Hi C2,
re <<what’s your thinking in shorting puts rather than simply going long? Seems a bit riskier>>
(1) Only seems that way, but not really.
(1-i) I only short puts on stocks I do not mind owning, or stocks I wish to own
(1-ii) So, take XOM for example, I wished / still wish to own the share, and 2019 11 29 it was at 68.13
.
(1-ii-a) Message 32439565 2019 11 29
<<(1-i) short ExxonMobil finance.yahoo.com Jan 20 '20 Put strike 67.50 @ 1.35
... because oil is not dead, dividend is okay, stock near 52-wks low, and it is a better bet than a lot of other stuff. Trade war continuation and shale this and that, and ME something might move the stock one way or another, along w/ the options on same.>>
(1-ii-b) Message 32453960 2019 12 09
<<(1-j) Bought back XOM finance.yahoo.com Jan 17 ’20 Put 67.50 @ 0.73 (originally shorted @ 1.35)>>
(1-ii-c) Message 32459324 2019 12 12
<<(1-a) Short XOM finance.yahoo.com Put Jan 17 ’20 Put 67.50 @ 0.93 (early bought / closed at 0.73 – every little bit counts)
Still like oil and tradition.>>
(1-ii-d) To date I collected 1.55 per share premium (1.35-0.73+0.93) w/i 14 days, and XOM is at 70.34 (up 3.2% from 2019 11 29), and my 1.55 collected involved nothing more than making a promise entailing the same risk as owning the share, but got paid a premium and left whatever cash I would have spent to own the share sitting in place earning the 2% annual interest.
(1-ii-e) I intend to chase the XOM w/ successively higher strike price puts as it rises, until either I no longer want to own the share or I am put the share, at which point I would short the covered calls until my XOM is called away
(1-iii) Had I simply bought the shares, the cash spent would not be earning the interest rate (skimpy as it is), I would have spent 68.13 and now looking at 70.34, for an unrealised gain of 2.21, greater than the premium collected 1.55. Obviously better to have bought the share instead of shorting the Put, in this instance and for the period 2019 11 29 to 2019 12 12.
(1-iv) Should the share gone down in price starting now, I would eventually have been put the the shares at 67.50 per share, and I still have the premium collected, 1.55. Net purchase cost would be 65.95 instead of the 68.13 on 2019 11 29.
(1-v) Had XOM been near ex-dividend date, the option premium would have reflected the soon to be paid dividend, to be collected by the writer of Put option, whereas
had I bought the shares and be paid the dividend, I would be taxed (withholding tax) at 30%, whereas option premium to the offshore / foreign speculator is 0%.
(1-vi) On average, over time, in the aggregate, especially for a non-US person, above works out better, is the belief. We shall see.
(2) Different topic, new Armstrong
ask-socrates.com
BlogComing Mother of All Financial Crises
QUESTION: Hi Marty, long-time follower, and private blog client and have purchased a couple of reports
Question - for the upcoming MAFC will you be able to provide a general indication of the computers projections for 2020 for private blog clients
Bearish or bullish US Equities, Bullish or Bearish non-Us bond yields and real estate and gold
I really appreciate your service
It seems like an equity peak in January could see a nasty bear in stocks in 2020 before the final wild upside move? But does the computer project bond prices and gold and real estate to all drop along with stocks into at least Q1 2021?
Much appreciated J
ANSWER: Yes. The Fed has been forced into the Repo Markets to try to keep interest rates from rising. Our computer model has been projecting the rise in interest rates despite all the shenanigans trying to keep rates down. We warned at the Rome WEC that this was leading to a liquidity crisis by September. The first warning sign was the inverted yield curve which everyone was touting as a guaranteed confirmation of a coming recession. That did not materialize and I warned that the economy would decline only marginally in the USA going into the ECM turning point come January 2020. The entire inverted yield-curve was a capital flow shift into US securities from primarily Europe. They were pouring into US long-term debt because of the outlook in Europe that painted that region as hopelessly lost in negative interest rates.
The Fed's option would be to cut the rate they pay on excess reserves in hopes of forcing the banks back into Repo. That is the only shot they have, but the crisis remains that banks simply do not trust banks.
There is now $17 trillion of negative-yielding Euro debt compared to just over $20 trillion of US debt. We are facing a major crisis that is unfolding that nobody has ever even imagined would take place. This is also why Dimon of JP Morgan rebutted Trump who called for negative interest rates saying the jury is still out on this experiment.
This is really beyond what anyone has ever considered. This crisis is building so great that we will hold three WECs this year - Shanghai, Frankfurt, and Orlando. I have been trying to limit seating to a max of 500, but it never seems to work. We have more people attending as the stress levels rise. We may be approaching the same level of attendance of Davos itself if this keeps unfolding this rapidly. |
