this thread is for posting matt levine quotes in
JPMorgan made money that it did not, you would have to say, "deserve" to make
-
- her skirt got quite a lot smaller,
but her heart is still the same
size it was before - Posts: 12359
- Joined: Jun 13, 2018
Re: this thread is for posting matt levine quotes in
Benn Eifert of QVR Advisors pointed out a fun options fact on Twitter. Let’s say that, back on Jan. 21, when GameStop’s stock closed at $43.03, you thought it was wildly overvalued and wanted to bet against it. You could have sold the stock short: Borrow shares, sell them for $43.03, hope to buy them back cheaper. Or you could have bought a put option: Pay a premium, and then if the stock plunges you can sell the stock at the put strike price. You could have bought a $10-strike April put for just 33 cents: If the stock fell below $10 by April, you’d get back the difference between the stock price and $10; if it went to zero by April, you’d get back $10 for your 33-cent investment. The day before the Reddit rally really took off, the $10 puts were a way to bet on GameStop’s stock collapsing quickly and totally.
If you shorted GameStop stock on Jan. 21, you got absolutely ruined. It closed on Friday at $325; if you stayed in for that you have lost, uh, 655% of your money, oops oops oops. On the other hand, if you bought those puts, you did great. Those $10 puts, which traded at $0.33 on Jan. 21, last traded at $1.55 this past Friday. You’re up 370%. The people who bought the stock did better—they’re up 655%—but of course they were right; the stock went up. You were wrong; the stock did not go to zero, but you’re still up 370%. Good trade!
If you shorted GameStop stock on Jan. 21, you got absolutely ruined. It closed on Friday at $325; if you stayed in for that you have lost, uh, 655% of your money, oops oops oops. On the other hand, if you bought those puts, you did great. Those $10 puts, which traded at $0.33 on Jan. 21, last traded at $1.55 this past Friday. You’re up 370%. The people who bought the stock did better—they’re up 655%—but of course they were right; the stock went up. You were wrong; the stock did not go to zero, but you’re still up 370%. Good trade!
Re: this thread is for posting matt levine quotes in
You can fondle the cube, but it will not respond.
Re: this thread is for posting matt levine quotes in
so even though the stock went down, the puts became more valuable because people are even more convinced it's going to hit rock bottom?
-
- Posting Automaton
- Posts: 2520
- Joined: Jun 24, 2020
Re: this thread is for posting matt levine quotes in
you mean even though the stock went up?
pretty much, except it's less that people became more *convinced* that it would hit rock bottom and more that they went from thinking it was a low-probability event to thinking it was a somewhat less low-probability event. even if you assume the puts are worthless in any scenario other than gamestop literally going to zero, the value of the put corresponds to believing there's a 15.5% chance of that happening
-
- Posting Automaton
- Posts: 2520
- Joined: Jun 24, 2020
Re: this thread is for posting matt levine quotes in
I don't have any intuition for what the correct probability to assign to that event is but it does seem correct to consider it more probable now than it was a week and a half ago
Re: this thread is for posting matt levine quotes in
Hey man
Got any puts
Yeah man, I got some puts, what do you need
Got any puts
Yeah man, I got some puts, what do you need
It's your turn in Cthulhu Wars
It's your turn in Squirrel Wars
It's your turn in Demon Wars
It's your turn in Wall Street Wars
http://devilsbiscuit.com/
It's your turn in Squirrel Wars
It's your turn in Demon Wars
It's your turn in Wall Street Wars
http://devilsbiscuit.com/
Re: this thread is for posting matt levine quotes in
yes i meant up. thanksJeb Bush 2012 wrote: ↑Mon Feb 01, 2021 6:40 pmyou mean even though the stock went up?
pretty much, except it's less that people became more *convinced* that it would hit rock bottom and more that they went from thinking it was a low-probability event to thinking it was a somewhat less low-probability event. even if you assume the puts are worthless in any scenario other than gamestop literally going to zero, the value of the put corresponds to believing there's a 15.5% chance of that happening
how'd you calculate the 15.5%?
-
- her skirt got quite a lot smaller,
but her heart is still the same
size it was before - Posts: 12359
- Joined: Jun 13, 2018
Re: this thread is for posting matt levine quotes in
under normal circumstances the change in the value of an option as volatility increases is given by the black-scholes model, but GME is neither normal nor Normal so the assumptions of the model do not hold
Re: this thread is for posting matt levine quotes in
My analysis suggests that the value of GME must keep going up to avoid falling. If it stops going up and also fails to hold its value then it is in danger of going down. HOWEVER, if it does manage to keep from losing its value in the near future, then it is a good short-term investment, due to it appreciating in value.
Re: this thread is for posting matt levine quotes in
the more i learn about investments the more i feel like i should have gotten a math degree
-
- Posting Automaton
- Posts: 2520
- Joined: Jun 24, 2020
Re: this thread is for posting matt levine quotes in
the value of the $10 put is $10-(price of the stock at the date of the put), because it entitles you to sell one unit of the stock for $10 at that date
so even if you assume the put is worthless in any case other than "the stock is worth nothing at the maturity date", its expected value is at most (probability of the stock going to 0)*$10. so it being worth $1.55 implies a 15.5% chance of going to zero
that's not quite right, since the value of the puts is high-variance, but close enough I think
-
- her skirt got quite a lot smaller,
but her heart is still the same
size it was before - Posts: 12359
- Joined: Jun 13, 2018
Re: this thread is for posting matt levine quotes in
it's just a bunch of differential equations really
-
- her skirt got quite a lot smaller,
but her heart is still the same
size it was before - Posts: 12359
- Joined: Jun 13, 2018
Re: this thread is for posting matt levine quotes in
exchange-traded options can be exercised at any time, which increases the valueJeb Bush 2012 wrote: ↑Mon Feb 01, 2021 7:01 pmthe value of the $10 put is $10-(price of the stock at the date of the put), because it entitles you to sell one unit of the stock for $10 at that date
so even if you assume the put is worthless in any case other than "the stock is worth nothing at the maturity date", its expected value is at most (probability of the stock going to *$10. so it being worth $1.55 implies a 15.5% chance of going to zero
that's not quite right, since the value of the puts is high-variance, but close enough I think
-
- Posting Automaton
- Posts: 2520
- Joined: Jun 24, 2020
Re: this thread is for posting matt levine quotes in
lol
It's your turn in Cthulhu Wars
It's your turn in Squirrel Wars
It's your turn in Demon Wars
It's your turn in Wall Street Wars
http://devilsbiscuit.com/
It's your turn in Squirrel Wars
It's your turn in Demon Wars
It's your turn in Wall Street Wars
http://devilsbiscuit.com/
-
- Posting Automaton
- Posts: 2520
- Joined: Jun 24, 2020
-
- her skirt got quite a lot smaller,
but her heart is still the same
size it was before - Posts: 12359
- Joined: Jun 13, 2018
Re: this thread is for posting matt levine quotes in
they have expiration dates, so 'during the lifetime of the option'Jeb Bush 2012 wrote: ↑Mon Feb 01, 2021 7:04 pmah okay, then you can replace "at the maturity date" with "ever" I guess (or "during the lifetime of the option"? do they have some expiration date?)
Re: this thread is for posting matt levine quotes in
ok. and that 15.5% is calculated via the differential equations that rylinks mentioned. and this is just the simplified scenario which doesn't consider gamestop dropping to $5, etc.Jeb Bush 2012 wrote: ↑Mon Feb 01, 2021 7:01 pmthe value of the $10 put is $10-(price of the stock at the date of the put), because it entitles you to sell one unit of the stock for $10 at that date
so even if you assume the put is worthless in any case other than "the stock is worth nothing at the maturity date", its expected value is at most (probability of the stock going to 0)*$10. so it being worth $1.55 implies a 15.5% chance of going to zero
that's not quite right, since the value of the puts is high-variance, but close enough I think
i think i understand now
thanks again
-
- her skirt got quite a lot smaller,
but her heart is still the same
size it was before - Posts: 12359
- Joined: Jun 13, 2018
Re: this thread is for posting matt levine quotes in
speaking of option assignment, this was a trade that r/wallstreetbets user 1R0NYMAN did a few years ago:
So in the end, good trade.
it looks great, no matter what you make $37,500! the problem is that the calls can be exercised when they are in the money, and then the index can go down, and then the puts can be exercised when they are in the money, losing hundreds of thousands of dollars. This guy didn't understand this, which is unremarkable. However, Robinhood also didn't understand this (or didn't code their software to stop it), allowing the guy to open a position with hundred of thousands of dollars of risk after depositing only $5,000. Their code even credited his account with the $37,500 as soon as he made the trade, allowing 1R0NYMAN to withdraw $10k before robinhood was able to shut it down and as far as i know he still has the $10,000 today.Add up the transactions:
Bought 500 $15 Calls @ $51.65
Sold 500 $10 Calls @ $56.25
Bought 500 $10 Puts @ $2.88
Sold 500 $15 Puts @ $4.03
Therefore:
($51.65 - $56.25 + $2.88 - $4.03) x 100 x 500 = -$287,500
+$287,500 by executing this trade.
Upon expiration, three things can happen:
UVXY > $15: Puts expire worthless, buys 500 $15 Calls, sells 500 $10 Calls
$750,000 - $500,000 - $287,500 = -$37,500
make $37,500
$15 > UVXY > $10: $15 Calls expire worthless, $10 Puts expire worthless, sells 500 $10 Calls, sells 500 $15 Puts
-$500,000 + $750,000 - $287,000 = -$37,500
make $37,500
UVXY < $10: Calls expire worthless, buys 500 $10 Puts, sells 500 $15 Puts
-$500,000 + $750,000 - $287,500 = -$37,500
make $37,500
So in the end, good trade.
Re: this thread is for posting matt levine quotes in
agonizing pain has started to kick in on page 7Rylinks wrote:https://cs.uwaterloo.ca/~paforsyt/agon.pdf good luck
-
- Posting Automaton
- Posts: 2520
- Joined: Jun 24, 2020
Re: this thread is for posting matt levine quotes in
lolRylinks wrote: ↑Mon Feb 01, 2021 7:31 pm speaking of option assignment, this was a trade that r/wallstreetbets user 1R0NYMAN did a few years ago:
it looks great, no matter what you make $37,500! the problem is that the calls can be exercised when they are in the money, and then the index can go down, and then the puts can be exercised when they are in the money, losing hundreds of thousands of dollars. This guy didn't understand this, which is unremarkable. However, Robinhood also didn't understand this (or didn't code their software to stop it), allowing the guy to open a position with hundred of thousands of dollars of risk after depositing only $5,000. Their code even credited his account with the $37,500 as soon as he made the trade, allowing 1R0NYMAN to withdraw $10k before robinhood was able to shut it down and as far as i know he still has the $10,000 today.
So in the end, good trade.
Re: this thread is for posting matt levine quotes in
i think i understand!Rylinks wrote:it looks great, no matter what you make $37,500! the problem is that the calls can be exercised when they are in the money, and then the index can go down, and then the puts can be exercised when they are in the money, losing hundreds of thousands of dollars. This guy didn't understand this, which is unremarkable. However, Robinhood also didn't understand this (or didn't code their software to stop it), allowing the guy to open a position with hundred of thousands of dollars of risk after depositing only $5,000. Their code even credited his account with the $37,500 as soon as he made the trade, allowing 1R0NYMAN to withdraw $10k before robinhood was able to shut it down and as far as i know he still has the $10,000 today.
So in the end, good trade.
Re: this thread is for posting matt levine quotes in
lolIn fact, there is a history of Ponzi-like hedge funds which simply write put options with essentially no
hedging. In this case, these funds will perform very well for several years, since markets tend to drift up on
average. However, then a sudden market drop occurs, and they will blow up. Blowing up is a technical term
for losing all your capital and being forced to get a real job.
Re: this thread is for posting matt levine quotes in
lolRylinks wrote: ↑Mon Feb 01, 2021 7:31 pm speaking of option assignment, this was a trade that r/wallstreetbets user 1R0NYMAN did a few years ago:
it looks great, no matter what you make $37,500! the problem is that the calls can be exercised when they are in the money, and then the index can go down, and then the puts can be exercised when they are in the money, losing hundreds of thousands of dollars. This guy didn't understand this, which is unremarkable. However, Robinhood also didn't understand this (or didn't code their software to stop it), allowing the guy to open a position with hundred of thousands of dollars of risk after depositing only $5,000. Their code even credited his account with the $37,500 as soon as he made the trade, allowing 1R0NYMAN to withdraw $10k before robinhood was able to shut it down and as far as i know he still has the $10,000 today.Add up the transactions:
Bought 500 $15 Calls @ $51.65
Sold 500 $10 Calls @ $56.25
Bought 500 $10 Puts @ $2.88
Sold 500 $15 Puts @ $4.03
Therefore:
($51.65 - $56.25 + $2.88 - $4.03) x 100 x 500 = -$287,500
+$287,500 by executing this trade.
Upon expiration, three things can happen:
UVXY > $15: Puts expire worthless, buys 500 $15 Calls, sells 500 $10 Calls
$750,000 - $500,000 - $287,500 = -$37,500
make $37,500
$15 > UVXY > $10: $15 Calls expire worthless, $10 Puts expire worthless, sells 500 $10 Calls, sells 500 $15 Puts
-$500,000 + $750,000 - $287,000 = -$37,500
make $37,500
UVXY < $10: Calls expire worthless, buys 500 $10 Puts, sells 500 $15 Puts
-$500,000 + $750,000 - $287,500 = -$37,500
make $37,500
So in the end, good trade.
Re: this thread is for posting matt levine quotes in
Spoiler!
I just like that investing graph, it's an extremely WSB graph
Re: this thread is for posting matt levine quotes in
(To be fair that’s how social media always works: A thing is good, which causes it to become big, which causes it to become bad. Circle of life. “No one goes there anymore, it’s too crowded.”)
-
- Posting Automaton
- Posts: 2520
- Joined: Jun 24, 2020
Re: this thread is for posting matt levine quotes in
If instead of defrauding the Abacus CDO buyers Goldman had murdered them, that would not have been securities fraud with respect to the Abacus CDO buyers (it would have been murder), but it would still have been securities fraud with respect to Goldman’s shareholders (if the stock dropped after Goldman was charged with murder).