What is Margin Trading? Definition of Margin Trading ...

Margin Isn't Dangerous & Why I'd Still Use It If I Had Less Than $25,000

Margin Isn't Dangerous & Why I'd Still Use It If I Had Less Than $25,000

Cash vs. Margin


TL;DR- Use Margin if you're trading securities and either above or below 25k. If you know how to size positions, it won't matter if you move $4,000 into a trade or $4,000,000. As long as you sized the position correctly. If you're limited to 3 trades, then take 3 PERFECT trades: https://imgur.com/a/SpPOERQ

I see lots of people discussing contrasting ideas although they attempt to justify using both. Here are some things I see said and written frequently from people that doesn't add up for me:

  • "Use a cash account to avoid PDT" - (Totally fine, in some cases such as certain options traders. Not if you're trading securities.)
  • "Risk 1% of your account" - (So if your account is at $25,500, I risk ~$255 and if I lose 2R I'm below PDT. Doesn't sound too great to me if I were to lose the first 2 straight trades.)
  • "Margin is a double-edged sword" - (It's only dangerous if you don't set hard stops or size your positions correctly.)
  • "Never take on a trade that is worth more than your account" - (I can agree if you were swing trading but in terms of IntraDay trading, this is hindering your ability to grow your account. If you're risking $100 on a trade that costs less than your account value.. then $25 on a trade because of your account value.. then you're adding unneeded variables. Remember: "Consistency.")


The Predictive Model I built lays out all valid trades within the report range as well as \"Perfect Trades\" that I consider \"Textbook\". The report range is between a 30 day range. Between 4-17-20 to 5-17-20. Total \"Perfect Trade\" count is 9 trades. Even if I were limited to 3 trades per week. I'd be able to trade them with less than 25k on margin. The stats reflect $100 risk I've set on a different tab. (The \"W\" is just a graphic I made for \"Winning\")

It doesn’t matter if you move $4,000, $40,000, or $4,000,000 into a position. As long as you’re risking the same. Your Trading Account's performance is based off of risk. Such as:
•Sharpe ratio
•RRR
•Number of R’s in 1 week/month/quarter. (Example: I made 7R this week. If my R is $100. I made $700)

If I were to go back to when I was below $25,000 some years ago. I'd still use a margin account while being limited to 3 trades per week. Here's why:

Formulas you have to know:
Position size formula = Risk ÷ Stop Size
Stop Size Formula = Entry - StopLoss

Example 1a:

Stock ABC,
Entry = $10.00
StopLoss = $9.90
StopSize = 10¢
Risk = $100
In Live Trading: $100 ÷ $0.10 = 1000 Shares
1,000 shares at $10.00 = $10,000 position

Example 1b:

Stock XYZ,
Entry = $385
StopLoss = $383.00
StopSize = $2.00
Risk = $100
In Live Trading: $100 ÷ $2.00 = 50 Shares
50 shares at $385 = $19,250 position.

*$10,000 CASH account: CANNOT trade Stock XYZ and must wait 3 days for his entire account to settle after trading Stock ABC. If it was a margin account, they'd still be able to take 2 more trades this week.
*$10,000 MARGIN account: CAN trade Stock XYZ and can trade both scenarios while still able to trade 1 more time in a 5 day rolling period.

Then the next point made is, "Just won't trade anything above $20".


Ok. great rebuttal, but why?

Let's remember this: StopSizes aren't always directly correlated to the price of a stock. YES you're more likely to have a wider StopSize on a higher priced stock and a tighter StopSize on a lower priced stock. But remember this: of slippage on 1,000 shares is 10% of his risk ($10)... It will be even more slippage if his stop loss market order is hit. Even a Sell-StopLimit order will have slippage within the amount you allow for when you enter a position.
Stock XYZ would have to be slipped 20¢ just to equate the amount of slippage on Stock ABC.Highly liquid and available stocks such as AAPL, AMD, NVDA etc don't have 20¢ spreads. Not even 10¢. Rarely 5¢. Most of the time. Just a couple cents. Of course there could be more right out of the open but the spread in my years of experience is tightened within 2 minutes of the open.
Yes, these small amounts in pennies do hold lots of merit if you're looking at having any longevity in this business, it WILL add up over the years.

Both trades have the same risk [in perfect world theory].

If both stop market orders were hit (StopLoss). Both traders would exit with a $100 loss on each. Although 1 trade required $10,000 in capital and the other trade required $19,250 in capital.
Use margin. If I had to go back to when I had less than $25,000 in my account, I'd still do it the same way I did it with margin. I highly suggest using margin even if you’re limited to 3 trades per week. I get asked all the time when I began trading. If you watched my last video, I showed my first ever deposit with Scottrade (Old brokerage that was bought out by TDA a few years ago) in 2015 although I don't consider that's when I started trading because I didn't treat it the way I do today.
I really consider myself starting as a trader in 2017 when I:
•Wrote a business plan
•Understood statistics
•How to research.
All this being said, slowly over time I noticed that I am taking less and less trades and increasing my risk size. Why?
EV: Expected Value.


- Margin has zero negative effect if you're sizing your positions the same every time. Margin allows you to take on more expensive positions that are showing your edge.

Bonus: Being limited to 3 trades a week isn't fun, I remember that feeling from years ago. Just remember to take 3 perfect trades a week. Sometimes "Perfect Trades" don't work out in your favor while some subpar situations hit target. Some weeks you might take your 3 "Perfect Trades" by Tuesday. Some weeks you might take only 1 "perfect trade". If you follow my watchlists on Twitter (Same handle as my Reddit), I keep my Day Trading Buying Power transparent. Not always is it growing perfectly linear. And not always am I posting every single day because sometimes, my edge isn't there. Just because the market is open doesn't mean you HAVE to trade.
My watchlists aren't littered with 15+ tickers. Rarely do they have more than 7. That may work for other traders, but for me, I demand quality. It's either there or it isn't. No reason to force a trade. I'd rather focus heavily on a few tickers rather than spread myself thin across multiple.
Trading isn't supposed to be exhilarating or an adrenaline rush. It can be boring. I said that in the post I wrote back in April.
Also if you make money, even if its just $20 in a month. Take that money out and buy something. Shrine it. Cherish it. You ripped that money out of WallStreet. Be proud of it. It takes a lot of courage to do this business. Realize that the P/L is real money. Sometimes even just buying a tank of gas or a book will help you realize that. Spend it from time to time. Get something out of your trading account. You may or not be trading for long, get something that is tangible to always remember the experience in case you don't last. Make it your trophy.

That's all I've got for right now. Maybe I'll make another post or 2 before the year ends. I hit my 1 year full-time mark in September.
Best wishes!
-CJT2013
submitted by CJT2013 to Daytrading [link] [comments]

The Great Unwinding: Why WSB Will Keep Losing Their Tendies

The Great Unwinding: Why WSB Will Keep Losing Their Tendies
I. The Death of Modern Portfolio Theory, The Loss of Risk Parity, & The Liquidity Crunch
SPY 1 Y1 Day
Modern portfolio theory has been based on the foundational idea for the past 3 decades that both equities and bonds are inversely correlated. However, as some people have realized, both stocks and bonds are both increasing in value and decreasing in value at the same time.[1] This approach to investing is used pretty much in everyone's 401K, target date retirement plans, or other forms of passive investing. If both bonds and equities are losing value, what will happen to firms implementing these strategies on a more generalized basis known as risk-parity? Firms such as Bridgewater, Bluecrest, and H2O assets have been blowing up. [2,3]
Liquidity has been drying up in the markets for the past two weeks.[4] The liquidity crisis has been in the making since the 2008 financial crisis, after the passage of Dodd-Frank and Basel III. Regulations intended to regulate the financial industry have instead created the one of the largest backstops to Fed intervention as the Fed tried to pump liquidity into the market through repo operations. What is a repo?
A repo is a secured loan contract that is collateralized by a security. A repo transaction facilitates the sale and future repurchase of the security that serves as collateral between the two parties: (1) the borrower who owns a security and seeks cash and (2) the lender who receives the security as collateral when lending the cash. The cash borrower sells securities to the cash lender with the agreement to repurchase them at the maturity date. Over the course of the transaction, the cash borrower retains the ownership of the security. On the maturity date, the borrower returns the cash with interest to the lender and the collateral is returned from the lender to the borrower.[5]
Banks like Bank of New York Mellon and JP Morgan Chase act as a clearing bank to provide this liquidity to other lenders through a triparty agreement.[6] In short, existing regulations make it unfavorable to take on additional repos due to capital reserve requirement ratios, creating a liquidity crunch.[7,8,9] What has the Fed done to address this in light of these facts?
In light of the shift to an ample reserves regime, the Board has reduced reserve requirement ratios to zero percent effective on March 26, the beginning of the next reserve maintenance period.[10]
II. Signs of Exhaustion & The Upcoming Bounce is a Trap, We Have Far More to Go
A simple indicator to use is the relative strength index (RSI) that a lot of WSB is familiar with. RSI is not the be all and end all. There's tons of indicators that also are indicating we are at a very oversold point.
SPY 1 Y1 Day RSI
Given selling waves, there are areas of key support and resistance. For reference, I have not changed key lines since my original charts except for the colors. You can check in my previous posts. 247.94 has been critically an area that has been contested many times, as seen in the figure below. For those that bought calls during the witching day, RIP my fellow autists. The rejection of 247.94 and the continued selling below 233.86 signals to me more downside, albeit, it's getting exhausted. Thus, I expect the next area in which we start rallying is 213.
SPY 10 Day/30 min
Another contrarian indicator for buying calls is that notable people in finance have also closed their shorts. These include Jeffery Gundlach, Kevin Muir, and Raoul Pal.[11,12,13]
III. The Dollar, Gold, and Oil
As previously stated, cash is being hoarded by not only primary banks, but central banks around the world. This in turn has created a boom in the dollar's strength, despite limitless injections of cash (if you think 1 trillion of Repo is the ceiling, think again) by the Fed.
DXY
Despite being in a deflationary environment, the DXY has not achieved such levels since 2003. Given the dollar shortage around the world, it is not inconceivable that we reach levels of around 105-107. For disclosure, I have taken a long position in UUP. However, with all parabolic moves, they end in a large drop. To summarize, the Fed needs to take action on its own currency due to the havoc it's causing globally, and will need to crush the value of the dollar, which will likely coincide with the time that we near 180.
If we are indeed headed towards 180, then gold will keep selling off. WSB literally screams bloody guhhhhhh when gold sells off. However, gold has been having an amazing run and has broken out of its long term channel. In times of distress and with margin calls, heavy selling of equities selling off of gold in order to raise cash. As previously noted, in this deflationary environment, everything is selling off from stocks, to bonds, to gold.
/GC Futures Contracts 5 Y1 Wk
What about oil? Given the fall out of the risk parity structure, I'm no longer using TLT inflows/outflows as an indicator. I've realized that energy is the economy. Closely following commodities such as light crude which follow supply and demand more closely have provided a much better leading indicator as to what will happen in equities. Given that, oil will also most likely hit a relief rally. But ultimately, we have seen it reach as low $19/barrel during intraday trading.
/CL Futures Contracts 1 Y1 D
IV. The Next 5 Years
In short, the recovery from this deflationary environment will take years to recover from. The trend down will not be without large bumps. We cannot compare this on the scale of the 2008 financial crisis. This is on the order of 1929. Once we hit near 180, the Fed crushes the dollar, we are in a high likelihood of hitting increased inflation, or stagflation. At this point the Fed will be backed into a corner and forced to raise rates. My targets for gold are around 1250-1300. It may possibly go near to 1000. Oil could conceivably go as low as $15-17/barrel, so don't go all in on the recovery bounce. No matter what, the current rise in gold will be a trap. The continued selling in the S&P is a trap, will bounce, forming another trap, before continuing our painful downtrend.
I haven't even mentioned coronavirus and unemployment until now. I've stated previously we are on track to hit around at least 10,000 coronavirus cases by the end of this month. It's looking closer to now 20-30,000. Next month we are looking to at least 100,000 by the end of the April. We might hit 1,000,000 by May or June.
Comparison of the 2020 Decline to 1929
------------------------------------------------------------------------------------------------------------------------------------------------
Chart courtesy of Moon_buzz
tl;dr We're going to have a major reflexive rally starting around 213, all the way back to at least to 250, and possibly 270. WSB is going to lose their minds holding their puts, and then load up on calls, declaring we've reached a bottom in the stock market. The next move will be put in place for the next leg down to 182, where certain actors will steal all your tendies on the way down. Also Monday might be another circuit breaker.
tl;dr of tl;dr Big bounce incoming. Bear trap starting 213. Then bull trap up around 250-270. We're going down to around 182.
tl;dr of tl;dr of tl;dr WSB will be screwed both left and right before they can say guh.
Hint: If you want to get a Bloomberg article for free, hit esc repeatedly before the popup appears. If it doesn't work, refresh the article, and keep hitting esc.
Remember, do not dance. We are on the cusp of a generational change. Use the money you earn to protect yourselves and others. Financial literacy and knowledge is the key to empowerment and self-change.
Some good DD posts:
u/bigd0g111 -https://www.reddit.com/wallstreetbets/comments/fmshcv/when_market_bounce_inevitably_comesdont_scream/
u/scarvesandsuspenders - https://www.reddit.com/wallstreetbets/comments/fmzu51/incoming_bounce_vix_puts/

Update 1 3/22/2020 - Limit down 3 minutes of futures. Likely hit -7% circuit breaker on the cash open on Monday at 213 as stated previously.
Do not think we will hit the 2nd circuit breaker at 199.06. Thinking we bounce, not too much, but stabilize at least around 202.97.
Update 2 3/23/20 9:08 - Watching the vote before making any moves.
9:40 - sold 25% of my SPY puts and 50% of my VXX calls
9:45 - sold another 50% of SPY puts
9:50 - just holding 25% SPY puts now and waiting for the vote/other developments
11:50 - Selling all puts.
Starting my long position.
11:55 - Sold USO puts.
12:00 - Purchased VXX puts to vega hedge.
2:45 - Might sell calls EOD. Looks like a lot of positioning for another leg down before going back up.
It's pretty common to shake things out in order to make people to sell positions. Just FYI, I do intraday trading. If you can't, just wait for EOD for the next positioning.
3:05 - Seeing a massive short on gold. Large amounts of calls on treasuries. And extremely large positioning for more shorts on SPY/SPX.
Will flip into puts.
Lot of people keep DM'ing me. I'm only going to do this once.

https://preview.redd.it/uvs5tkje1ho41.png?width=2470&format=png&auto=webp&s=c6b632556ca04a26e4e08fb2c9223bfcb84e0901
That said, I'm going back into puts. Just goes to show how tricky the game is.
3:45 - As more shorts cover, going to sell the calls and then flip into puts around the last few min of close.
Hope you guys made some money on the cover and got some puts. I'll write a short update later explaining how they set up tomorrow, especially with the VIX dropping so much.
3/24/20 - So the rally begins. Unfortunately misread the options volume. The clearest signal was the VIX dropping the past few days even though we kept swinging lower, which suggested that large gap downs were mostly over and the rally is getting started.
Going to hold my puts since they are longer dated. Going to get a few short term calls to ride this wave.
10:20 - VIX still falling, possibility of a major short squeeze coming in if SPY breaks out over 238-239.
10:45 - Opened a small GLD short, late April expiration.
10:50 - Sold calls, just waiting, not sure if we break 238.
If we go above 240, going back into calls. See room going to 247 or 269. Otherwise, going to start adding to my puts.
https://preview.redd.it/ag5s0hccxmo41.png?width=2032&format=png&auto=webp&s=aad730db4164720483a8b60056243d6e4a8a0cab
11:10 - Averaging a little on my puts here. Again, difficult to time the entries. Do not recommend going all in at a single time. Still watching around 240 closely.
11:50 - Looks like it's closing. Still going to wait a little bit.
12:10 - Averaged down more puts. Have a little powder left, we'll see what happens for the rest of today and tomorrow.
2:40 - Closed positions, sitting on cash. Waiting to see what EOD holds. Really hard trading days.
3:00 - Last update. What I'm trying to do here posting some thoughts is for you guys to take a look at things and make some hypotheses before trading. Getting a lot of comments and replies complaining. If you're tailing, yes there is risk involved. I've mentioned sizing appropriately, and locking in profits. Those will help you get consistent gains.
https://preview.redd.it/yktrcoazjpo41.png?width=1210&format=png&auto=webp&s=2d6f0272712a2d17d45e033273a369bc164e2477
Bounced off 10 year trendline at around 246, pretty close to 247. Unless we break through that the rally is over. Given that, could still see us going to 270.
3/25/20 - I wouldn't read too much into the early moves. Be careful of the shakeouts.
Still long. Price target, 269. When does the month end? Why is that important?
12:45 - out calls.
12:50 - adding a tranche of SPY puts. Adding GLD puts.
1:00 est - saving rest of my dry powder to average if we still continue to 270. Think we drop off a cliff after the end of the quarter.
Just a little humor... hedge funds and other market makers right now.
2:00pm - Keep an eye on TLT and VXX...
3:50pm - Retrace to the 10 yr trend line. Question is if we continue going down or bounce. So I'm going to explain again, haven't changed these lines. Check the charts from earlier.
https://preview.redd.it/9qiqyndtivo41.png?width=1210&format=png&auto=webp&s=55cf84f2b9f5a8099adf8368d9f3034b0e3c4ae4
3/26/20 - Another retest of the 10 yr trendline. If it can go over and hold, can see us moving higher.
9:30 - Probably going to buy calls close to the open. Not too sure, seems like another trap setting up. Might instead load up on more puts later today.
In terms of unemployment, was expecting close to double. Data doesn't seem to line up. That's why we're bouncing. California reported 1 million yesterday alone, and unemployment estimates were 1.6 million? Sure.
Waiting a little to see the price action first.
Treasuries increasing and oil going down?
9:47 - Added more to GLD puts.
10:11 - Adding more SPY puts and IWM puts.
10:21 - Adding more puts.
11:37 - Relax guys, this move has been expected. Take care of yourselves. Eat something, take a walk. Play some video games. Don't stare at a chart all day.
If you have some family or close friends, advise them not to buy into this rally. I've had my immediate family cash out or switch today into Treasury bonds/TIPS.
2:55pm - https://youtu.be/S74rvpc6W60?t=9
3:12pm - Hedge funds and their algos right now https://www.youtube.com/watch?v=ZF_nUm982vI
4:00pm - Don't doubt your vibe.
For those that keep asking about my vibe... yes, we could hit 270. I literally said we could hit 270 when we were at 218. There was a lot of doubt. Just sort by best and look at the comments. Can we go to 180 from 270? Yes. I mentioned that EOM is important.
Here's another prediction. VIX will hit ATH again.
2:55pm EST - For DM's chat is not working now. Will try to get back later tonight.

Stream today for those who missed it, 2:20-4:25 - https://www.twitch.tv/videos/576598992
Thanks again to WallStreetBooyah and all the others for making this possible.

9:10pm EST Twitter handles (updated) https://www.reddit.com/wallstreetbets/comments/fmhz1p/the_great_unwinding_why_wsb_will_keep_losing/floyrbf/?context=3, thanks blind_guy
Not an exhaustive list. Just to get started. Follow the people they follow.
Dark pool and gamma exposure - https://squeezemetrics.com/monitodix
Wyckoff - https://school.stockcharts.com/doku.php?id=market_analysis:the_wyckoff_method
MacroVoices
Investopedia for a lot. Also links above in my post.

lol... love you guys. Please be super respectful on FinTwit. These guys are incredibly helpful and intelligent, and could easily just stop posting content.
submitted by Variation-Separate to wallstreetbets [link] [comments]

I bought six PRPL mattresses today. You should buy PRPL too (it's undervalued).

I bought six PRPL mattresses today. You should buy PRPL too (it's undervalued).
tl;dr: Buy PRPL stock, warrants (PRPLW) or calls based upon your preference. They are closing out a killer quarter and are undervalued. PRPL 22.5c 8/21 if you really need a strike.

I decided to appeal to both WSB audiences today with two different types of DD:
  1. A completely irrelevant story with some pictures and a position
  2. Numbers and Other Stuff

I bought six Purple Mattresses today.

Yep. I moved to Utah a few weeks ago (absolutely true) in order to do better DD for you in Purple's hometown (not true at all), so I decided to trek down to the Purple Factory Outlet to scope out the scene.
Purple Factory Outlet in a crappy part of Salt Lake - Sign on the door says \"NO CASH INSIDE\"
Family informed me they were coming to visit in three days (who does that to someone when they just moved!?!). My wife said we needed sleeping arrangements, so I said Purple mattresses.
After speaking with my Mattress Firm friend, he told me that Mattress Firm is entirely out of stock of twin mattresses in the Salt Lake City market (Purple's hometown). Worse, the mattresses aren't coming back as the original (the only mattress to come in twin) is being discontinued.

https://preview.redd.it/qd4u5bo3oy751.png?width=1242&format=png&auto=webp&s=3417ffb0eca481dbd797b67be2cb9c06c7a58a65
This is a screenshot of an internal Mattress Firm memo on the discontinuance of the Original Purple Mattress (the cheapest one by far) What can I say? He isn't a photographer.
  • The original is going away
  • Floor models are NOT to be sold as they are traffic drivers
https://preview.redd.it/tsevapzpoy751.jpg?width=3024&format=pjpg&auto=webp&s=04399eff4e38e98ad17fa55d6db0e511f799bc67
I figured the Purple branded store would have stock, if it existed. And because they are being discontinued, I didn't want to be left short-handed in the future. So, I walked out of the store with six Purple mattresses. And some pillows. And sheets. And mattress protectors. Aaaaaand because I took delivery, it counts towards Q2 revenue (the best part).
For all of those who will inevitably accuse me of pumping the stock, I admit that purchasing six mattresses will pump revenue and therefore pump the stock after earnings. Now, where are all of those people who asked me for a free mattress?

This was a sign.
Most importantly, when I pulled out of the parking lot, a purple Dodge Challenger zoomed right by me. I was barely able to get this zoomed in picture of it. This means PRPL stock is going to zoom up.
PRPL 22.5c 8/21. I bought ten of those contracts today too. It was cheaper than the mattresses.

Numbers and Other Stuff

I put forward that because Purple is a high revenue growth company, the best valuation metrics are revenue multiples (as opposed to EBITDA multiples or P/E ratios). You're welcome to debate this, but frankly, the forward looking EBITDA and Earnings look beautiful as well.
Additionally, I put forward that Enterprise Value / Revenue is superior to Market Cap / Revenue, but I'll let you do that research yourself.
From Yahoo Finance:
Enterprice Value / Revenue
Ticker As of 6/28/20 2020 Q1 2019 Q4 2019 Q3 2019 Q2 2019 Q1
PRPL 2.01 2.52 3.94 3.61 3.73 3.09
TPX 1.71 4.84 7.39 7.34 8.07 6.88
SNBR 0.98 2.36 4.40 3.79 4.97 3.78
CSPR 0.53 0.91
Yes, COVID has happened, but unlike TPX, SNBR or Serta Simmons Bedding (which just completed a pseudo-bankruptcy), Purple has actually benefited from COVID and its prospects have never looked better with a shift to higher revenue- and margin-per-unit DTC as well as insatiable demand from its wholesale partners.
PRPL is currently trading well below its own previous EV / Rev multiple range, despite accelerating revenue growth into Q2 with a healthy long-term outlook of holding an increase.
Additionally, PRPL is trading well below the pre-COVID norm for industry EV / Rev mutliples.
What about CSPR? CSPR is a total dumpster fire that is now drowning in IPO lawsuits. Its revenue growth has materially slowed, was awful in April forward looking (15% YoY growth vs 170% for PRPL), on declining margins. The cash burn rate for CSPR was high before COVID. They likely only have a few quarters left to live. I think they are overpriced as a result. CSPR is a bad comp even though there are similarities to the businesses at the 30,000 ft level.

Revenue Growth & Estimates (Q2 Estimates via Yahoo Finance)
Ticker My Estimate Q2 Low-Mid-High Estimates 2020 Q1 2019 Q4 2019 Q3 2019 Q2 2019 Q1
PRPL 201.7-233.3 170-180.1-186.9 Actuals 122.4 124.3 117.4 103.0 83.6
YoY % 46.3% 58.3% 65.8% 36.0% 37.7%
TPX 613-616.4-626.4 Actuals 822.4 871.3 821.0 722.8 690.9
YoY % 19.0% 32.9% 12.5% 7.9% 6.6%
SNBR 176.8-216.4-281.4 Actuals 472.6 441.2 474.8 356.0 426.4
YoY % 10.8% 7.1% 14.5% 12.6% 9.7%
CSPR 95.8-104.8-113.6 Actuals 113.0 126.9 89.4
YoY % 26.4% 24.3%* 24.3%* 24.3%*
A few items of note here:
  • CSPR disclosed the Last Twelve Months YoY growth as of 3/31 was 24.3% (which sucks for a revenue growth company that is burning cash)
  • PRPL accelerated its growth over the past year. It is massively accelerating again in Q2.
  • PRPL disclosed in an 8k that is has already booked about $145M in revenue for Q2, so the analysts' consensus estimates are WAY under. I gave my math and estimate for Q2 sales here. I still stand by the estimate that PRPL will beat $200M in revenue this quarter, especially since I just bought six mattresses.
  • Now compare the barely double digit growth numbers of TPX & SNBR over the past year to PRPL. Now compare the EV / R multiples. Something is off.
  • PRPL may very well beat SNBR in revenue for Q2 (due to SNBR's high reliance on wholesale sales).

Summary: PRPL's EV / R multiple is under where is should be, even in this market, whether you compare it to its own previous multiples or its competitors before they were affected by COVID. If you look at COVID EV / R multiples, it is in-line with companies who are materially struggling with cash flow and growth... this couldn't be further from the truth. PRPL is undervalued.

Analyst Price Targets

I don't usually give these guys much weight, but for those of you who do:

https://preview.redd.it/h13nnc7zxy751.png?width=531&format=png&auto=webp&s=f36406c5e43cd7e07757ba6459dbff5665b7e525
Marketbeat (and a few others) are inaccurately showing a lower consensus price target because they are using some very old price targets.

https://preview.redd.it/qxgstjh4yy751.png?width=1359&format=png&auto=webp&s=af9d185d18ad3db9c3bc8f44c6acecc729cc6d1a
As you look at the 7 price targets MarketBeat is using to build a consensus price target, two of them are from last year, which is ridiculously old (it's about time you update this Bank of America--you got your underwriting--now do your job). Wedbush was after earnings, but before the recent 8-K on Q2 revenue.
I put forward that the only targets that matter are those that adjusted to the 8-K revenue announcement. The consensus there is $19.75. This only matters if you follow these types of things.

Today's Price Action

I admit that this post would have been more relevant early this morning when I started writing it (the numbers part).
The price spiked late afternoon because of the attention drawn to it by a CNBC interview by CEO Joe Megibow.
https://www.cnbc.com/video/2020/06/29/purple-ceo-on-the-popularity-of-mattresses-as-americans-stay-at-home.html
In the interview, he doesn't share anything really new (for those of us who closely follow), but he does emphasize that PRPL doesn't have a return rate problem, unlike others (*cough* CSPR *cough*).

Q2 EPS / EBITDA Estimates

PRPL has generated $70M in cash during April and May, which is insane for a stock that has generated Adjusted EBITDA in the 6.2-15.3M range over the last four quarters. The quarter isn't even done yet.
I'm not putting an EPS estimate on this because the amazing cash generation is going to be partially offset by a fairly large warrant liability expense adjustment. It will likely be one of the final expense adjustments we see as the secondary offering triggered a strike price drop to zero, which is one of key things the liability expense was modelling. Regardless, warrant liability expense doesn't deserve to be an expense as the warrants themselves are already built into fully diluted EPS, which is what everyone reports. The FASB done messed up on this one.

Technical Astrology & PRPL Patterns

IMO, most technical analysis is confirmation bias at best. Here's some confirmation bias.
https://preview.redd.it/5kviazrs0z751.png?width=1166&format=png&auto=webp&s=56c8daaa52c4af31c66c9821e57e40b9362b1bcd
If you are into this type of thing, PRPL has been a series of Bull Flags since the bottom of COVID. We are now ending our fourth bull flag (which likely ended today). At least this is what stocktwits and a few other areas are raving about.
Intraday Patterns
The intraday patterns are more interesting to me. I've been watching this security fairly closely over the last 3 months since the COVID bottom, and on most days, you'll see a spike in the morning that fades away into the afternoon. It is almost like clockwork and seems to be irrespective of volume.
While I don't trade this pattern because I don't want to exit my long-term capital gains positions yet, some of PRPL gang makes money by buying in the morning (or afternoon before), selling/shorting at the peak, and then closing/buying late afternoon. Good on them!
Also, PRPLW warrants tend to lag the stock on the way up if you want to play that too.

What is your next play after PRPL?

I've already mentioned several times that I will fully exit my warrants (and rotate into some PRPL stock / long dated options) when the stock price reaches about $24. My inbox has been bombarded with questions about what my next play is.

https://preview.redd.it/t56ziwe42z751.png?width=1161&format=png&auto=webp&s=4ccef0051c2f1740d1c8059f1cb2a16188f7435c
The above chart is a comparison between CSPR and PRPL. CSPR, even though it is a total dog, has been riding up with PRPL on sympathy plays. CSPR spikes on PRPL news, conference presentations, and any other movement.
PRPL has reasons to be up. CSPR shouldn't be any higher than where it was after its last earnings release. The only new things that have occurred are dozens of IPO lawsuits.
I'll be shorting CSPR for somewhere between $100k-$500k if I end up exiting my PRPL positions before CSPR earnings and if this stupid pattern holds. It's free money.

Positions

I've got tons of warrants (closing in on $2M worth) and now 10x PRPL 22.5c 8/21.

Do your own due diligence. This is not investment advice of any kind.
submitted by lurkingsince2006 to wallstreetbets [link] [comments]

DDDD - Cycles and Human History

DDDD - Cycles and Human History
In this week's edition of DDDD (Data-Driven DD), now that my short term thesis of a 274-292 channel has now been invalidated because of some vaccine company fraudulently telling everyone they've cured COVID-19 to pump their stock before a secondary offering, I'll be digging deeper into my longer term thesis that I've been talked about for weeks now. I've previously wrote about this thesis from a perspective of economic history and the perspective of liquidity and finance. This time, lets look at it from a perspective of human and American history, and cycles that can be in them.
EDIT - This DD is meant to be read as a last part of a trilogy from these two previous posts with the actual data and quantitative content. Without that context, this post will basically seem like trying to use obscure theories to magically predict the future because of some prophecy. This is meant to be a theoretical / qualitative explanation of the of what was talked about in those previous posts, as well as connecting them to actions and thesises of well-known investors like Ray Dalio and Warren Buffett, who are saying very similar things. Don't bother reading this if you haven't read the first two parts of this trilogy.
Disclaimer - This is not financial advice, and a lot of the content below is my personal opinion. In fact, the numbers, facts, or explanations presented below could be wrong and be made up. Don't buy random options because some person on the internet says so; look at what happened to all the SPY 220p 4/17 bag holders. Do your own research and come to your own conclusions on what you should do with your own money, and how levered you want to be based on your personal risk tolerance.
History doesn’t repeat itself, but it often rhymes. This time, let’s take a broader look at cycles and patterns that often present itself throughout human history, and connect that to the economy and the stock market. Much of the content for this piece is taken from the Strauss–Howe generational theory, Ray Dalio’s thesis about our place in the long-term debt cycle, and Warren Buffet’s take on the same topic when he spent a few hours talking about it in the most recent Berkshire Hathaway annual shareholders meeting.
The Fourth Turning
The general idea of Strauss–Howe generational theory, or the “fourth turning” is that American history tends to repeat certain trends within every “saeculum”, or human lifespan - approximately 80 years. This is how long it typically takes for the certain historical events to start disappearing from human memory, allowing similar events to happen again. I’m not entirely sure why this theory focuses on American history specifically, and can be applied to human histories across civilizations, although until recently those cycles may not have been synchronized with each other. The theory states that history tend to occur in cycles of four “turnings”:
High - A “golden age” of a civilization. This is when there is strong unity within members of the society, with strong confidence in institutions like the government and big corporations, and weak individualism. As a collective mind, the civilization is able to work together to achieve big goals.
Awakening - People get tired of conformity, trust in institutions weaken, and there’s a strong desire for self awareness, spirituality, or authenticity. This is a time of experimentation, activism, and rebellion.
Unraveling - Confidence in institutions such as governments and large corporations are at its weakest, and individualism is at its strongest. Society fragments to polarizing groups, and public action by governments is barely able to achieve the smallest goals.
Crisis - This is when the fabric of society and existing institutions are destroyed in response to a perceived existential threat to the civilization itself. Economic distress is rampant as the economy sees defaulting sovereign debt, high unemployment, deflation or hyperinflation, or civil unrest. The crisis eventually becomes a unifying force for the previously fractured society, and the civilization comes together to solve the crisis. Civil authority and governments become trusted again, and self-sacrifices inspire people to work together as a society over self interest.
Let’s look at how this cycle played out over the past few centuries in the US.

1701-1723 High The establishment of the first British Empire. The thirteen British colonies in the Americas were all by now well established and beginning to prosper. The Glorious Revolution in Great Britain has just ended, and the result is the supremacy of the people, through Parliament, over the Crown, and a new set of rights that apply to all Englishmen.
1724-1741 Awakening The First Great Awakening, or the Evangelical Revival. People become much more devoted to their religion and a desire to convert others, including native Americans and slaves.
1742-1766 Unravelling Seven Years War (French and Indian War in the US). It was considered to be the world’s first major conflict, with initial rivalry between the European great powers spilling over to other continents. From an American perspective, this would seem as an unnecessary war caused by a rivalry between two powers far far away, causing unnecessary hardship to the settlers in America. After the war, Britain wanted to recoup some of their losses from all the money spent fighting in North America, and created new taxes, leading to the Boston Tea Party. As a result, Britain then imposed the “Intolerable Acts” to punish the colony of Massachusetts. Throughout this time, trust in the Crown within the colonies started to disappear.
1767-1791 Crisis The American Revolution - All trust and allegiance to the Crown is destroyed and replaced with new ideals.
1792-1821 High After Victory in the American Revolution, there’s a new sense of unity and pride in the newly founded nation. New institutions were created for the new country, and there was a sense of optimism, even during the War of 1812. The period after that war, and leading up to the 1824 election, was called the Era of Good Feelings, to reflect the sense of national unity and purpose within the US
1822-1842 Awakening The Second Great Awakening, similar to the first one.
1844-1860 Unraveling Sectionalism within the US - this period saw the rise in the North vs. South divide over slave states and non-slave states, and tensions revolving around it
1860-1865 Crisis American Civil War
1865-1886 High Gilded Age - Rapid economic growth in the United States through industrialization. Creation of new institutions in the form of industrial titans like Standard Oil.
1886-1908 Awakening The Third Great Awakening, similar to the first two. Also, the progressive era, which saw an activist movement to address some of problems that come with monopolies like Standard Oil, urbanization, and corruption.
1908-1929 Unravelling This period saw WWI, Prohibition, and the Roaring Twenties. During this time, there was an increasing social conflict between liberal urban and conservative rural areas, specifically about morals and what should and shouldn’t be legal (eg. Scopes trial), the rise of the KKK, and is a hallmark of consumerism, individualism, and greed.
1929-1946 Crisis The Great Depression and WWII. The New Deal destroyed many existing institutions, and replaced them with new ones. The aftermath of WWII created new global institutions, in the form of the UN, and started the American world order.
1946-1964 High The Golden Age of Capitalism / post-war economic boom
1964-1984 Awakening During this time, we saw two different types of awakening. The counterculture movement of the 1960s saw activism against the Vietnam war and the Civil Rights movement, as well as an increase in spirituality and self-awareness, which is typically associated with the youth during this period (i.e. “hippies”). During the same time, there was another religious revival - The Fourth Great Awakening.
1984-2008 Unravelling This period saw an increase of the polarization on cultural issues in America, specifically with abortion, gun control, drugs, and gay rights, between conservatives and liberals, starting with the election of Ronald Reagan. The polarization was also very heavily influenced by geography, with liberals tending to live on the coasts and big cities, and conservatives everywhere else. The polarization made it increasingly difficult for congress to enact any big changes.
2008 to somewhere between 2020 and 2030 Crisis This period started with the financial crisis, as well as the aftermath of 9/11 and the War on Terror. Add on the pandemic, and the fallout from it, and we’d likely see another mass destruction of old institutions and creation of new ones.
2020-2030 to 2040-2050 High ???
2040-2050 to 2070-2080 Awakening A Fifth Great Awakening?

The Changing Hands of World Powers
There’s also another interesting theory in the field of international relations that’s interesting and probably applicable here - the Long Cycle Theory. It basically states that international world orders and the title of the most powerful nation, is challenged every 70 to 100 years - the approximate maximum lifespan of an average human life, leading to some sort of global conflict and potentially a change in the world order as a result.
Cycles in World Leadership
The United States has survived as the World Leader for the 20th century from the threat of the Soviet Union challenging the world order. This time, it’s becoming increasingly clear that China has become a new challenger to the American world order.
Long Term Economic Cycles
Ray Dalio is famous for this being a central part of his economic thesis - about long term debt cycles, and the fact that we’re near the end of one. The summary of this idea is that the economy goes through short term and long term debt cycles. Short term debt cycles are the regular occurring business cycles you usually see once every decade, usually caused by overspending. The long term debt cycle, however, is when an entire economy becomes overleveraged, and it becomes harder and harder for a central bank to stimulate the economy. A hallmark of this happening is when interest rates hit near 0%, and they are forced to perform quantitative easing to stimulate the economy; the last time the economy’s seen anything similar to this was the Great Depression - this is called a liquidity trap. The period following this liquidity trap was an economic deleveraging, typically associated with civil unrest, revolutions, wars, and asset prices plummeting. The US economy has been seeing this since 2008 and has never been able to successfully fully deleverage the economy yet.
Another long term economic cycle theory that’s somewhat popular is the Kondratiev wave, although this field of economics is not generally accepted by most economists. The idea is that the economy goes through long-term economic cycles, lasting between 45 to 60 years, of periods of rapid economic and stock market growth fueled by technological innovations, followed by a period of stagnation.
Kondratiev Waves
Currently, we’re late in the wave created by the introduction of Information Technology, which started in the late 1970s. I’ve previously talked about this, but basically we’re near the end of this cycle as well.
So, it sounds like we’re near the end of many cycles; the generational cycle of the Strauss–Howe generational theory, the long term debt cycle, the Kondratiev Wave cycle, and possibly the beginning of the end of the Long Cycle in international relations as China begins to contend with the United States for global influence. In all of these cycles, the conclusion is clear - chaos, economic hardship, geopolitical tensions and crises. Let’s take a closer look at the stock market last time all of these cycles ended - the 1930s.
Retail Investors in the 1920s
There’s not that much solid quantitative data about retail investors and their impact on the stock market; only qualitative and anecdotal data. However, one thing is clear - retail investors pumped the market in 1929 beyond what fundamentals warranted, despite evidence of a weakening economy due to stagnating consumer spending and distress by farmers due to overproduction of wheat, and soon, the Dust Bowl. Why were they pumping stocks so much? Because they falsely believed that stocks only go up. I’ll put some excerpts from this Forbes and this Investopedia article I found talking about this to better illustrate the extent and nature of this pump.
Still there was one big anomaly in the decade preceding, the 1920s, and it remains instructive today. The American people bought stocks in unprecedented fashion. Stocks on the installment plan, stocks via investment clubs, stocks bought with capital rather than income, stocks on margin. It was a big new fad. Nothing like the participation in the market that the nation experienced in the 1920s can be found in previous eras of history.
The permanent denuding of the dollar, the reality of which first became clear in the 1920s, forced savers to find some instrument that would pay them back in the old way, in money that held its value. The choice was made to capture, via stocks, the forthcoming profits of businesses. Here would be money commensurate to what was needed to buy things in the future.
Until the peak in 1929, stock prices went up by nearly 10 times. In the 1920s, investing in the stock market became somewhat of a national pastime for those who could afford it and even those who could not—the latter borrowed from stockbrokers to finance their investments.
People were not buying stocks on fundamentals; they were buying in anticipation of rising share prices. Rising share prices simply brought more people into the markets, convinced that it was easy money. In mid-1929, the economy stumbled due to excess production in many industries, creating an oversupply. Essentially, companies were able to acquire money cheaply due to high share prices and invest in their own production with the requisite optimism.
This all sounds pretty familiar to what's going on in the stock market today; as I previously mentioned, retail investors are pouring money in at unprecedented levels. Why is this happening now, about 90 years since the last time every retail investor started pouring money in? It's the same as the reasoning behind most of the other cycles I've mentioned above - the vast majority of people who previously experienced this and would have been alive to remember the 1920s have passed away by now. With an absence of people alive to have this mistake in living memory, humanity is bound to repeat the same mistakes, ignoring the warnings from our ancestors who are no longer with us, and repeat the cycle.
There's one pair of billionaires who are old enough to remember the aftermath of the the stock market pump that led towards the 1929 crash - Warren Buffett and Charlie Munger. Warren would have been born right after the crash and Charlie would have been 5. Both of them entered the finance industry while the stock market was still recovering from it, and still below the 1929 highs. For anyone who watched him talk at the annual shareholder meeting, he spent a few hours talking about a similar story - one of the highs and lows of American history, with a bullish perspective. He wouldn't have spent hours talking about the 1929 crash and the fact that it took multiple decades to recover if this wasn't relevant. This is supported by the fact that he bought virtually nothing since the crash, and has been gradually selling a large portion of this publicly traded equities - first his airlines and now banks. Although he believes that we'll eventually recover (i.e. "Never bet against American", in the long run), it's clear from his actions that he sees parallels of this from the stock market he grew up in the shadow of in his childhood and doesn't want to bet for America in the short term.
EDIT - Someone pointed out this article by Ray Dalio: https://www.linkedin.com/pulse/big-cycles-over-last-500-years-ray-dalio/ which basically talks about something very similar. I actually didn't even know about the existence of this article and actually wrote this before this got published, but looks like we both came to the same conclusion, and this is a shorter version of Ray Dalio's article. Recommend everyone check this out if they want a more in-depth version of this DD with more data and this this post as a tldr of it.
Weekly SPY Watch Updates
This section has absolutely nothing to do with anything I talked about above, but people apparently care about trades I'm making and what my magic markers say will happen in the stock market this week, so I'll have this section of this post dedicated to that and my updates.
I've since sold, with the exception of some VIX calls, all my short positions on SPY, and currently doing some individual plays - currently holding GSX puts and short (sold) HTZ calls, among some other smaller plays. With respect to SPY, it looks like we'll be in a new channel - this time 293-300; not sure how long we'll be staying in this channel for, but I'll be playing it by either selling short-dated iron condors or buying calls / puts when it reaches one end of the channel. While magic markers are telling me we're going to be bullish medium term, and go through 300 to new ATHs, meaning I should buy calls, I don't want to go against my own fundamentals in principle by the fact that the stock market is clearly already overvalued.
5/25 3PM - /ES at 299, might open near the top of the channel. Will need to see how we open to decide if I'm going to enter a position on SPY again.
5/25 10PM - Looks we're going to be trading on the upper half the of channel on Tuesday, with a trading range of 300-297. Might look to pick up some short-dated puts to play the channel if technicals look right on open.
5/26 Noon - Got a small amount of 5/29 ATM puts to play the channel. We opened right above the 200MA so I'm relying on this being a fake out, and not very confident about this specific play.
5/26 3:50PM - Looks like 300-302 range is acting like a resistance, heading back down in the 293-300 channel. Bearish intraday (5M, 15M) MACD => EOD dump and open lower in the channel tomorrow. Looking closely at what's going on with China.
- Wednesday (tomorrow): House votes on sanctions related to Chinese concentration camps of Uyghurs
- Thursday: China votes, and very likely passes, amendment to Basic Law in HK for "national security"
- End of Week: Trump promised that he will have a policy response, likely sanctions, for the change in HK's basic law, in addition to possibly revoking HK's special status
5/27 Market Open - Opened at the top of the resistance again, but quickly reversing. Might play out similar to yesterday
5/27 11AM - Going to wait till SPY hits 297 again and then roll my 5/29 puts I got yesterday to continue playing the channel down to 293
5/27 3:50PM - Turns out it was a EOD pump instead of dump. Oversold on 5M and 15M, so probably need to consolidate again tomorrow with a trading range of 297-302 again. Not so sure about this one because there's a solid chance this just breaks through that resistance and goes towards new ATHs. Entered into more 5/29 puts and going to hold overnight, sell if we still have positive momentum going in to open tomorrow. If we don't break 300 again tomorrow, I'm going to assume we're going to new ATHs and buy some IWM calls, hedged with QQQ puts.
5/27 6:30PM - My plan for tomorrow - see if we're actually in a 293-302 channel. There's going to be alot of uncertainty coming from China this week. If we're still above 302 by 10AM I'll probably transition towards bull positions. Most tech / strong companies are priced near their ATHs, and all the momentum coming into SPY is now coming from all the stocks that were really hit the past few months. Looking at CCL, JPM, and BA, all of whom are going towards a 1W MACD crossover
5/27 11PM - Still above this channel. Again, if we open above 302 and don't quickly reverse then clearly 300 wasn't that much of a resistance and we're headed to ATHs - next stop is 313, followed by 340. To my bears out there - the 1W MACD has already crossed over, meaning we're not going to see a rug pull any time soon, with the exception of some dramatic event happening in China. I'm not taking any medium-term bearish positions and currently just trying to play this channel, although the bullish momentum is stronger than I expected and not consolidating that much on 300 (yet). Watch out for August - that's when most medical experts agree a second lockdown is going to become evident and this bubble will pop; I still stand by my long term thesis. However, in the short term, don't trade against the trend and profit off the bubble.
5/28 9:40AM - I was wrong again. Going to sell those puts when SPY hits 302 at a small loss. We're headed to ATH
5/28 11:40AM - Overbought on 15M and 1H RSI, should see more consolidation today, and hopefully hit my 302 target to sell later today.
5/28 1PM - Stopped out of my small SPY puts, rolled that out into bullish positions on JPM, BA, and CCL. Will probably be doing SPY plays for a while, since all the technicals are pointing to a bullish rally, but only way for that to continue is for beaten down stocks like the ones mentioned, and found in IWM, to skyrocket the next few weeks. Also probably going to stop updating this thread as much.
5/28 5PM - 1H MACD is about to cross, and SPY got near 302 today, We've clearly broken the previous resistance area of 300-302, alot earlier than I was expecting; today was just a day for consolidation because RSI was overbought, now it has room to grow. MACD also acts as a resistance and typically will bounce back instead of cross if there's still bullish sentiment. I believe this is the case now, and we will also see SPY bounce up from the previous 300-302 region of resistance with it becoming support; the next level of resistance will be 313 on SPY, which is where we'll be headed soon. Haven't been holding any medium-term short positions, and am currently net long on financials and transports, which will very likely rally disproportionally if SPY continues to go up. Very well aware that this is a bubble, but I called the top wrong and trading against the trend will just lose you money.
5/28 7PM - Tomorrow will be an interesting day, Trump announced a news conference, with an unspecified time, where he will talk about actions he will do to China, potentially sanctions. There was a very small dip in the market on this news but nothing much else has happened yet. Depending on what the actions are, could be a red day tomorrow and break 302. I'll play this out intraday if we don't open low tomorrow
5/29 11AM - SPY is re-testing the 300-302 area, this time as support. Everything really depends on whatever Trump announces today regarding retaliation about China. Hard to say what can happen. If it's something extreme, like sanctions or tariffs, this could lead to another crash. Anything else would mean this SPY immediately bounces back from this support area.
5/29 1PM - Trump conference scheduled at 2PM. Will watch stock market reaction and trade with sentiment from it. If retaliation is bad enough to drop below 300, could be the rug pull all the bears have been waiting for.
5/29 2PM - Picked up some 302-300 debit spreads coming into the news conference, planning on holding this for an hour and selling by EOD
5/29 3PM - Sold puts during the speech and flipped to 304-310 calls. Looks like this wasn't enough to break through support. Going to hold these overnight, momentum looks to be turning bullish now that there's no longer any uncertainty about China, and actions are unlikely to provoke a Chinese retaliation.
5/29 4PM - Sold my short-dated calls. Coming into the weekend, it looks like next week will continue to be bullish, with 1D MACD convergence continuing, as well as the lack of any resistance until 313.
Week of Jun 1 - Jun 5 - Looking at SPY hitting 213 by end of week
submitted by ASoftEngStudent to wallstreetbets [link] [comments]

What is the point of Futures contracts for retail traders?

I'm an options guy - hey, to each their own. Since I'm in the process of writing a series of posts on the route less travelled on options trading, I felt it would be best to get this first out of the way.
When I first came across futures contracts on stocks, it didn't make any sense to me. Futures contracts behave in exactly the same way as the underlying asset with the added complication of having exposure to interest rates (typically, you can ignore this detail - this detail becomes relevant if you want to add options to the mix, especially so with currency derivatives).
The one reason I heard of at that time (this was in 2004) - 'You get a lot of leverage with Futures!'. Sure, but this wasn't a big difference; I typically had to put down about 17% as upfront margin. IMO, this wasn't a good enough reason as this translated to a margin of 5.9x - heck, depending upon the stock, Sharekhan gave me a margin of up to 10x on even delivery trades (again, this was in 2004). If someone wanted to trade intraday, do it with stocks, why futures?
It took me a while to get the point. When one wanted to profit off a rise in an asset's value - buy the stock, let it rise, sell - rinse and repeat.
How do you profit off an asset's depreciation? You could short-sell the stock; but you had to close the position at the end of the day as there was no mechanism to borrow stocks in Indian markets. Any drop in the asset's value that happens overnight or over the weekend is beyond reach.
Entre futures contracts. These things allow someone to keep the position open for an entire month. If you had inside information of the mess that was going on at Yes Bank, short-selling the stock was a horrible way of capitalising on it, opening a short position via futures contracts was the way to do it: you can squeeze the full extent of the drop, with leverage on top of it.
Now, that little detail about exposure to interest rates being baked into the contracts, I'll get to that in the next post.
When Bitcoin was at an all time high of around $20,000 per BTC, all the Wall St banks were in a rush to offer futures contracts on bitcoin. I told everyone who was willing to listen that this was the beginning of the fall. If Bitcoin was only going to rise, why would a bank offer a product to their customers on which the bank only stands to lose money. It only made sense for the banks to sell futures on BTC if it were to crash and burn, in which case the banks stand to make a killing on these contracts.
And the banks made a killing when the crypto market crashed and burned. Nobody seemed to notice that the banks only sold BTC futures, none of them took on a short position on BTC if their customer wanted to short a BTC futures contract.
If there were no derivatives on crypto, while everyone involved stood to gain from it rising, it was in no one's interest for the asset class to crash and burn. Now, people can profit off a drop in BTC valuation.
submitted by circuit_brain to IndianStreetBets [link] [comments]

ThetaSpike - Book 50% gains in 3 days on $ANET

ThetaSpike - Book 50% gains in 3 days on $ANET
ACTION UPDATE: Closed position from initial post for net CREDIT of $130 per spread contract. Market decided that the moment this was posted was when the recovery was going to start at the expense of tech stocks. Bad break and not the afternoon and morning looking for so will trim losses to conserve capital.
Sell-to-Close 8/14 $220 Call
Buy-to-Close 8/14 $225 Call
Bid-to-Ask: $1.20-$1.60; median $1.40
Risked $320 per spread contract
Loss of $190 per spread contract
----------------------------------------------------------------------------------------------------------------------
New Free ThetaSpike Opportunity - 3-day Vertical Call Debit Spread (bull spread)
Arista Networks (ANET) - Time to Spike on the move back up after Arista's Spike of an earnings.
Buy-to-Open 8/14 $220 Call
Sell-to-Open 8/14 $225 Call
Equity Price: $223.90
Bid-to-ask: $2.65-to-$3.50; median $3.10
Open positions on the same ticket for Net Debit of $3.20 or less. Bid-to-ask has a median of $3.10 at time of writing so get as good a price as you are able.
Max Value is the Spread ($225.00 - $220.00 = $5.00) achieved if ANET closes above $225 per share this Friday. However, once this spread fills, immediately set an exit to close the position for a Net CREDIT of $480 per contract, Good-'til-Canceled.
Notes: After a fantastic earnings and a 70% rise from March lows, some curbed Q3 guidance resulted in profit taking on this cloud marketing solutions player. Four days of selling off has shot it below its 30- and 60-day moving averages and after a dip this morning, the SpikeMeter is trembling up. We are seeing a bounce back in intraday volume that should be day #1 of several on its way closer to its averages and fair value estimates. We don't need 6 months to spike 50% gains here. Note that even flat trading here results in ~30% gains.
Odds:
(-178) Risk $320 per spread contract to profit $160 per spread contract in 3 days (50% gains)!
While not a sports bet and you can exit when you like, we love to recognize that it is helpful for new option traders to see max risk and max gain in this format. Option speculation trading is not investing; never risk more than you can afford. We will never recommend trading with margin here and the principal debit for a position is your max loss.
thinkorswim

Robinhood (green = buy-to-open; grey = sell-to-open)

https://preview.redd.it/km6hmmljmeg51.jpg?width=227&format=pjpg&auto=webp&s=0f00de18e55ce299548541acb3c477c830bb3e4c
submitted by SpikeCityMinnesota to options [link] [comments]

How Different Nifty Strategies Traders Implementing Outlook of the Market?

How Different Nifty Strategies Traders Implementing Outlook of the Market?
People are always looking to earn money by exploring different avenues of investment. Investing in the stock market has become such a venue where people are learning about the different companies listed in the stock market. They study the company by learning about the work the company is doing and going through the fiscal data available in the public domain.
After thorough research, people decide whether to buy the share of the company or not. Many agencies help people make the decision and do all the research if the individual doesn't have time for it.

Nifty future strategies
Countless strategies are implemented by people and agencies who have been working in the stock market for a long time. One of these strategies is Nifty Futures Strategies as the name suggests the trading is done in nifty futures. It is essentially a contract on nifty futures, and the minimum lot size to trade is seventy-five units of nifty. But traders need to be very careful when trading in nifty futures and must consider few points like whether trading in an intraday or long term.
In futures, the trade is spread over a spot price, which needs to be checked by the trader before trading. Usually, the monthly spread is determined by the prevailing cost funds. Traders should avoid buying nifty futures when the prices steep premium or at a discounted price compared to the spot prices. This might be due to over positive news in the market or aggressive selling in the future.
The position in nifty future trading is that of a leveraged position. When a trader buys a Nifty in a near month, the trader's margin is around 10% for normal trade and 5% for intraday trade. It means the trader in leverage is ten times in normal trade and twenty times in intraday trade.
Leverages don't mean only your profit will get multiplied; rather even losses can be multiplied. Hence the trading in the futures should be done by enabling the stop losses & profit target. The trader should be aware of the overnight risk in the nifty future.
Even though the stop losses are put by the trader during the day, these orders don't cover the overnight risk. In nifty futures, traders don't earn dividends.
In the stock market, "Option" is a financial derivative that gives the trader the right to either hold or sell or buy an underlying asset at a pre-specified date and at a pre-specified price.
Nifty option strategies
In Nifty option strategies, there are two types of options known as the call option and put option.
● In case of the call option, buyers have the right but no obligation to buy an underlying asset like a stock, commodity, currency, etc. at a pre-specific price and pre-specific date.
● In put option, the buyer has the right but not obligation to sell an underlying asset like a stock, commodity, currency, etc. at a pre-specific price and pre-specific date.
The duration of the trade can last months. The options can also be classified into three categories based on the spot price with the strike price during the expiry date; it is known as the moneyness option. In option spread strategies is one of the simplest strategies a trader can implement. This is a multi-leg strategy which involves two or more options that has two or more option transactions.
In spread strategy, there is a bull call spread that is best implemented when the trader's outlook for a particular stock and index is not aggressive or moderate. Similarly, a bull put spread, which is also a two-leg strategy, is invoked when the view of the market is moderately bullish.
submitted by vtrender102 to u/vtrender102 [link] [comments]

5 intraday trading tips that can maximize your profits

Intraday trading strategies are used by investors to conduct trades on a day to day basis. As a consequence, itraday traders are prone to a higher volatility as compared to the long-term investors. But if you have the correct knowledge, you can reap serious profits whilst doing automated trading. .
If you are starting off into this new domain of trading, it's natural that you would want to learn tricks of the trade. However, you should keep in mind that merely tricks and tips wouldn't do the job as you need good intraday trading strategies as well to maek the most of your experience at the intraday trading market. Let's take a look at some of the guidelines that you should follow in order to maximimze your profits and minimize your losses.
Go for liquid stocks
You must be well aware of the fact that intraday trading encapsulates the idea of buying and selling stocks on the same day. But you must also keep in mind that for the exchange to execute these orders, there needs to be a certain level of liquidity in the market. Therefore, you must avoid small-cap and mid-cap stocks as they're not very liquid. If you do not pay attention to this, your squaring off order might not get executed, and you could be forced to take the delivery in its place.
Diversify your stocks
Ask any investor who has existed in this market long enough and he'll tell you that it's a mistake to invest all your capital in a single stock. A better option is to diversify your investments across a number of different stocks. This will minimize your risk as you wouldn't stand to lose everything if one of your stocks fall.
Define and set entry and exit price
There's a widespread phenomenon in the market known as the buyer's fallacy. What it basically means is that the stock investors sudddenly end up having a quick change of mind once they've bought a stock. People are emotional and they may regret their decision for undue reasons. You can avoid falling into this trap by setting up entry and exit price before you take up a position. This will ensure that you maintain an objective outlook and do not fall victim of emotional mood swings.
Set a stop loss level
This is, perhaps, the most important intraday trading tip that you could ask for. Setting a stop loss level is a simple but very efficient way of minimizing your losses. This is how it works: imagine that the stock that you've bought keeps falling instead of rising on the day of the trade. Stop-loss allows you to set a benchmark after which you'd square off your position on that particular stock. This acts as a safety net and protects you from having to suffer serious losses.
If you are just starting out as an intraday trader, it could be beneficial for you to adopt the 3:1 Risk to Reward Strategy. Under this strategy, the stop loss price that you should set should be 3 times lower than the price at which you'd be willing to book profit.
Booking profit after reaching the target
Fear and greed - both are your enemies in the stock market. Just like you shouldn't be too scared of taking risks to earn rewards, you also shouldn't become too greedy! While leverage and margins can help you maximize profits, they can maximize losses as well. Therefore, you need to be careful and not get greedy. Do not fall into the trap of assuming that the price would keep on rising (or falling, in case you're short-selling). But if all the signals indicate that the price would definitely rise, then it is up to you to decide what you shouldn do.
Remember to close your open positions
There are a number of intraday traders, who prefer to take the delivery of the shares if they do not meet the stock price target that they'd set for the day. This isn't really the best strategy in automated trading, as the stocks that you had bought were bought for intraday trading and they may not work well for you if you go for long-term investment.
submitted by alphabot20 to u/alphabot20 [link] [comments]

How Different Nifty Strategies Traders Implementing Outlook of the Market?

How Different Nifty Strategies Traders Implementing Outlook of the Market?
People are always looking to earn money by exploring different avenues of investment. Investing in the stock market has become such a venue where people are learning about the different companies listed in the stock market. They study the company by learning about the work the company is doing and going through the fiscal data available in the public domain.
After thorough research, people decide whether to buy the share of the company or not. Many agencies help people make the decision and do all the research if the individual doesn't have time for it.

https://preview.redd.it/8uxgtbydkif51.png?width=1918&format=png&auto=webp&s=c6301a6a6068b6c70de27d745848ac511feab0a6
Countless strategies are implemented by people and agencies who have been working in the stock market for a long time. One of these strategies is Nifty Futures Strategies as the name suggests the trading is done in nifty futures. It is essentially a contract on nifty futures, and the minimum lot size to trade is seventy-five units of nifty. But traders need to be very careful when trading in nifty futures and must consider few points like whether trading in an intraday or long term.
In futures, the trade is spread over a spot price, which needs to be checked by the trader before trading. Usually, the monthly spread is determined by the prevailing cost funds. Traders should avoid buying nifty futures when the prices steep premium or at a discounted price compared to the spot prices. This might be due to over positive news in the market or aggressive selling in the future.
The position in nifty future trading is that of a leveraged position. When a trader buys a Nifty in a near month, the trader's margin is around 10% for normal trade and 5% for intraday trade. It means the trader in leverage is ten times in normal trade and twenty times in intraday trade.
Leverages don't mean only your profit will get multiplied; rather even losses can be multiplied. Hence the trading in the futures should be done by enabling the stop losses & profit target. The trader should be aware of the overnight risk in the nifty future.
Even though the stop losses are put by the trader during the day, these orders don't cover the overnight risk. In nifty futures, traders don't earn dividends.
In the stock market, "Option" is a financial derivative that gives the trader the right to either hold or sell or buy an underlying asset at a pre-specified date and at a pre-specified price.

https://preview.redd.it/wyeifzxekif51.png?width=1274&format=png&auto=webp&s=b21fa82ca842d4f42a851095833d55cba6ba458b
In Nifty option strategies, there are two types of options known as the call option and put option.
● In case of the call option, buyers have the right but no obligation to buy an underlying asset like a stock, commodity, currency, etc. at a pre-specific price and pre-specific date.
● In put option, the buyer has the right but not obligation to sell an underlying asset like a stock, commodity, currency, etc. at a pre-specific price and pre-specific date.
The duration of the trade can last months. The options can also be classified into three categories based on the spot price with the strike price during the expiry date; it is known as the moneyness option. In option spread strategies is one of the simplest strategies a trader can implement. This is a multi-leg strategy which involves two or more options that has two or more option transactions.
In spread strategy, there is a bull call spread that is best implemented when the trader's outlook for a particular stock and index is not aggressive or moderate. Similarly, a bull put spread, which is also a two-leg strategy, is invoked when the view of the market is moderately bullish.
submitted by vtrender102 to u/vtrender102 [link] [comments]

Tradovate vs EdgeClear vs Tastyworks?

Hi all, would love some advice. I've done some research (including on this subreddit) and boiled down my options to the above three. A few points of things I'm looking for (but can't really find good info on their websites):


Thank you all in advance! Opinions appreciated!

EDIT: FMC = FCM ... oops.
submitted by aimzies to FuturesTrading [link] [comments]

Helpful Beginner ToS Interface Tips for Setting Up Charts and Indicators

Was chiming in to help with this post and I received a pile of DM's and questions, thought I'd address this to the overall subreddit as I'm sure this can help others.
This isn't a fully perfect build yet in my opinion, but I'd like to give a shout out to the many members of the Silicon Valley Options Group that helped put this together.
Alrighty then. Here's my 4 face chart set up.

https://imgur.com/gallery/HU0gNNh
~ ~ ~ ~
Meta: I've set up 4 time frames to gauge price action, going from a 5 year to a 1 year, 3 month and a 15 minute chart. Here's the underlying I'm most familiar with (SLV). We go back... 12 years. I just know how silver moves like the back of my hand since my broke college days where I first started with a 100oz bar at $13/oz.

5 year
5 year chart here. Imp. Vol to determine if I should take debit vs credit positions. In general, 20-30 vol is just perfect juiciness without insanity. However, I think higher vol is right around the corner. MACD of course. Lots of moving averages on the chart itself, 500 MA, 200 and shorter durations, there's a custom trailing indicator in the dashed gray which I use for my stops. I've evolved to really favor selling for premium because you don't have to be right to make money. Like many of us when we start, I went HAM with single-legged debit positions and of course, we size it incorrectly relative to our portfolio and risk too much for way too little return—and get nuked. I'm not wrong, the market is wrong! Yea, I got sick of losing money. Selling premium instead is way more forgiving. Like many of us, we start selling credit via put-writes/covered calls or cash secured puts (lord have mercy on you if you sell naked), then you can evolve to do wheel of fortune combo of put-writes and cash secured puts. Later, you get more capital efficient via credit spreads and such. Generally, my short position usually has an 80% probability of expiring OTM or better. I've finally humbled myself to be less reckless and pick up wins of singles and doubles instead of swinging for the fences all the time. Like Tom Sosnoff teaches us, trade small, trade often. That's helped me lower my losses tremendously, rack up way more experience in the process and move with the markets much better. Plus, I'm doing really short DTE these days, weeklies and maybe 2 weeks if I'm more comfortable. In this market, I think it's insane to hold or sell too far out.

1 year
1 year here. I'm not too thrilled with PercentR, might phase out. I'm playing with other indicators in my sandbox account to figure out a better indicator for this duration. Volume + MACD to get a better gauge of action.

3 month
I'm mainly in this duration the most. For silver, the red dashed line is the support and resistance of the current channel that's been verified many times in the past. OnBalanceVolume is life changing, after MACD, it's probably my favorite indicator. It replaced RSI which just gave me too much vague information. I use to pair this with volume profile/market profile (MonkeyBars in ToS) but it just made everything too busy, I do like to see where people made their moves though. The dotted lines of green, magenta and red (god, I would hate to trade if I'm colorblind), are Person's Pivots. He's spoken at the SVOG group on Seasonality and I've been hooked ever since. ATR is really helpful. It helps me verify if the market maker's 1 sigma move is correct or not. Generally, if ATR is less than 1 sigma, I'm pretty safe when selling premium. This is a key metric for building a margin of safety as an options seller.

15 min
15 minute chart, I don't look at this too much unless I'm opening or closing a poition. It generally helps me figure out intraday entries/exits. This use to have less vol and be more stable, but I think with Covid and the huge explosion of retail trading (thanks to RobinHood amateurs), it's gotten a lot choppier as people are playing on rumors and all kinds of weird stuff or probably looking up /wallstreetbets or some shit. I need to figure out what else to add besides MACD that my other durations don't provide, still figuring it out. Person's pivots really helps here. (Green is normal, magenta is an upper bound value and magenta is sort of an abnormally high level. It's based on Fibonacci retracements (I think default is 5 lines? or 7? Forgot. John Person's has a proprietary formula to make it 3 which helps.) I don't really day trade cause I still work full-time but I'm sure this set up could be expanded to do well with that. MonkeyBars (volume/market profile) would be helpful here. After April, I like the idea of no overnight risk.

~ ~ ~ ~
Hope that helps. If you like this and want to take this interface for a spin, feel free to message me and I'm happy to share the link. Please save your current settings/studies/etc. in case you prefer your prior calibration.
Kick ass out there and sell volatility like a mofo.
Remember, skylines are built by firms that sell insurance. The best time to sell volatility is after a storm. Go do your thing folks.
submitted by slamdunktiger86 to options [link] [comments]

AUSSIE TICKS HIGHER AMID POSITIVE DEVELOPMENTS SURROUNDING US-CHINA TRADE WAR

AUSSIE TICKS HIGHER AMID POSITIVE DEVELOPMENTS SURROUNDING US-CHINA TRADE WAR


Australian Dollar which is regarded as a proxy for China because of their close trade relations appreciates against its US counterpart on Tuesday as market focus on developments over Sino-US trade negotiations. Earlier today, the two behemoths held a telephone call to discuss the implementation of Phase -1 trade deal agreed in January. Currently, the currency pair is trading at 0.7173, up by 0.18%.
Talking About yesterday, initially, the pair climbed to 0.7203 level in European trading hours as market participant’s cheered optimism surrounding COVID-19 treatment. The USFDA approved the usage of blood plasma from recovered COVID-19 patients as a treatment option. However, the pair trimmed majority of its gains in American trading session as traders booked profit near the psychological level of 0.72 coupled with a bounce in the greenback. Subsequently, the pair concluded the session with a marginal gain of 0.01% at 0.7161 level.
Going forward, investors must keep a tab on the US CB Consumer Confidence and New Homes Sales data for intraday trading opportunities.
Risk Disclaimer: The vast majority of retail client accounts lose money when trading in CFDs.
submitted by FXView to FXview [link] [comments]

Why I trade futures over options

Hello autists.
I thought I shall share some tips on why I trade futures instead of options. If it is not your cup of tea, feel free to ignore this. After all, everybody's risk appetite is different. Tailor it to your Personal Risk Tolerance.
Note: I am not a financial advisor. These are my ideas alone and anyone looking to go through with this must consult their advisor.
Before i get started, I should warn newbies that it is not advisable to start off with futures. I have been doing this for 2 years now, starting off with 2L and saved up my salary every month to put it in my account. I realized that Mutual Funds were managed by tards and I do not want to enjoy a yatch when i am 60. But before all this, I started off with conventional stocks and slowly dipped my feet into futures.
Pre-requisites: 1. Some understanding of your emotional levels (do you immediately square off your position if things are not looking good, or do you wait for it to play out? ) 2. Do you have a trade setup you trust? Do you keep a log of how it performs and how it does in a bull or bear market? 3. Is the money in your trading account something you can afford to lose? If not, save up more and come back.
Futures: I shall not get into the details of what futures are, and why it was started in the commodity business. Basically, for brevity, the equity futures go by lot size. For example, Reliance has a lot size of 500. If reliance is trading at 1000, the margin given by zerodha is Rs. 2,00,000 approx to hold these shares overnight. For intraday, you need a margin of ~1Lakh.
Imagine, if you wanted to buy the same amount of shares you would need an account size of Rs. 5L. Now, with great power comes great responsibility. Lets say, there is a huge oil fight and oil prices drop. The price of reliance drops 20% to 800. If you had bought the shares, your account size also drops 20% to 4L. But if you had bought futures, your account size of 2Lakhs now loses 1Lakh, which is a 50% loss. The plus side is, you can also make the same if you are right.
Now why do i trade futures instead of options:
Lets say my account size is 2.5 Lakhs, and I want to buy reliance and hold it overnight. 1. 2 lakhs is taken up for my margin, and i have a balance of 50k. If the next day, reliance goes up by Rs.20. I would have made a profit of Rs. 10000 (500x20). Now if i by the end of the night, my account size becomes 2.6Lakhs. That is i can use the full 2.6L margin now.
This is very important for me. These profits are already realized in your account. And this is called Mark to Market (MTM). Note: in options, the profits you make are unrealized. They are sitting in your account until you square it off.
  1. If i were to buy the same amount in shares (for 2 lakhs). The next day, i can only trade with 50k in my account. The 2 lakhs do not show up until i square off. But when i am holding futures, and the next trading day starts, I convert my overnight positions to intraday, thus saving up 50% of the margin. When things dont go my way, I immediately square off and use the full margin for my next trade.
  2. If you are buying options, you need to be right about the direction of price movement AND the time it would get there (also called as delta and theta). Implied volatility also comes into play, meaning, when a herd of people are betting the same, you will still lose if you are with the herd. In futures, you only have to be right about the direction.
  3. You ever get a thrill when the VIX is sky high? with so much volatility you profits keep shooting up and your losses are devastating at the same time? Do you enjoy that feeling? Then fuck it, you have a gambling addiction. But, thats how i feel like trading future. Even in a low volatility environment my losses can wipe away 10% of my account in a single trade. Know yourself first.
Hope this helped a few autists.
Good luck trading.
Current positions: https://imgur.com/a/arBO6RT
Tldr: if you can't read this, stick to yoloing options
submitted by Justatadcurious99 to IndianStreetBets [link] [comments]

The Normie Playbook: Lacking a Catalyst

The Normie Playbook: Lacking a Catalyst
I'm going to give an honest look at my DD for this week, show you what I see in the macro landscape, and provide insight into how I'll try and make money. Caution, my last play didn't go well:

A Bullish Case

Stock market rallies don't simply end because people wake up one day in mass and decide things are over priced. There's a catalyst. Lacking a catalyst, assuming current assumptions around the COVID-19 recovery hold true, it's fair to expect the market to work higher. Sprinkle in FED action, which while down 89% from it's 3/25 peak, still dumped another $65 billion into the financial system.
Bulls are expecting a quick recovery, and while battered, they haven't been knocked off that position. There's continued discussion around a vaccine, optimism, stage 2 trials, and numerous companies and universities pursuing it. We're north of 300k daily tests, and the positive test rate is declining, states are reopening, we got through Easter, and we found remdesivir effective. P/E is high, but even if you believe that governments are propping equities up, this ponzi scheme still puts US equities at the top, likely to bleed the least and profit the most. It's not to say a dip wasn't warranted, it was just an over-reaction, hope you enjoyed the ride back to appropriate valuations.
Money right now is easy. Interest rates are low, and will remain there, maybe even negative, with a FED heavily accommodating of markets. Liquidity is flowing like rain, banks across the globe are jumping on the QE train. Shorting the market is shorting the governments ability to continue the rally, and as Buffet says, don't bet against America.
Oh, and guess what, Congress is going to hand everyone more money.

A Bearish Case

Despite the optimism, the Fed can't create demand. Consumer spending is not going to come back to where it was. Millions will remain unemployed, the jobs aren't all coming back. The idea of a V shaped recovery is ridiculous, even a U shaped recover is irrational. Given the market expects such a recovery, the theta from news is going to burn bulls, day over day as the recovery doesn't manifest with the expected velocity, gravity of expectations will pull bulls to the ground.
June will see auto delinquencies appear in servicer reports, by end of July extensions 3 month payment extensions run out, auto repossessions will begin again, and the extra unemployment comes to a close. With September comes standard unemployment insurance running out for initial layoffs, followed by the end of our foreclosure moratorium.
Now imagine we never get a vaccine, it's never proved easy for other SARs diseases, why would this one be any different? The market hasn't priced in a significant bounce. States reopening too soon. The US outside NY/NJ/PA still rising in case counts, and people are sick of being quarantined. Oh, and good luck getting the US culture to adopt masks.
The market expects COVID to be beaten, when the reality is it needs to be endured. We've shot most of our stimulus shots, we shot wildly and while some hit, we wasted too much and we will pay in time. This virus will be with us for years, and so will the impacts. The world is heading for a recession, and they'll drag the US right down with them.

My Take

Both cases above have some FUD, but both also have merits.
First, separate Main Street (consumer and production economy) from Wall Street (financial markets), as they are different. The FED can do wonders for financial markets and in turn Wall Street, but it can't manifest demand. Congress can. Stimulus can.
There likely will be another round of stimulus and it'll boost spending, can kicked down the road. Now it may not come until June, but US equities are strong and as long as the assumption holds, so will the near term impact of it's expected arrival. Sure, the house of cards may fall in time, but what's going to bring it down? We lack a clear short term catalyst.
The bulls ate more straw off our camel's back than bears threw on. States are reopening, there's talk of more stimulus, curves are flattening, positive treatments, vaccine's progressing, and the market is recovering. The bearish news is the unknown, the whispers in the wind, we'll see in two weeks, wait until September, and the reality that so much is wrong with Main Street, that things can't be this positive with Wall Street. Can't say they're wrong, but they don't weigh as much. The market's priced in awful Q2 results, with no guidance, and a market that by it's nature wants to rise, there's little besides whispers to hold it down.

In Search of a Catalyst

So what could bring what we feel, and the equity market into better alignment? We need a catalyst, some options:

  • Consumer Spending - Eventually, Wall Street and the financial market is still tied to Main Street and the need for production via demand from a consumption economy. If unemployment remains low, and wages decrease, you can throw stimulus at it, but spending will drop. As spending drops, the volume of decline, if severe, can open up a world of hurt for equities as guidance and P/E fall as a reaction.
  • Bankruptcies and Defaults - Governments can solve liquidity issues and prop up prices, but good luck fixing the solvency of a business when margins crash due to lack of spending and debts exceed the ability for business (or people) to pay them. Less hoarding cash by businesses (profitable for financial institutions), more drawing down (cash crunch), more borrowing. Add to that regulatory tightening for banks post 2008 and minimum levels required will strain them further. All this can create a rush to hoard cash, which will restart a massive equity outflow. The challenge is, I don't see this coming near term, even if you believe it is coming.
  • The Dollar - The dollar is the standard of the world, but that's not always great, especially when supply causes issues. When you have massive debt that results in bankruptcies, the money supply starts to dwindle as unemployment ramps, confidence fades, money gets hoarded, and deflation sets in. This unavailability of dollars is a huge risk. Currencies are getting crushed by the dollar, negative interest rates could become a trigger of insolvency, an outflow of equities to generate cash, and a massive crash as a result.
  • Significant COVID Resurgence - Obviously, anything approaching a country wide lock down in the US will send markets back to their knees.
  • Guidance - As the recovery comes, guidance will return. More than half of Wall Street has pulled guidance, less than a quarter are expected to offer full year guidance, and analysts are flying blind. As that spigot turns back on, the reality of impacts could be more bearish than expected similar to how we saw with Q1 under-performing. CEO's tapering FY21 expectations, discussing reduced consumer sentiment, shifts in culture, and a recovery that carries deep into 2022 could be enough to tip companies to truer valuations.
  • Reality - As all of the above hit in less severe degrees, there is the sum of parts which becomes significant enough that equities fall, perhaps not at an accelerated pitch, but fall significantly all the same.
None of the above are assured. There is an ever increasing reality that this market has a bottom. I struggle to comprehend that at times, and there are so many threads to pull that can crumble things. But perhaps the FED is able to unwind QE without impact, perhaps the dollar's global position is the strength needed for the US to recover faster despite being hit harder. Perhaps.
Right now, my sentiment is short term bull. Medium term uncertain. Long term bear. Unclear on if we've found bottom. This past week has trended bullish across the board.

The Next Play

The only thing this weekend tells me is: be patient. It's unclear our direction, even in the near term. I could make a case in either direction. This week, is going to be a short term week. I'll avoid holding overnight, avoid going long (barring very clear signals), and will play the swings (up or down) as my TA dictates.
I like to end "plays" when a theme shifts, it helps me avoid chasing losses, so that's what I'm doing and I now consider my prior play done, and failed. I've allocated another $5000 to a new play, I'll call this play "Patiently Waiting". I expect most positions this week to be smaller, in the $500 to $1000 range, in and out, and I'll be surprised if I fully deploy my allocated capital at one time.
I don't have a planned entry. I doubt I do anything before noon on Monday, if Monday at all. I'll create a shorter post once I find my entry, and will track critical TA for the week as well as the profitability of the play in there.

TLDR

There's a bull case, there's a bear case, the bull's had a stronger week. Many links, much news. No clear TA giving confidence in a position, will take short term day trades while waiting for clarity to emerge, will add a post later to track how much I lose.

Updates

5/12 @ 7:00 : I said I'd make a new post when I found a move, but also said I didn't think I'd do much Monday. I ended up not doing anything Monday.
Wedge forming
We saw a major wedge break on the 23rd of April. As it's downside break failed, a new wedge started forming, which lead to my exit from my prior play. The wedge has continued to hold since. I hesitate to trade it yet, but it's a converging indicator along with the .618 FIB retracement, you can see the two together formed a strong resistance to the upward movement on the 8th and 11th, forming a double top. The wedge says it's time to retest the bottom support, and in theory we should see movement downward today into tomorrow.
I'm not planning to play it, but you could enter some 5/15 290p if you see it bounce top of wedge today. You'd need to exit by tomorrow at latest, exit by EOD may be the best play, really depends on where it goes.
5/13 @ 7:00 : Bummer. Life got in the way of about a 200% gain trade, would have opened around 1.3 and closed north of 4 on a 5/15 290p. I didn't get to play it. The wedge was strengthened by yesterday's movement:
SPY this morning, 200d EMA on 1 HR interval acting as support
ES and the same wedge
Above you'll see SPY and a slight dip out of wedge, open will see us right back in. ES never broke wedge due to lower lows on 5/4. It's a better than average bet we stay in wedge today, which gives us a 6 point 287 to 293 range. SPY closes with support at 287 in wedge, yet on the ES, the wedge supports at 282, truth might be somewhere in the middle.
If we open 286.5 to 287 range, I'll enter a 3-4 contract position of 288c. Be mindful, everyone thinks the FED buying ETFs is a tailwind, I see it as a short term headwind given the outflow of equities to the newfound safety in those bonds as a result. But that's a macro view, and this week, I'm intraday.
5/14 @ 7:00 : Let's start with unemployment. The estimate for claims this week is 2.7m, the smallest gain in 8 weeks, but still pushing us to over 35 million unemployed since early March. Some estimates have ~5m people returning to work in the past few weeks, but the flow is still higher towards layoffs. They've been button on of late with estimates, I expect them +/- 250k, anything with a 2 in the front isn't going to move the needle.
As to market direction ...
.5 FIB Supporting
Bears couldn't break the .5 FIB, it held back on 5/4 and it held yesterday, though saw 15% more volume this go and was a deeper cut at breaking. We have had two straight large red days, we bounced off a support line, and are in oversold territory (that indicator flashed literally right as we bounced off the FIB, trended down since).
A really nice bear case would see us retest the FIB, break it, and thus the neckline, forming a really nice head and shoulders from the 4/5 time frame. I don't see it as likely, but breaking the 280-279 churn sees us down towards 272-273.
Don't trade this as a prediction, lazily drawn example.
A more likely scenario is we track the 5/4 bounce, but don't bounce as high, before regrouping to retest the FIB once more.
Our rising channel from the bottom.
We've been in a rising channel for some time, quickly bounced into the churn zone, decided we were bullish, and started tracking the upper segment with support holding all the while. Of late we're fading, and there are signs it's time to give our supports a good test. The natural rise in the channel paired with fading momentum could cause us to naturally coil for a while before enough energy returns for a strong move.
I'll be watching today, might look to enter a 5/15 283c position, not something that would look to track the full height of the rebound, rather the initial velocity and bounce, which should occur today into AH assuming we confirm that as our direction.
5/14 @ 7:30 : On 5/12 we saw the wedge, and thought it's likely it bounces off the top and test support. On 5/13 it did just that. On 5/14 we expected a bounce off the .5 FIB, and that's what we got:
Blue are yesterday's expectations, green what we got. Don't trade that second bounce yet.
5/4's bounce was 115 points, current was 96. The 5/4 pullback was 68 points or 54% of bounce, current is 37 points or 39% of bounce (though still forming, assuming 2824 holds as support). 5/4's continuation bounce was 121 points or 105%, let's assume we get 83% of that bounce (same as initial comparatively), that would see us to about 2924. You'll notice that aligns with my hastily drawn bounce chart yesterday.
If gravity is taking hold, you'd expect our second bounce on the second test of the FIB to be smaller, the second dip could go either way:
  • Smaller: 2824 holds as support. We got a smaller initial bounce, a smaller still dip, and likely a smaller still second bounce, perhaps towards 286-292 range.
  • Bigger: If our second dip breaks 2824, I'd expect us to retest the .5 FIB. If that were to happen, we're really putting a beating on that FIB level, it's not proving as oversold as it was, and each test weakens it further. We could bounce right off it, or the really bear case bursts through it before bouncing.
There are a lot of scenarios here. I can't make a call. I can say that you can see gravity in the charts. We weren't as oversold on this FIB test as we were on the 5/4 test. We didn't rise as high into overbought territory this time before turning back down. I can see downward momentum building.
A head and shoulders that I don't quite believe in.
There's a weak head and shoulders that strengthens with a downturn. I don't put much stock in it, but fun to watch anyways. For whatever reason, I just can't get on board with a really bearish short term outlook.
Our general channel
Instead, my gut tells me we stay in this rising channel, trending towards the middle chop zone. That leaves the market very sideways, with energy continuing to coil, for what could then break either direction, though which my gut says breaks downward. Feels like a roller coaster just being released after riding up, yet we're in the front car, and the back car hasn't been set free.
Possible plays: Day trade scalping ... Wait for us to bottom, into calls for rebound ... AAPL calls during rebound ... or given 2824 doesn't seem to have held (for now) go permabear and jump into puts! I'm probably staying cash today. If I had the time, I'd wait for the dip to bottom, then day trade scalp the upward momentum until it stalls (which is the same thing I did yesterday).
submitted by kjtocool to wallstreetbets [link] [comments]

PhD's, money managers and PE investors have no idea what will happen in the future, here's how you profit from that.

First, holy fucking shit this sub has gotten so fucking bad. The amount of fucking posts "SPY is down why are my puts down and tendies missing?" has gotten out of control. That being said options are incredible complex instruments and probably shouldn't be so easily accessible to a bunch of teenagers like ourselves.
Second, from the news/financial media down to people on this sub, everyone is fucking retarded. Idc if you're a HF manager or epidemiologist, no one has any fucking clue what's gonna happen. This is an unprecedented situation and the current extent of a highly interconnected and globalized economy will exacerbate it. For example, I work in insurance for small businesses ($50k-$25mm annual rev). My clients biggest concern isn't short term cash-- they can cut employees loose, negotiate rent, etc. What they're freaking out about is how businesses will react when this is all over. Will that warehouse still want to go forward with my client redoing their floors in June as expected? Will the 10 custom builders still be in business that give my client in supply distribution 90% of his revenue? It's the cyclical shit like that, if it lingers longer than expected, which is the biggest concern.
How we get tendies: I think we see a dead cat soon and bounce back to 2750-3000. Almost every corner of the market is oversold technically speaking. This shit is obviously of major concern for the markets moving forward but we've gone down too far, too fast. IV is still too high to just buy puts ands the huge intraday swings can fuck you if you're short.
So let's use a diagonal calendar spread. We buy June 200 puts and sell April 190 puts. We're then delta negative, theta positive and vega is somewhat offset from the short leg. Worst case, short leg expires worthless and we can either roll the short or exit for a marginal loss. If SPX stays in its range we stay about the same with a minimal P/L at April. Best case, we shit the bed further, if we blow past both strikes we're still looking at a decent profit.
Calendars give you the flexibility of time. I don't wanna time the market rn and get fucked bagholding expensive puts, but I don't feel comfortable with no downside exposure. This could be done more effectively with long ATM put and short OTM but I don't wanna commit that much BP.

TL;DR SPY April 190p/June 200p debit spread. Limits losses if deadcat bounce and still has upside if we make new lows. Roll @ exp or exit trade for marginal loss.
submitted by TrippleEntendre to wallstreetbets [link] [comments]

BitOffer Institute: Bitcoin options have exploded by more than $1 billion due to settlement

BitOffer Institute: Bitcoin options have exploded by more than $1 billion due to settlement

https://preview.redd.it/1kimouosfm851.png?width=820&format=png&auto=webp&s=f01be112f2ac790f9ded13128ed7b8d80cc04a6d
According to the options trading data from BitOffer, On June 26, with the due to settlement exceeding $1 billion, Bitcoin has experienced its largest option expiration event in history. Of which BitOffer exchanges accounted for 73%, followed by Deribit and OKEX. This is an important milestone for the digital asset space, reflecting the rapid growth of the cryptocurrency options market through 2020 and its growing influence on bitcoin price movements.
The question is this phenomenon leads to significant market volatility? This is the main concern of most investors. The price of Bitcoin continued to decline on June 26, the day it was hitting an intraday low of $8,841, which is the lowest price recently. It is worth noting that a large number of expirations mean that a new round of open options contracts will follow, and there are strong bullish expectations for bitcoin’s performance after halving. It is likely to spur a V-shaped rebound of bitcoin and breakthrough $10,000.
Lucian, the chief analyst at BitOffer exchange said that the encryption currency derivatives market has developed rapidly in 2020, especially in the options volume constantly refresh the record. At the same time, we also see the ETH options in rapid growth, at the month of ETH options being launch in BitOffer, its volume became more than $500 million. The options market is getting popular and the encryption market is gradually maturing, and likely having a better prospect versus the contract market.

https://preview.redd.it/7iqqodiufm851.png?width=1400&format=png&auto=webp&s=bdbb5139913eb6389be15d2233e85c2ad797e111
As is known to all, BitOffer is the largest bitcoin options exchange, and it has launched the world’s first American-style options of BTC, ETH, BSV, and BCH. The biggest feature of BitOffer is that no matter whether it is a bull market or a bear market, it has the opportunity to obtain up to a thousand times of excess income without any margin or handling fee. Bitoffer options provide 11 sections to choose from 2 minutes to 7 days. Besides, it is worth mentioning that the bitcoin option spot index is composed of the equivalent weights of 7 exchanges.
For example, as the price of Bitcoin was 9000 US dollars, Tom and Jerry predict that Bitcoin was expected to continue to rise, so they bought bitcoin contract and bitcoin options, respectively.
· 1. Tom choose to purchase a Bitcoin contract which cost $9000
· 2. Jerry choose to buy a bitcoin option which costs about $5
As they wish, after Tom and Jerry placed the orders, the bitcoin price rose sharply, which less than an hour, from 9,000 US dollars to 9,500 US dollars.
By comparison, Tom and Jerry get the same benefits, but the cost gap is very large.
· 1. Tom spent $9,000 and earned $ 500, which is a 5.5% return on the cost.
· 2. Jerry spent $5 and earned $500, which is calculated as 10,000% of the income.
Conversely, if bitcoin fell from 9,000 US dollars to 8,500 US dollars in one hour, Tom will be lost 500 dollars, and Jerry only lost the option fee, which would be 5 dollars.
Which means Jerry can get an interest in BTC for a very low price. This is what we say Limited losses and Unlimited gains.
Since the price of Bitcoin has been very volatile, more and more investors have started to use options to hedge the downside risk of the spot, to realize a stable progressive investment.
For example, the current price of Bitcoin is $10,000:
  1. If the price rises to $11,000, the spot profit will be $1,000
  2. If the price falls to $9000, the spot loss will be $1000
The cost is only about $20 if you buy a put option for hedging on BitOffer. Once the bitcoin drops from $10,000 to $9,000, the spot loss will be $1,000 and the put option will make $1,000 without loss.
As the risk is completely washed out, when you start hedging, you could make money when the price goes up, and you could save the cost when it goes down. This is the hedge between options and spots, besides, many investors using options to hedge contracts as well.
submitted by Bitoffer_Official to BitOffer_Official [link] [comments]

BitOffer: How to make steady profits with Bitcoin options while ups and downs?

BitOffer: How to make steady profits with Bitcoin options while ups and downs?
Many people may not be particularly familiar with bitcoin options, as most bitcoin users have only trade with contracts, which also known as futures.

https://preview.redd.it/y1n0voyt4n751.png?width=810&format=png&auto=webp&s=f0d51cc3b8454c477c2ec4bb8b36e39a26dd699a
More recently, BitOffer’s chief analyst Lucian noted in a June report that “nearly $1 billion of bitcoin options contracts are due to expire at the end of June, which representing 60% of total open interest in the BTC options market. In that case, there could be a significant economic incentive to push the spot price to a certain level before the maturity date.” To be clear, bitcoin options are only 1% of BTC futures and spot trading. This means that options have huge potential in the Bitcoin market, which makes us pay attention to the rise of options. If 2019 is the promoting year of contracts, then 2020 must be the promoting year of options development.
At present, in terms of options, BitOffer is the first one to launch options in the industry. BitOffer is also the platform with the largest and most active trading volume of options at present, with nearly 130,000 daily users and the largest monthly turnover of up to 1.5 billion dollars. As the first to develop options, first of all, in terms of options, BitOffer has BTC, ETH, BCH and BSV options, it is the most complete exchange in the industry so far. Secondly, the product period from 1 minute to 7 days, a total of 12 choices are available for users to choose freely, allowing users to flexibly use and operate the transaction period suitable for them.
How can we operate so that we can achieve a better and more stable profit?
1、We can operate with the trend characteristics of Bitcoin.
When refreshing the BTC candlestick we could notice the fluctuation is more active in the first and last 5 minutes. Therefore, we can choose a 5-minute option to obtain the maximum interval benefits with the minimum time and cost.
2、Pursuit when the market continued to rise and fall

https://preview.redd.it/jfigfxww4n751.png?width=1191&format=png&auto=webp&s=ae8580eee3695e8517ebfa226ee3d988d45c3d11
For example, when the market is in a continuous rise, the volatility will be greater. As the chart shows, at 5 am the market expected volatility. At this point, once we brought the 1-hour call option at position 9665, we could earn $135 after the price reaching 9800.
If the market falls and fails to close the position, then we can buy a 5-min put option around 9750 to hedge the risk of a fall, the cost less than $5. Assuming the market continues to go up, we would have a higher return on the 1-hour option more than $135.
If prices fall back to 9645, then the 5-min put option can get $105. As it dropped sharply in the subsequent, the 1-hour options will lose all the money. However, the correction of options could hedge the loss of 1-hour options in the callback, meanwhile, realize the huge profits. This cyclical portfolio hedging works well as long as intraday volatility is greater than our costs.
Options, as the most potential trading variety in the future, are undergoing rapid development. Then, among many options platforms, why can BitOffer stand out and become the largest options trading platform from others?
1. BitOffer options come with thousand times leverage
2. Never Being Liquidated, 0 margins 0 commission
3. Low threshold and variety products, flexible choice of period
4. Unlimited benefits with a small budget, low risks
With many advantages, BiOffer quickly occupies the options market and also becomes the first choice. What are you waiting for? Try the bitcoin options now, and you’ll get $50 for registering.
submitted by Bitoffer_Official to BitOffer_Official [link] [comments]

Again if deleted

The Shadow War: How Thursday and Friday Set Up for Another Engineered Circuitbreaker Next Monday 3/16/20
Are our markets under a coordinated financial attack? We thought MM were tinkering with things behind the scene, but there is an actor with tons of capital squeezing our MM in the USA, draining liquidity as MM face increased losses and are unable to provide transactions for people trying to hedge in these financial markets, and bringing about these engineered drops in the stock market. The timing of this is not coincidental given that we are currently engaging the coronavirus amidst the backdrop of an election year and instability with the oil pricing war. I've created this thread with bemusedfyz after hashing out these thoughts.
Part I. Firms/Hedge Funds are Net Short Gamma Resulting in MM Buying Calls to Provide Liquidity
In a bull market, firms purchase calls to be long gamma. MM try to capture rebates by taking on the opposite positions since they do not physically own the security.
"This means that whenever a market-maker fills an investor's buy order, the MM is facilitating the trade by shorting shares. [1]"
They have to go short in order to sell a security they do not own (this is why they are exempted from short selling). In the other case, during a downturn, firms want to hedge using puts and become short gamma, thus MM must take on calls. As people previously noted in my posts, if there is a buyer of an option, there has to be a MM selling the option to provide the liquidity. How then do MM make profit? They make profit from rebates by providing tighter spreads compared to other MM. By narrowing the bid/ask spread, MM keep the rebate, creating very thin margins. Thus, volume and liquidity are key to profits for MM.
Part II. How Options Inform Price Action by Identifying the Real Money Flows
People have been asking "how do you know which options for SPX/SPY being purchased are purchased by actual firms for a position?" I've been using 3 key metrics to inform me of the direction of intraday trading, and I will explain them more in another thread:
  1. Strike/Expiration
  2. Block Size
  3. Correlation with volatility, gold, and treasuries
Options data within the last 10 minutes of close has been particularly informative of the direction of the following price action. During the close on Tuesday, volume was strong on the buy side as we bounced from the June 2019 low, and we broke back into the 285 channel which was previously strong support indicating a bullish signal (Figure 1).
Figure 1: 3/10/20 and 3/11/20 SPY Chart
If someone was purchasing large amounts of puts (this was not just Tuesday, but last Friday and Monday as well), then MM were hugely positioned unfavorably with calls on the opposite end of the trade. Immediately after trading, we had a huge fade immediately after close. There has been strange price action where TLT fades, which indicates more liquidity being brought into the indices along with the short cover rally. However, right after the close, we immediately fade hard and futures dump. MM therefore need to hedge by trading futures, or by delta hedging and selling shares at the open with a significant loss, magnifying selling dips. This is similar to how autists discovered during a rally, MM delta hedge by purchasing the underlying equity contributing to the rally.
Delta hedging refers to either having an opposing option with equal magnitude of delta, for instance a straddle, or by purchasing shares of the underlying stock. One key disadvantage with delta hedging is that MM can over hedge if the spot price of the equity changes unexpectedly overnight. This is referred to as gap risk, and compounds with the inventory MM hold overnight, often referred to as inventory risk.[2-3] The overnight moves create huge gamma and vega swings to the inventory of MM who hold overnight, which subsequently create a period of selling or buying which magnifies the intraday swings as they try to reduce their vega or gamma exposure.
... is subject to residual risks due to stochastic volatility and unhedgeable overnight moves in the stock price. These risks highlight the need to keep the Vega and Gamma of the dealer’s inventory under control, and this is reflected in the dealer’s quoting strategy.[4]
Given that we dumped on Wednesday and dropped below 285 support, institutions need to hedge with more puts given the uncertainty about retesting the June 2019 low. More puts purchased by funds, more calls purchased by MM. What happened Thursday and Friday (Figure 2)?
Figure 2: 3/12/20 and 3/13/20 SPY Chart
Futures limit down on 3/12/20. No matter what, the market opens -5%. Within 5 minutes at the open, the market hits the second circuit breaker at -7%. MM are stuck with short term calls, and need to offload losses by selling like crazy to delta hedge magnifying losses. Then what happens on Friday 3/13/20? Limit up. We next quickly hit one of the largest intraday rallies of all time.
Part III. MM Cannot Access Repo Despite Requiring Liquidity
During trading on Thursday, the Fed announced an unprecedented amount of Repo operations. 1.15 trillion dollars, signifying significant issues in the market. I stated this before open on Friday.
8 am - Yesterday, the fed offered more than 500 billion in repo. Only 78.4 billion was taken. Today, the Fed just offered more than 1.1 trillion in repo for today. What are the signals? Why is Wall Street not taking the money for liquidity? Check this out: https://www.biancoresearch.com/the-moment-in-this-decline-has-arrived-2/
This could possibly be way worse than 2008.
8:30 - 24.1 billion in repo taken. Last update will be 9am.
9:00 - 45.1 billion.
Net repo: 86.5 billion out of 1.15 trillion
"Dealers are telling me they badly want the $1T in repos, but can't take it. Post-crisis rules, among so many different regulators (Basel 3, Fed, OCC, FDIC, etc) make it nearly impossible for them to take the money. They are telling the Fed their problems. The Fed had no clue."
https://twitter.com/biancoresearch/status/1238461580314120193
During Thursday's trading, we broke the support. Due to breaking previous supports and being oversold, I had puts. But also noticed huge call volume. If someone is buying calls, MM need to be net "short." Futures limit up. MM need to quickly buy the rally in order to delta hedge, creating an epic rally for the past decade.
Part IV. The End Game
Someone is taking advantage of the MM delta hedging by limiting down or up futures, vastly opposite of the price action more often than not without regard to support or resistance levels. MM are left bagholding their positions and delta hedging, magnifying the rallies or dips.
Repos are not being adequately uptaken due to existing regulations. What happens when liquidity issues arise despite decreasing volatility? MM need to enlarge the spread in order to further manage losses.
IV was going down on Friday during the rally, as VIX began dropping. The only way for the option value to decrease is if MM started enlarging the spread, in order to capture diminishing rebates. The only way the bid value is increasing is if a MM is facing liquidity issues, since they cut into the rebate. What happens when these firms become stressed and unable to provide liquidity? Firms will be unable to purchase options with good bids or at all. If people are not able to hedge or use financial derivatives, losses will accumulate such that there will be a mass liquidation event such that it is no longer tenable to hold any positions.
What happened immediately after close Friday?
Throughout the day there was massive amounts of put buying. Immediately close to the cash close, more puts were purchased. At the cash close, we fade hard. Immediately after, /ES gaps down more than 2% after the close on Friday. /CL gaps down more than 3%.
The news during the weekend last week for the oil price was dropped during Sunday before markets opened, causing a limit down last week. Energy is the market. Saudi Arabia is a strategic partner with the US in the Middle East, and asking Russia to aid in production cuts to raise the price of oil. However, Russia refused. Saudi Arabia is not taking these measures to attack US energy markets by increasing production. Despite this, is Russia interested harming US interests? Perhaps. It's possible to think there is another player. And they know that US markets cannot access repo money and are short in liquidity, creating a unique attack vector, straight at the heart of the US financial system.
https://news.bloomberglaw.com/securities-law/mnuchin-says-hes-seeking-to-keep-financial-markets-open
“We intend to keep the markets open -- that’s a sign of confidence for people,” Mnuchin said in a CNBC interview early Friday.
It is not only MM that require repo money. Banks lend out their credit lines to others. It is these businesses that are lent the money that will be the hardest. Given these market conditions, and if they persist, the government needs to intervene and shut down markets.
We are already facing close to limit down on the Weekend Dow on Saturday. Sunday Futures are likely to limit down. This will probably be compounded by either worse impending virus news or more bad news in the energy markets. To combat this, Trump has stated the US intends to significantly add to the US strategic oil reserve to put a floor on the price of oil. However, these are being used as a cover to justify lower prices, when in fact, the markets are being engaged possibly by economic subterfuge to reduce liquidity. Someone is purchasing huge options positions before close with MM take the other side of the trade. Futures limit up/down, creating large gap/inventory risk, reducing liquidity for the markets.
tl;dr Banks and MM are facing forced liquidity issues by someone taking advantage of limit up/down, exploiting gap and inventory risk. Banks and MM cannot take on repo due to regulations to correct liquidity issues. Funds and trading desks need MM to purchase puts/calls. Cannot purchase them due to MM having liquidity issues with worsening bid price, magnifying rallies or drops as MM delta hedge. If firms cannot stop losses without hedges, they will liquidate everything. This will create a mass panic sell off, which will therefore require the government to shut down the market.
tl;dr of the tl;dr Circuit breaker Monday. Possibly two.
Update 1: Sushies, satorikang both explained the positioning is probably long gamma on the puts, not short at this stage. Thanks.
Update 2 3/15/20: I'm writing this example if a firm is taking a collar position in terms of options.
Firms undergoing losses:
https://www.bloomberg.com/amp/news/articles/2020-03-13/bluecrest-shrinks-from-relative-value-trades-amid-losses-exits
https://www.bloomberg.com/news/articles/2020-03-14/dalio-s-macro-fund-plunged-about-20-this-year-as-market-tanked
H2O assets
Bluecrest
Ray Dalio
Update 3 - Liquidity news
https://finance.yahoo.com/news/plumbing-behind-worlds-financial-markets-131618535.html
https://www.bloomberg.com/news/articles/2020-03-14/traders-nightmare-liquidity-vanished-when-they-needed-it-most
Some numbers, 7% drop, 200% Fib at 247.94. 13% drop, December 2018 low 233.86.


[1] - https://squeezemetrics.com/monitodownload/pdf/short_is_long.pdf?
[2] - https://www.forbes.com/sites/petertchi2015/09/03/mind-the-liquidity-gap/#2259300073fc
[3] - https://www.sec.gov/divisions/riskfin/seminavenkataraman0313.pdf
[4] - https://people.orie.cornell.edu/sfs33/StoikovSaglam.pdf
submitted by Ardesic53 to Winkerpack [link] [comments]

[Repost] The Shadow War: How Thursday and Friday Set Up for Another Engineered Circuitbreaker Next Monday 3/16/20

All credit to u/Separate-Variation (please repost and we can delete this)
Just bringing it back for the argument/discussion and the links that were lost when wsb went private...lost the charts unfortunately
Are our markets under a coordinated financial attack? We thought MM were tinkering with things behind the scene, but there is an actor with tons of capital squeezing our MM in the USA, draining liquidity as MM face increased losses and are unable to provide transactions for people trying to hedge in these financial markets, and bringing about these engineered drops in the stock market. The timing of this is not coincidental given that we are currently engaging the coronavirus amidst the backdrop of an election year and instability with the oil pricing war. I've created this thread with bemusedfyz after hashing out these thoughts.
Part I. Firms/Hedge Funds are Net Short Gamma Resulting in MM Buying Calls to Provide Liquidity
In a bull market, firms purchase calls to be long gamma. MM try to capture rebates by taking on the opposite positions since they do not physically own the security.
"This means that whenever a market-maker fills an investor's buy order, the MM is facilitating the trade by shorting shares. [1]"
They have to go short in order to sell a security they do not own (this is why they are exempted from short selling). In the other case, during a downturn, firms want to hedge using puts and become short gamma, thus MM must take on calls. As people previously noted in my posts, if there is a buyer of an option, there has to be a MM selling the option to provide the liquidity. How then do MM make profit? They make profit from rebates by providing tighter spreads compared to other MM. By narrowing the bid/ask spread, MM keep the rebate, creating very thin margins. Thus, volume and liquidity are key to profits for MM.
Part II. How Options Inform Price Action by Identifying the Real Money Flows
People have been asking "how do you know which options for SPX/SPY being purchased are purchased by actual firms for a position?" I've been using 3 key metrics to inform me of the direction of intraday trading, and I will explain them more in another thread:
  1. Strike/Expiration
  2. Block Size
  3. Correlation with volatility, gold, and treasuries
Options data within the last 10 minutes of close has been particularly informative of the direction of the following price action. During the close on Tuesday, volume was strong on the buy side as we bounced from the June 2019 low, and we broke back into the 285 channel which was previously strong support indicating a bullish signal (Figure 1).
If someone was purchasing large amounts of puts (this was not just Tuesday, but last Friday and Monday as well), then MM were hugely positioned unfavorably with calls on the opposite end of the trade. Immediately after trading, we had a huge fade immediately after close. There has been strange price action where TLT fades, which indicates more liquidity being brought into the indices along with the short cover rally. However, right after the close, we immediately fade hard and futures dump. MM therefore need to hedge by trading futures, or by delta hedging and selling shares at the open with a significant loss, magnifying selling dips. This is similar to how autists discovered during a rally, MM delta hedge by purchasing the underlying equity contributing to the rally.
Delta hedging refers to either having an opposing option with equal magnitude of delta, for instance a straddle, or by purchasing shares of the underlying stock. One key disadvantage with delta hedging is that MM can over hedge if the spot price of the equity changes unexpectedly overnight. This is referred to as gap risk, and compounds with the inventory MM hold overnight, often referred to as inventory risk.[2-3] The overnight moves create huge gamma and vega swings to the inventory of MM who hold overnight, which subsequently create a period of selling or buying which magnifies the intraday swings as they try to reduce their vega or gamma exposure.
... is subject to residual risks due to stochastic volatility and unhedgeable overnight moves in the stock price. These risks highlight the need to keep the Vega and Gamma of the dealer’s inventory under control, and this is reflected in the dealer’s quoting strategy.[4]
Given that we dumped on Wednesday and dropped below 285 support, institutions need to hedge with more puts given the uncertainty about retesting the June 2019 low. More puts purchased by funds, more calls purchased by MM. What happened Thursday and Friday (Figure 2)?
Futures limit down on 3/12/20. No matter what, the market opens -5%. Within 5 minutes at the open, the market hits the second circuit breaker at -7%. MM are stuck with short term calls, and need to offload losses by selling like crazy to delta hedge magnifying losses. Then what happens on Friday 3/13/20? Limit up. We next quickly hit one of the largest intraday rallies of all time.
Part III. MM Cannot Access Repo Despite Requiring Liquidity
During trading on Thursday, the Fed announced an unprecedented amount of Repo operations. 1.15 trillion dollars, signifying significant issues in the market. I stated this before open on Friday.
8 am - Yesterday, the fed offered more than 500 billion in repo. Only 78.4 billion was taken. Today, the Fed just offered more than 1.1 trillion in repo for today. What are the signals? Why is Wall Street not taking the money for liquidity? Check this out: https://www.biancoresearch.com/the-moment-in-this-decline-has-arrived-2/
This could possibly be way worse than 2008.
8:30 - 24.1 billion in repo taken. Last update will be 9am.
9:00 - 45.1 billion.
Net repo: 86.5 billion out of 1.15 trillion
"Dealers are telling me they badly want the $1T in repos, but can't take it. Post-crisis rules, among so many different regulators (Basel 3, Fed, OCC, FDIC, etc) make it nearly impossible for them to take the money. They are telling the Fed their problems. The Fed had no clue."
https://twitter.com/biancoresearch/status/1238461580314120193
During Thursday's trading, we broke the support. Due to breaking previous supports and being oversold, I had puts. But also noticed huge call volume. If someone is buying calls, MM need to be net "short." Futures limit up. MM need to quickly buy the rally in order to delta hedge, creating an epic rally for the past decade.
Part IV. The End Game
Someone is taking advantage of the MM delta hedging by limiting down or up futures, vastly opposite of the price action more often than not without regard to support or resistance levels. MM are left bagholding their positions and delta hedging, magnifying the rallies or dips.
Repos are not being adequately uptaken due to existing regulations. What happens when liquidity issues arise despite decreasing volatility? MM need to enlarge the spread in order to further manage losses.
IV was going down on Friday during the rally, as VIX began dropping. The only way for the option value to decrease is if MM started enlarging the spread, in order to capture diminishing rebates. The only way the bid value is increasing is if a MM is facing liquidity issues, since they cut into the rebate. What happens when these firms become stressed and unable to provide liquidity? Firms will be unable to purchase options with good bids or at all. If people are not able to hedge or use financial derivatives, losses will accumulate such that there will be a mass liquidation event such that it is no longer tenable to hold any positions.
What happened immediately after close Friday?
Throughout the day there was massive amounts of put buying. Immediately close to the cash close, more puts were purchased. At the cash close, we fade hard. Immediately after, /ES gaps down more than 2% after the close on Friday. /CL gaps down more than 3%.
The news during the weekend last week for the oil price was dropped during Sunday before markets opened, causing a limit down last week. Energy is the market. Saudi Arabia is a strategic partner with the US in the Middle East, and asking Russia to aid in production cuts to raise the price of oil. However, Russia refused. Saudi Arabia is not taking these measures to attack US energy markets by increasing production. Despite this, is Russia interested harming US interests? Perhaps. It's possible to think there is another player. And they know that US markets cannot access repo money and are short in liquidity, creating a unique attack vector, straight at the heart of the US financial system.
https://news.bloomberglaw.com/securities-law/mnuchin-says-hes-seeking-to-keep-financial-markets-open
“We intend to keep the markets open -- that’s a sign of confidence for people,” Mnuchin said in a CNBC interview early Friday.
It is not only MM that require repo money. Banks lend out their credit lines to others. It is these businesses that are lent the money that will be the hardest. Given these market conditions, and if they persist, the government needs to intervene and shut down markets.
We are already facing close to limit down on the Weekend Dow on Saturday. Sunday Futures are likely to limit down. This will probably be compounded by either worse impending virus news or more bad news in the energy markets. To combat this, Trump has stated the US intends to significantly add to the US strategic oil reserve to put a floor on the price of oil. However, these are being used as a cover to justify lower prices, when in fact, the markets are being engaged possibly by economic subterfuge to reduce liquidity. Someone is purchasing huge options positions before close with MM take the other side of the trade. Futures limit up/down, creating large gap/inventory risk, reducing liquidity for the markets.
tl;dr Banks and MM are facing forced liquidity issues by someone taking advantage of limit up/down, exploiting gap and inventory risk. Banks and MM cannot take on repo due to regulations to correct liquidity issues. Funds and trading desks need MM to purchase puts/calls. Cannot purchase them due to MM having liquidity issues with worsening bid price, magnifying rallies or drops as MM delta hedge. If firms cannot stop losses without hedges, they will liquidate everything. This will create a mass panic sell off, which will therefore require the government to shut down the market.
tl;dr of the tl;dr Circuit breaker Monday. Possibly two.
Update 1: Sushies, satorikang both explained the positioning is probably long gamma on the puts, not short at this stage. Thanks.
[1] - https://squeezemetrics.com/monitodownload/pdf/short_is_long.pdf?
[2] - https://www.forbes.com/sites/petertchi2015/09/03/mind-the-liquidity-gap/#2259300073fc
[3] - https://www.sec.gov/divisions/riskfin/seminavenkataraman0313.pdf
[4] - https://people.orie.cornell.edu/sfs33/StoikovSaglam.pdf
submitted by underlyingenergy to Wall_Street_Bets_ [link] [comments]

SEBI new circular on intraday trading margin New SEBI Rules For Intraday & Margin Trading Intraday Margin Really Reduced ? Latest Update SEBI New Margin Rules for - Intraday Trading SEBI NEW MARGIN RULES  SEBI NEW MARGIN RULES FOR INTRADAY TRADING ( 03 AUG 2020 )

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SEBI new circular on intraday trading margin

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