Gambling with options #covid19

While some people still think that coronavirus is just another flu, people in Italy are going through a complete disaster and giving everyone else a preview of what we can expect in other parts of Europe and US:

• Feb 21st: 21 infected

• March 4th: 3089 infected, schools and universities are closed

• March 7th: 5883 infected, 5 000 doctors & 15 000 nurses reactivated from retirement

• March 8th: 7375 infected, regional lock down, 16 million people affected

• March 9th: 9172 infected, whole country on lock down, 64 million people affected

So it took 2 weeks from “all is fine“ to “let’s close schools“, and not even another week later - “let’s place the whole country on lock down“.

In less than 3 weeks everything went from business as usual to situation, where emergency medicine is replaced with disaster medicine and doctors must make some tough decisions:

For now, the marching orders are: Save scarce resources for those patients who have the greatest chance of survival. That means prioritizing younger, otherwise healthy patients over older patients or those with pre-existing conditions.

From: www.politico.eu/article/coronavirus-italy-doctors-tough-calls-survival/

If the news are too dry for you, click on this Twitter thread:

Jason Van Schoor @jasonvanschoor

4/ We’ve stopped all routine, all ORs have been converted to ITUs and they are now diverting or not treating all other emergencies like trauma or strokes. There are hundreds of pts with severe resp failure and many of them do not have access to anything above a reservoir mask.

Stats for today, March 10th:

What will happen in US?

And if it got so bad and so fast in Italy - one of the richest and developed countries in Europe, then what will happen in US?

US is famous with the most fucked up healthcare system in the world - each year about 500 000 people go bankrupt because of it. And with Trump as president, who’s first message was, that coronavirus is “a hoax“ - what can go wrong?

Noah Smith 🐇 @Noahpinion

38 million infected Americans would be something like 100 times the infection rate China suffered. A public health failure so staggering, so unimaginable, that it would have to force us to rethink everything about our institutions and government.

Christopher Mims 🎆 @mims

IANAE (I am not an epidemiologist) but I did just interview the co-author of a report for the Center for Health Security on the impact of Coronavirus, he believes the ultimate number of infected / hospitalized in U.S. will be somewhere between the two estimates on this table 1/ https://t.co/gIHrRhROww

I think that situation in US will be very similar to Italy, if not worse. If we look at stats, then we can see - that today total cases divided by 1 million people (last column) in US are only 2.6, so after 3-4 weeks when it gets to 100 (Iran level) or 170 (current Italy’s level) - then the real panic will start:

I recommend to watch Joe Rogan’s interview about this topic as well:

What will I do?

I like to do some gambling once in a while. In this case I will speculate with options, and I've bought 3 puts:

1. HLT April 17th 2020, 70 Put, cost basis: $320

2. SPY, May 15th 2020, 270 Put, cost basis: $999

3. DAL June 19th 2020, 40 Put, cost basis: $476

For those who don't know how Put options work - I buy right to sell 100 shares of a stock at a specific price and before the expire date. So my mentioned HLT Put option gives me right to sell 100 shares of HLT, each for $70, and for this right I have paid $320. And to make profit - I expect that price will go down a lot and I will sell the option to someone else before the expire date.

In total I am gambling with $1795 and betting that:

1. Hilton hotels might lose more than 20% of value in next 5 weeks

2. S&P 500 Index that covers the top 500 US companies might lose more than 6% of value in next 2 months

3. Delta Air Lines - the biggest airline in US might lose more than 10% of value in next 3 months

Why is this a bad idea?

• With bigger volatility prices of options have increased

• To make any profit I have to be right about 2 things at the same time: the direction and the time frame

• These are short term options and short term predictions usually are the hardest

• If market stays at the same level or even worse - recovers, each day that I hold my options longer - they will lose more value until they expire worthless

• About 80% of options expire worthless

• I am betting against Warren Buffet - one of the best investors in the world. Only a week ago Warren increased his stake in Delta Air Lines

• I am betting against Trump - who announced today that “it will go away“ and US will protect cruise and airline industry:

  ABC News @ABC

  "Stay calm. It will go away." Pres. Trump downplayed the coronavirus threat after meeting with GOP leaders, telling @marykbruce that "everybody has to be vigilant and has to be careful," but "a lot of good things are going to happen." abcn.ws/2veZ3h4

  

What are more reasonable, safer trading ideas?

Much less risky would be to wait for a bigger market crash and then buy stocks for big discounts, for example:

• $BKNG - some hotel chains might go out of business and Booking.com will lose lot of revenue, but don't think there is a big chance of them going under

• Tech companies like:

  • Facebook

  • Google

  • Microsoft

  • Amazon

  • Apple

Those who want to take on more risk - probably can check out airlines, hotels, energy and travel companies - but it might get difficult to understand, which of them will survive and bring huge returns later, and which will go to 0, so be careful.

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Key takeaways

1. Coronavirus Covid-19 is not flu, situation is bad and it will get worse

2. Gambling with options is very risky, I might lose everything

3. If you want to take advantage of discounts in stock market, wait and buy

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P.S. Join “High-risk investments“ Telegram group for an informal discussion.