What are you buying today?

[Sweet]

5 hours ago, John Hjorth said:

We have enchanged about Safran before. I haven't got to it so far, lately because of health issues sucking up my time and my energy [think Maslow] as of lately, but health much better now [morphine isen't exactly a good fuel to running on while investing].

I wasn’t aware you weren’t well John.  I’ll keep you in my prayers.

[Marco Van Basten]

10 hours ago, John Hjorth said:

 

Thank you, @Marco Van Basten,

 

We have enchanged about Safran before. I haven't got to it so far, lately because of health issues sucking up my time and my energy [think Maslow] as of lately, but health much better now [morphine isen't exactly a good fuel to running on while investing].

 

I will still take look at Safran.

 

- - - o 0 o - - -

 

Can you provide a just short pitch for why you are interested and owning GE by now? - Thank you in advance. [ Not much help in the GE topic here on CofB&F by now, I would say, but that may just be me.]

John, very simple thesis:  over the next forty or fifty years, annual volume growth of 3-5%, pricing ahead of inflation, EBIT margin goes from 25% to something closer to Transdigm's 50%.  

[gfp]

More weird action on Fairfax and Fairfax India near the open

 

[thowed]

Crazy.  Well done being on the ball - I'd be tempted to buy more under 2,200.

[Lance]

CME, ICE and TMXXF

 

Thanks

Lance

[CharlesMunger]

Fist time buying puts - some 2027 SOXX. And some FFH, MELI

Edited 21 hours ago by CharlesMunger

[gfp]

I wonder what the statistics are on having to hit on BOTH (1) making money buying an option, and (2) betting against a bull market.

 

Any oddsmakers here?

[Spekulatius]

1 hour ago, gfp said:

I wonder what the statistics are on having to hit on BOTH (1) making money buying an option, and (2) betting against a bull market.

 

Any oddsmakers here?

The odds are not great but payoff is asymmetrical . The Soxx looks very overextended with many crapola stocks mooning.

[KPO]

Add to LEN.B

[Mephistopheles]

4 hours ago, gfp said:

I wonder what the statistics are on having to hit on BOTH (1) making money buying an option, and (2) betting against a bull market.

 

Any oddsmakers here?

 

I trade options routinely and it's easy to make big money as long as you have the cajones. But, to your point I have failed on the latter (shorting the market). I stick with long calls and short puts on stocks that I like

[RichardGibbons]

21 minutes ago, Mephistopheles said:

 

I trade options routinely and it's easy to make big money as long as you have the cajones. But, to your point I have failed on the latter (shorting the market). I stick with long calls and short puts on stocks that I like

 

Yeah, I've had the same experience. I think long puts are particularly difficult for a few reasons.

 

First, volatility skew makes them "overpriced". Second, as they go in the money, the time value gets crushed faster than with calls. Third, when the security trades in "your direction", a 1% move becomes a larger absolute move with a call and a smaller absolute move with a put, which means every additional dollar gets easier with a call, and harder with a put.

 

And finally, related to that last point, calls can rise to the moon, while puts have a maximum gain. So, if you get an extreme move in your favour, the impact with calls can be much higher. (e.g. back in the day, when Fairfax was fighting the shorts, while I sold early, I still made 30x on a small call position. If Fairfax had a roughly equivalent down move, I doubt it would've been even a 10x.)

 

For me, the impact has been that I'll speculate with calls and short puts. But I'll almost never speculate with puts. (In this context for me, speculate means "make a directional bet hoping to get at least a 4x payoff if the stock moves in my direction.")

[moatrep]

How do you size the options? How much is a big bet, or a regular one, and what size of the portfolio options occupy? Thanks

Edited 11 hours ago by moatrep

[CharlesMunger]

I see it as buying insurance on the portfolio with a decent chance of printing some money. Soxx is the most obvious one in my opinion. 

[RichardGibbons]

First, some context. When buying shares, I mostly open 1% positions, and might increase that to about a 3% position from buying. I tend to shrink positions when they get above 10-15%. I have way more positions than most here, I think.  (I also don't work, so am averse to losing money.)

When buying options, most positions start out at around 0.33%, though sometimes I'll do up to 1%.

 

That said, for me, buying is completely opportunistic. Most of the time, I have 0% long options in my portfolio, and I'd guess I do one such trade a year.  So maybe, at cost, I'd have less than 1% of the portfolio in options. I'm typically looking for something that is undervalued with low IV, mostly because I'm betting on a path to fair value, not a random walk with high volatility resulting in a payout, so I want to pay as little for the option as possible.  I'll often roll up, potentially making the position bigger than 1%.

 

Two recent ones that didn't pay out was buying Bell leaps when it first fell to the C$35 range, and Equinox Gold around $9 before gold spiked. Before that was Citi below $40 where I hit the bottom perfectly, and eventually after some rolls incorrectly closed in the low $60s. That 0.33% became about 5%.

 

My biggest winner was UAN. I opened the 0.33% position when it was at $25. I had 3-6 month out expiries (not LEAPs) and rolled a bunch, and the underlying hit $180 or something. I sold out on the way down at about $120. At the peak, I think the position was around 40% of my portfolio (about 80% of the initial portfolio size, 320x the original outlay, though probably those numbers don't triangulate. I don't feel like doing any math). I think in the end, I think I made about 140x the original outlay.

 

Wallstreetbets gets a lot of justifiable mockery, but it did drive home one thing for me--with long call options, there's potentially a lot of value in aiming for the fences because a small position can become huge, and psychologically it's much easier holding an extremely high-risk position if it has grown to become that.

 

(Note: I'm not saying it's rational to believe this. Rather, I'm saying that if I come up with a strategy I think is rational but is hard psychologically to execute because the numbers get big, it's easier to do so if those big numbers are a result of massive gains. And generally, my strategy with long calls is to try to get massive gains.)

[frommi]

20 minutes ago, CharlesMunger said:

I see it as buying insurance on the portfolio with a decent chance of printing some money. Soxx is the most obvious one in my opinion. 

Whats your target price for SOXX in the next 3 months? These options look very expensive to me.

[DooDiligence]

More DPZ

[Marco Van Basten]

47 minutes ago, DooDiligence said:

More DPZ

In my experience, when a CEO or CFO leaves voluntarily, it is rarely a good sign, unless the executive leaves due to really bad health issues.  Also, have you taken a look at Yum Brands?

[Eldad]

10 minutes ago, Marco Van Basten said:

In my experience, when a CEO or CFO leaves voluntarily, it is rarely a good sign, unless the executive leaves due to really bad health issues.  Also, have you taken a look at Yum Brands?

He is becoming Chairman. Probably all set in motion by current chairman David Brandon retiring. I bought some too. 

[sleepydragon]

Yesterday STX

today MU

[gfp]

Another opening tick fill on FIH.u

 

[dipod]

9 hours ago, RichardGibbons said:

First, some context. When buying shares, I mostly open 1% positions, and might increase that to about a 3% position from buying. I tend to shrink positions when they get above 10-15%. I have way more positions than most here, I think.  (I also don't work, so am averse to losing money.)

When buying options, most positions start out at around 0.33%, though sometimes I'll do up to 1%.

 

That said, for me, buying is completely opportunistic. Most of the time, I have 0% long options in my portfolio, and I'd guess I do one such trade a year.  So maybe, at cost, I'd have less than 1% of the portfolio in options. I'm typically looking for something that is undervalued with low IV, mostly because I'm betting on a path to fair value, not a random walk with high volatility resulting in a payout, so I want to pay as little for the option as possible.  I'll often roll up, potentially making the position bigger than 1%.

 

Two recent ones that didn't pay out was buying Bell leaps when it first fell to the C$35 range, and Equinox Gold around $9 before gold spiked. Before that was Citi below $40 where I hit the bottom perfectly, and eventually after some rolls incorrectly closed in the low $60s. That 0.33% became about 5%.

 

My biggest winner was UAN. I opened the 0.33% position when it was at $25. I had 3-6 month out expiries (not LEAPs) and rolled a bunch, and the underlying hit $180 or something. I sold out on the way down at about $120. At the peak, I think the position was around 40% of my portfolio (about 80% of the initial portfolio size, 320x the original outlay, though probably those numbers don't triangulate. I don't feel like doing any math). I think in the end, I think I made about 140x the original outlay.

 

Wallstreetbets gets a lot of justifiable mockery, but it did drive home one thing for me--with long call options, there's potentially a lot of value in aiming for the fences because a small position can become huge, and psychologically it's much easier holding an extremely high-risk position if it has grown to become that.

 

(Note: I'm not saying it's rational to believe this. Rather, I'm saying that if I come up with a strategy I think is rational but is hard psychologically to execute because the numbers get big, it's easier to do so if those big numbers are a result of massive gains. And generally, my strategy with long calls is to try to get massive gains.)

Thank you for laying this out. 

[Mephistopheles]

11 hours ago, moatrep said:

How do you size the options? How much is a big bet, or a regular one, and what size of the portfolio options occupy? Thanks

 

Small % of my portfolio making sure there is ample excess liquidity. I tend to buy calls on stocks I already like and own that have multiple down days in a row for no good reason (recently CPNG and BRK). The idea being that the stock is already undervalued but also it may be due for a short term bounce regardless. The key is to also be aggressive in selling when it pops but also if it doesn't jump am willing to take a 50-90% loss and roll forward. Definitely don't want to play the buy and hold game. I've had multiple situations where I lose like 50%+ on multiple rolls, but then eventually one hits and am up 100's% and it makes up for all the losses and then some.

 

United health this year and last was a good one. Loss, loss, loss, and then huge gain and overall positive return. You have to be willing to take big realized losses and have the guts to keep reinvesting. Sprinkle in some put selling when the IV is high which it usually is if the stock drops a bunch. Put selling I keep at like 6 months expiry max.

 

Berkshire is a special case because the IV is super low as it generally doesn't move much, but then you have days with big jumps where you can sell. Also, it's the one exception where I don't mind selling LEAP puts. I've shorted a bunch of Dec 2028 puts (the furthest out at this point). It's a big hit to my excess liquidity, but am willing to take that chance because it's Berkshire and there is a countercyclical component to the stock, and it hasn't done anything in 2 years, big cash position, buybacks, etc. 

Edited 25 minutes ago by Mephistopheles