Gambling with options #covid19
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:
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:
HLT April 17th 2020, 70 Put, cost basis: $320
SPY, May 15th 2020, 270 Put, cost basis: $999
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:
Hilton hotels might lose more than 20% of value in next 5 weeks
S&P 500 Index that covers the top 500 US companies might lose more than 6% of value in next 2 months
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:
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.
Key takeaways
Coronavirus Covid-19 is not flu, situation is bad and it will get worse
Gambling with options is very risky, I might lose everything
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.
Nice post. What platform do you use for the PUT options? Any comment on why you picked particularly those options?
Concerning stocks, I would just like to mention that as savings are so low a lot of money appears to be drawn into the market - some companies are still massively overvalued and might stay overvalued (e.g. utilities, pharmacies, etc.). There are risk factors: nobody will ring a bell at the bottom, we do not yet know which companies will survive, if all big ones will be bailed out etc.. In such a crisis there might not apply a "too big to fail". Just remembering the Lehman Brothers (though a different context) . That said, that is not a critic to your article, just my comment.
Warren Buffet - you must be aware that he is a value investor, he does not care much about short-term impact. Consequently you are not betting against his long-term opinion about Delta ;)
Jesus, what comments🤣 I hope mine will appear more serious.
First of all the issue is how bad it'll really be, I read a lot about it, my impression is you exaggerate a bit, especially with the lethality rate, the percentage is between 1 and 3 per cent, concerning almost only very old and weak people and those with asthma and similar diseases. But I agree, it's not just a flu.
If you really believe it'll be that bad I'd choose more agressive options. I wanted to buy an agreesive put last friday, finding out that I wasn't allowed to before signing such a stupid paper, as I live in Germany but was in Turkey then and just returned, it's too late. Now I'm not so sure, I guess the best opportunity passed. (50%+ in 3 days, in my case hedging a part of my losses)
For stock-picking your tips are good, I'd like to add other opportunities much less impacted, but who also lost a lot of value: Insurance companies like the German 'Allianz', 'Münchener Rück', 'Swiss Re' or 'Unilever', producing cosmetics, food, etc., always needed.
You are right about airlines, but we should add that the sharp drop in the oil-prices, caused mostly by Russia and Saudi-Arabia will help them on the other hand.
It's a complicated world.