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?
Christopher Mims 🎆 @mimsIANAE (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:
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:
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.
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.