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.


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

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?

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?

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 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.

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

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