Do you have the balls?

[gary17]

Hi Eric

would it be better to sell puts or sell calls

i guess sell puts commit you to buying

and sell calls selling

be curious how you think about the two options !

tia

Gary

[ERICOPOLY]

Hi Eric

would it be better to sell puts or sell calls

i guess sell puts commit you to buying

and sell calls selling

be curious how you think about the two options !

tia

Gary

 

I am trying to buy low and sell high, so I'd rather be buying lower than selling not-so-high.

[LightWhale]

Eric,

 

How are you positioned now?

 

At-the-money calls, out-of-the-money calls, and cash.  I will have a lot of cash at some point here, because of a full redemption at Dec 31st prices -- still waiting for the audit to complete before releasing the cash to me.

 

Are these ATM calls LEAPS or near term? I'm assuming the latter, but finding it hard to decide for myself which ones to go for.

Thanks.

[ERICOPOLY]

Eric,

 

How are you positioned now?

 

At-the-money calls, out-of-the-money calls, and cash.  I will have a lot of cash at some point here, because of a full redemption at Dec 31st prices -- still waiting for the audit to complete before releasing the cash to me.

 

Are these ATM calls LEAPS or near term? I'm assuming the latter, but finding it hard to decide for myself which ones to go for.

Thanks.

 

LEAPS.  With a 12-18 month window on a vaccine, I want long-term expiry.

[gary17]

i guess if you sell calls.... since you own the stock you are getting the dividends

but selling puts ... it's a future contract to buy at a lower price.. so you won't get any dividends .

[PJM]

I already have ATM calls.  Take for example the $20 strike WFC put, expiring a month from now on April 17th.  The bid is $1.25.

 

19 months x 1.25 == $23.75.  That's so high you certainly don't need to commit all of the cash to the endeavor.

Am new to options world so just trying to understand it better.

 

You are assuming that your puts will expire out-of-money, but what if WFC falls to 20 before expiry. In that case will you just take the hit and roll over the options to new OTM put or will you take delivery of WFC. If your puts gets hit 2-3 times over the 19 months period you stand to loose all the money from option writing even if WFC price bounces back.

 

Also with your ATM LEAPS that you buy, at what point would you roll them over especially if WFC price does not move much or goes down over the next 18 months.

 

Thanks in advance.

[LightWhale]

This thread is turning into 'Ask Eric! II'  :)  And it's about time.

[Kaegi2011]

I already have ATM calls.  Take for example the $20 strike WFC put, expiring a month from now on April 17th.  The bid is $1.25.

 

19 months x 1.25 == $23.75.  That's so high you certainly don't need to commit all of the cash to the endeavor.

Am new to options world so just trying to understand it better.

 

You are assuming that your puts will expire out-of-money, but what if WFC falls to 20 before expiry. In that case will you just take the hit and roll over the options to new OTM put or will you take delivery of WFC. If your puts gets hit 2-3 times over the 19 months period you stand to loose all the money from option writing even if WFC price bounces back.

 

Also with your ATM LEAPS that you buy, at what point would you roll them over especially if WFC price does not move much or goes down over the next 18 months.

 

Thanks in advance.

 

This may be helpful for you to get some background on the strategy.  You kinda have to commit to it a bit (e.g., if the put is in the money, cash settle and write put again at lower strike).  Otherwise you might get bounced around. 

 

http://www.cboe.com/micro/buywrite/bondarenko-oleg-putwrite-putw-2019.pdf

 

 

[ERICOPOLY]

You are assuming that your puts will expire out-of-money, but what if WFC falls to 20 before expiry. In that case will you just take the hit and roll over the options to new OTM put or will you take delivery of WFC. If your puts gets hit 2-3 times over the 19 months period you stand to loose all the money from option writing even if WFC price bounces back.

 

Also with your ATM LEAPS that you buy, at what point would you roll them over especially if WFC price does not move much or goes down over the next 18 months.

 

Thanks in advance.

 

I see two distinct questions here that you are asking:

 

#1.  I will hold WFC at least until it is at $60 or $70 if I get 'put' the shares at $20.

 

#2.  After January, the 2023 series will be available.  I can't roll anything until after that time, but I won't be waiting for the last month to do so.  A few months before expiry there will still be a good amount of volatility premium. 

 

I probably didn't need to buy 2 yr leaps at-the-money LEAPS, given my liquidity.  I could have and perhaps should have waited for a less volatile time to roll them, or waited for price dislocations and rolled them when they were not at-the-money.  Oh well.  Or maybe I made the correct choice in paying $5.65 a share for the $27.50 calls.  I thought they were not too expensive, all things considered.

 

 

[stahleyp]

Sold most of what I had purchased over the last couple of days thanks to Eric and muscle. If the ballsiest investor I've ever known has so much cash, I might be missing something. I've been adding calls. Some lady at my wife's work just came down with this...so yeah. They still don't have enough masks for people.

[ERICOPOLY]

Sold most of what I had purchased over the last couple of days thanks to Eric and muscle. If the ballsiest investor I've ever known has so much cash, I might be missing something. I've been adding calls. Some lady at my wife's work just came down with this...so yeah. They still don't have enough masks for people.

 

I am down quite a bit, but my goal is to be able to afford more shares than I could afford back when the year began (and I was counting the Dhandho investment in that figure).

 

Right now, I can afford that many shares with my incoming cash + my accounts present vale (without counting the Dhandho investment).

 

So I feel like I'm kicking ass right now despite being down by a lot.

 

Whether I include or not include the Dhandho has infected my thinking to some degree, but I kind of think of that as in liquidation (because it is).  I was offered the opportunity to cash out completely earlier this year, but I turned it down because I want the share of the fund manager.  Mohnish is incredible at talking the panties off of ladies (I mean, raising cash from investors).  Perhaps he is great at the ladies too, but I cannot confirm that.  I want a share of that future income, whatever it may be.

[Mephistopheles]

Eric,

 

Glad that you have resurfaced. I feel nostalgia for 2011 BAC-WTA days.

 

A few questions:

 

1. What is your opinion on buying ATM WFC calls vs. buying WFC equity on margin + puts?

 

2. Why at the money calls vs. in the money or out of the money?

 

Thanks

 

I have bought up a mixed bag of atm, in the money, out of the money calls on BAC, WFC, USB, BRK

[ERICOPOLY]

Eric,

 

Glad that you have resurfaced. I feel nostalgia for 2011 BAC-WTA days.

 

A few questions:

 

1. What is your opinion on buying ATM WFC calls vs. buying WFC equity on margin + puts?

 

2. Why at the money calls vs. in the money or out of the money?

 

Thanks

 

I have bought up a mixed bag of atm, in the money, out of the money calls on BAC, WFC, USB, BRK

 

 

1.  No affinity -- I only have one account to trade in now, my Roth IRA, so margin+puts isn't a possibility for me

2.  When it was near $48 I bought $47.50 strike calls.  Near $40 I bought $40 strike calls.  Near $27.50 I bought $27.50 strike calls.  Intend to hold them all, and I intend to buy more for certain if there is a further drop.

 

Along the way I had some shorter term in-the-money $30 strike calls, but traded out of them (at a loss) when I could sell the volatility at-the-money (softened the loss I took).

 

 

 

 

 

[plato1976]

June 18， 2021 @27.5 call is 4.15/5.20 bid/ask

Jan 21， 2022 @27.5 call is 4.95/5.65 bid/ask

feels the call will be much cheaper (less premium) when vol goes down, but we can say wfc may rebound a lot when volatility goes down from this level

 

 

Eric,

 

Glad that you have resurfaced. I feel nostalgia for 2011 BAC-WTA days.

 

A few questions:

 

1. What is your opinion on buying ATM WFC calls vs. buying WFC equity on margin + puts?

 

2. Why at the money calls vs. in the money or out of the money?

 

Thanks

 

I have bought up a mixed bag of atm, in the money, out of the money calls on BAC, WFC, USB, BRK

 

 

1.  No affinity -- I only have one account to trade in now, my Roth IRA, so margin+puts isn't a possibility for me

2.  When it was near $48 I bought $47.50 strike calls.  Near $40 I bought $40 strike calls.  Near $27.50 I bought $27.50 strike calls.  Intend to hold them all, and I intend to buy more for certain if there is a further drop.

 

Along the way I had some shorter term in-the-money $30 strike calls, but traded out of them (at a loss) when I could sell the volatility at-the-money (softened the loss I took).

[ERICOPOLY]

June 18， 2021 @27.5 call is 4.15/5.20 bid/ask

Jan 21， 2022 @27.5 call is 4.95/5.65 bid/ask

feels the call will be much cheaper (less premium) when vol goes down, but we can say wfc may rebound a lot when volatility goes down from this level

 

Agreed.  I feel they are worth their price.

[samwise]

Eric would you recommend this strategy for other stocks or etfs like SPY? Why just WFC.

[undervalued]

https://www.barrons.com/articles/how-bill-ackman-turned-27-million-into-2-6-billion-during-the-coronavirus-crisis-51585147940

 

Umm, is this strategy available to the average investor? How do you replicate this for the average guy? 100x returns is insane, and he did it in like a month.

[ERICOPOLY]

Eric would you recommend this strategy for other stocks or etfs like SPY? Why just WFC.

 

Well, I'm not recommending it to anyone.  I have WFC because I just do.

[LC]

https://www.barrons.com/articles/how-bill-ackman-turned-27-million-into-2-6-billion-during-the-coronavirus-crisis-51585147940

 

Umm, is this strategy available to the average investor? How do you replicate this for the average guy? 100x returns is insane, and he did it in like a month.

 

The guy probably bought CDS on airlines hotels travelcos cruiselines etc.

[thepupil]

I would guess he bought OTM payer swaptions on CDX HY and CDX IG series.

 

On March 23rd, we completed the exit of our hedges generating proceeds of $2.6 billion for the Pershing Square funds ($2.1 billion for PSH), compared with premiums paid and commissions totaling $27 million, which offset the mark-to-market losses in our equity portfolio. Our hedges were in the form of purchases of credit protection on various global investment grade and high yield credit indices. Because we were able to purchase these instruments at near-all-time tight levels of credit spreads, the risk of loss from this investment was minimal at the time of purchase.

[Jurgis]

https://www.barrons.com/articles/how-bill-ackman-turned-27-million-into-2-6-billion-during-the-coronavirus-crisis-51585147940

 

Umm, is this strategy available to the average investor? How do you replicate this for the average guy? 100x returns is insane, and he did it in like a month.

 

I'm not gonna look it up, but I'm pretty sure you could have done 100x by buying simple OOM puts before the market tanked.

[spartansaver]

https://www.barrons.com/articles/how-bill-ackman-turned-27-million-into-2-6-billion-during-the-coronavirus-crisis-51585147940

 

Umm, is this strategy available to the average investor? How do you replicate this for the average guy? 100x returns is insane, and he did it in like a month.

 

I'm not gonna look it up, but I'm pretty sure you could have done 100x by buying simple OOM puts before the market tanked.

 

Mine didn't go up 100x.

 

Purchased Aug. SPY 300 strike at the end of January and the max they were up was around 11x. I think if I'd gone much further out of the money you could have hit the 100x. I'm not even sure its possible to get 100x anymore on S&P puts due to the massive premium for volatility.

[Jurgis]

https://www.barrons.com/articles/how-bill-ackman-turned-27-million-into-2-6-billion-during-the-coronavirus-crisis-51585147940

 

Umm, is this strategy available to the average investor? How do you replicate this for the average guy? 100x returns is insane, and he did it in like a month.

 

I'm not gonna look it up, but I'm pretty sure you could have done 100x by buying simple OOM puts before the market tanked.

 

Mine didn't go up 100x.

 

Purchased Aug. SPY 300 strike at the end of January and the max they were up was around 11x. I think if I'd gone much further out of the money you could have hit the 100x. I'm not even sure its possible to get 100x anymore on S&P puts due to the massive premium for volatility.

 

Fair enough.

[TwoCitiesCapital]

https://www.barrons.com/articles/how-bill-ackman-turned-27-million-into-2-6-billion-during-the-coronavirus-crisis-51585147940

 

Umm, is this strategy available to the average investor? How do you replicate this for the average guy? 100x returns is insane, and he did it in like a month.

 

I'm not gonna look it up, but I'm pretty sure you could have done 100x by buying simple OOM puts before the market tanked.

 

Mine didn't go up 100x.

 

Purchased Aug. SPY 300 strike at the end of January and the max they were up was around 11x. I think if I'd gone much further out of the money you could have hit the 100x. I'm not even sure its possible to get 100x anymore on S&P puts due to the massive premium for volatility.

 

You might've gotten close if you'd done SPY 200s in January -- but I'm just speculating w/o actually looking to see what the premiums were verse what they peaked at.

 

I'd also add - the main benefit to Ackman's trade, and the reason he was able to achieve 100x, was because he timed it right. These trades are negative carry requiring cash settlement every month/quarter. If it had taken another 2-3 months to hit the U.S. than Ackman expected, he would have likely put up another $20 million and his 10x return becomes 5x and so on and so forth.

 

[thepupil]

the hedging instrument was not equity index puts. The Pershing Square letter says they purchased hedges on credit and investment grade indices.

 

CDX IG went from 40 bps to 150 bps, straight to summer 2011 levels. I imagine one could have bought an option to get short at 100 bps for nothing.

 

The way you make a ton of money on a hedge is when something with extremely low spread volatility suddenly has it (like subprime) Equity vol was low but has a frequent bid from institutions like annuity sellers and insurance co’s.

 

There are also bespoke tranches of these indices where he could have done something like betting the IG basket would have 10 defaults on 125 names (this outcome would be priced to an extremely low probability).

 

Ackman likely blew up some European structured credit fund or trading desk.