this at scale and why people choose to not do it. I mean if you had say 500k you could basically generate a 50-60k yearly income off this strategy with minimal risk. I mean even with say weekly SPY 280 puts (86% profit chance) you generate a $94 premium. Just say 25% for taxes so a 70.5 premium. You could do about 18 contracts a week and generate about 5k a month in income. Yeah you would get the shaft if the market tanked, but that would happen to your retirement accounts regardless.

 

Why is this?

 

Because the risk you're taking is many hundreds of thousands of dollars when it doesn't work out.

 

You're selling insurance for a premium - it's great when the insurance doesn't have to pay, but a doozy when it does.

 

As far as the strategy, I trade around my core positions ALL of the time. Take gains here, average down there, roll back. Also, I sell long-dated out-of-the money calls and tend to repurchase most of them on market dips 5-10% for 50-60% less, wait for the recovery, and rinse/repeat.

 

All of these strategies take advantage of volatility - but they all suck-hard when they go wrong or you get whipsawed.

 

The buying/selling the actual shares around a core position is probably the least risky, but also the least rewarding/leveraged. As LC said, works best when done on a portfolio of multiple securities you're already comfortable holding and low commission accounts.

[Castanza]

BAC's attractiveness has been discussed ad nauseam on this site for years. Unfortunately, it now suffers from a disease called interest rates not going up.

 

This disease is offset by retained earnings which continue to grow and solidify the business plus return of capital in the form of buybacks and dividends.

 

If you had bought BAC at every time it touched $27 this year and sold it at $30, you would have made 11% each time not accounting for the dividend. This could have been repeated 4 times already or a 44% return and we are now closing in on $27 again (almost touched it this morning).

 

The risk is that you get stuck with a high quality company trading cheaply if it goes well below $27 or fails to return quickly to $30. Or that you miss out on some larger upside above $30 if it doesn't fall back. Still how do you beat 44% in 9 months in a large mega cap with such little downside risk?

 

Of course if there is a calamity then BAC could go bankrupt or be down a lot from $27 but, what would happen to the rest of the market?

 

This could have worked with the other large bank stocks as well such as WFC, C, JPM and USB but, the channel is not as clear.

 

While I know that hindsight is 20/20, I think that one could do much worst than trying this out.

 

Cardboard

 

I've been religiously writing ATM cash covered puts on this all year collecting premiums. I got assigned shares a few times. I also hedged a few times buying puts that offset premiums a bit but also gave some additional protection to the downside. Been averaging about 2-3% a month on the capital. Not quite as good as your strategy but if you're not looking to hold shares I don't think it's a bad strategy. You do miss the div though.

 

Curious how many others on here sell covered calls or cash covered puts? In this environment it seems quite easy to do confidently. I saw Boilermaker has been doing something similar in an IRA I believe.

 

Although I haven't been doing it strictly on BAC.

 

I do it all the time with BRKB, WFC, BAC, and AMGN when AMGN 170-puts have sufficient premium.

 

It's interesting to think about this at scale and why people choose to not do it. I mean if you had say 500k you could basically generate a 50-60k yearly income off this strategy with minimal risk. I mean even with say weekly SPY 280 puts (86% profit chance) you generate a $94 premium. Just say 25% for taxes so a 70.5 premium. You could do about 18 contracts a week and generate about 5k a month in income. Yeah you would get the shaft if the market tanked, but that would happen to your retirement accounts regardless.

 

Why is this?

 

Because the risk you're taking is many hundreds of thousands of dollars when it doesn't work out.

 

You're selling insurance for a premium - it's great when the insurance doesn't have to pay, but a doozy when it does.

 

As far as the strategy, I trade around my core positions ALL of the time. Take gains here, average down there, roll back. Also, I sell long-dated out-of-the money calls and tend to repurchase most of them on market dips 5-10% for 50-60% less, wait for the recovery, and rinse/repeat.

 

All of these strategies take advantage of volatility - but they all suck-hard when they go wrong or you get whipsawed.

 

The buying/selling the actual shares around a core position is probably the least risky, but also the least rewarding/leveraged. As LC said, works best when done on a portfolio of multiple securities you're already comfortable holding and low commission accounts.

 

I get that but my point if if you're simply holding SPY and the market crashes you're going to be down a ton anyways. If you're holding cash and you get assigned shares selling puts what's the difference?

[Spekulatius]

Or buy puts when VIX is<14 and SPY >300. I am 3:0 on this trade. I think I made about 70% on average each time, just closed my last round yesterday. It’s definitely a no brainer, especially when in addition to above Trump says that trade talks are going well.

 

I am almost serious about this.

[Liberty]

This is "the perfect trade"?

 

I guess we live in a world of hyperbole...

[LC]

It's a pretty good idea - I am not denying that.

 

The other component is the "brain damage" associated with this.

 

I do not invest for a living, so I have to ask myself, what do I want to spend my energy on:

 

1- trying to be correct in the long term, or;

2- trying to be correct in the long term AND trying to trade around relative valuation AND trying to value put premiums on a risk adjusted basis AND trying to manage exposure per trade and per portfolio?

 

For those with the time and energy, it is a great idea. Just take a look at boilermaker's posts about doing this with BRK over the years, he is an inspiration in this sense!

[Castanza]

It's a pretty good idea - I am not denying that.

 

The other component is the "brain damage" associated with this.

 

I do not invest for a living, so I have to ask myself, what do I want to spend my energy on:

 

1- trying to be correct in the long term, or;

2- trying to be correct in the long term AND trying to trade around relative valuation AND trying to value put premiums on a risk adjusted basis AND trying to manage exposure per trade and per portfolio?

 

For those with the time and energy, it is a great idea. Just take a look at boilermaker's posts about doing this with BRK over the years, he is an inspiration in this sense!

 

The writing of puts takes very little effort on blue chip stocks especially if you're not greedy about premiums and go decently out to 95%+ profitability range. I just don't see how this is anymore risky than owning the underlying stock. As Greg pointed out. Value investors are just as likely to hold BAC on the way to zero as someone who would write puts for premiums with the risk of potentially getting assigned. Now if you do this on say Beyond Meat yeah you're a moron. But doing this on SPY or other securities you would hold long-term, I don't see the risk. Maybe I'm missing something....the majority of you on here are much better investors than myself.

 

How many of you would liquidate a portfolio of $SPY if it dropped 15% in a day? If this were to happen the person who got assigned shares now has the advantage vs the person who is holding. I could write covered calls and collect premiums while you have to hold until SPY climbs back to your dca before you could sell or write covered calls.

[LC]

There is little economic difference between selling puts and going long. Compare the payoff curves.

 

The key is you need to be correct on underlying direction. Whether you are long the underlying or short the put, you need to be right on the stock. This is where I want to put my analytic efforts and take my brain damage.

 

Shorting puts present more brain damage in the form of portfolio management. Now you are sorting through another calculation. Which puts to sell? 3 month, 6 month, 1 week? What prices are fair? I'll let you guys with more energy and brain power to get paid from taking that brain damage :D

[TwoCitiesCapital]

Or buy puts when VIX is<14 and SPY >300. I am 3:0 on this trade. I think I made about 70% on average each time, just closed my last round yesterday. It’s definitely a no brainer, especially when in addition to above Trump says that trade talks are going well.

 

I am almost serious about this.

 

Have been doing something similar myself, bit it's based entirely on "when markets do well, Trump has enough flexibility to hang himself with it".

 

As long as that dynamic holds, this trade will be profitable. But hard to know when he finally decides to let things ride OR isn't going to save the market by backing down.

[TwoCitiesCapital]

It's a pretty good idea - I am not denying that.

 

The other component is the "brain damage" associated with this.

 

I do not invest for a living, so I have to ask myself, what do I want to spend my energy on:

 

1- trying to be correct in the long term, or;

2- trying to be correct in the long term AND trying to trade around relative valuation AND trying to value put premiums on a risk adjusted basis AND trying to manage exposure per trade and per portfolio?

 

For those with the time and energy, it is a great idea. Just take a look at boilermaker's posts about doing this with BRK over the years, he is an inspiration in this sense!

 

The writing of puts takes very little effort on blue chip stocks especially if you're not greedy about premiums and go decently out to 95%+ profitability range. I just don't see how this is anymore risky than owning the underlying stock. As Greg pointed out. Value investors are just as likely to hold BAC on the way to zero as someone who would write puts for premiums with the risk of potentially getting assigned. Now if you do this on say Beyond Meat yeah you're a moron. But doing this on SPY or other securities you would hold long-term, I don't see the risk. Maybe I'm missing something....the majority of you on here are much better investors than myself.

 

How many of you would liquidate a portfolio of $SPY if it dropped 15% in a day? If this were to happen the person who got assigned shares now has the advantage vs the person who is holding. I could write covered calls and collect premiums while you have to hold until SPY climbs back to your dca before you could sell or write covered calls.

 

Think about worst case scenario. Stocks gaps down due to bad earnings or after-market news.

 

Let's say 20% on a $1,000,000 investment. You're out 200k if you owned the stock, but you can close the position and move on.

 

If you sold the same notional in cash secured puts, you're going to have to pay more than 200k above your sale price to close the contract because now vol has exploded across the term structure and the puts you sold are now going to be at a premium (unless if they're WAY out of the money - and even then, massive bid/ask spreads).

 

So your two choices are to accept a loss greater than 20% to close the position and stop the bleeding OR to be stuck with the position.

 

It's NOT the same dynamic as owning the underlying stock.

 

[LC]

Let's say 20% on a $1,000,000 investment. You're out 200k if you owned the stock, but you can close the position and move on.

 

If you sold the same notional in cash secured puts, you're going to have to pay more than 200k above your sale price to close the contract because now vol has exploded across the term structure and the puts you sold are now going to be at a premium (unless if they're WAY out of the money - and even then, massive bid/ask spreads).

 

 

For institutional trader yes. For PAs you can wait until expiration and take delivery or close out with limited vega and theta exposure.