ManVsRecession

Gary Cohn, Trumps top economics advisor, just resigned. Markets gapped down when futures re-opened at 11pm by over 1%. Could be the start of something? Certainly there's be uncertainty.. https://www.theguardian.com/us-news/2018/mar/06/gary-cohn-quits-trump-economic-adviser

Sure, here you go.. from a reply to Fence upthread. ( easy to lose things in such a long thread!) For your purposes, hedging, Interactive Brokers sounds like it would be the best one as a main brokerage. You'd want your Easyjet shares in the same account as your DAL options, so they really are hedging each other. IB is great because has all the tools you need to know your overall exposure at portfolio or individual stock level, and then apply the best hedging strategy. For pure options trading though, and learning the ropes, Tastyworks is a much nicer, platform to use, and the cheapest. I use both all the time.

You're welcome. I learn a lot about macro trends from you guys so I thought I'd try to share what I know too. Counter party risk is one reason everyone trades US exchange-listed options. They're all guaranteed by the Options Clearing Corporation, which in itself is backed up by the Fed, so there is effectively no counter party risk at all. Obviously this doesn't apply to the OTC swaps, options and other derivatives that sunk Lehman and others. This is where a slightly more sophisticated hedging plan can help. You just need to decide how much protection you want, and what you're prepared to give up for that protection. A popular strategy is the collar, whereby you sell a call above the market, and buy a put below.. choosing the closest put you can find for money you received for the call. You effectively have a "free" put option, in exchange for some potential upside. If the stock goes higher your upside is limited by the short call, and your stock could be "called away" from you at that price, but you can avoid this by simply buying it back and selling another one for the subsequent month. ( rolling the position.). Or you could buy put spreads instead of puts, which allow you to put your protection closer to the current price, but only offer protection up to a certain point. Or you could sell some of your stock to reduce your risk, and then sell puts below the market, which give you the chance to get back in at a lower price ( if stock is put to you ), and keep the put premium too. So many ways to do things.. options are basically financial lego, and once you know how to read the probabilities from the options data, it's easy to construct exactly the protection you want. I see the 100 puts at 1250, as well as the 50 puts at 1350. That could be a 2:1 ratio spread.. long 50x 1350's and short 100x 1250s. The greater number of 1250s mean they more than cover the cost of the 1350s, and the position would profit most if the price closed at 1250 in June, so the 1250s expired worthless. That's one possibility anyway. A ratio spread has a high probability of making a little money, a small chance of a big profit , and smallish chance of a moderately large loss beyond a certain point. If this is a ratio spread, it would turn unprofitable below 1150. Or they may actually want Easyjet at 1250 in which case the ratio spread is just an attempt to make some money on the way there. If that's the case, the Market Maker that took the other side of the 1250s.. i.e. is now long 100x 1250 puts they don't actually want, could have turned it's position into a calendar by selling matching put options for a nearer month. I see there are 100 open interest in Feb at the 1300 strike.. they could be it, forming a diagonal calendar. This in itself wouldn't be likely to profit the MM, but by rolling the short 1300s to March, then April, then May, they'll collect some extra premium each time.. which combined with the large potential profits below 1200 ish, might make it statistically a good trade. If this is the case, you'll see those 100 Feb 1300s roll over to March at some point in the next week or so. It's possible they or someone else also sold the 50x1350s, in which case they may buy other options to limit their risk, or if they happen to have a short EasyJet position anyway, they might not need to since if the puts come into the money and are exercised, being "put" the stock simply closes out their short stock position for a profit. It's guesswork though really, trying to figure out trades from Open Interest.. there are so many possible combinations of players and trades. Personally I wouldn't try to hedge Easyjet with UK options. The spreads are wide, there's no liquidity, and sellers have no motivation to meet you in the middle. I'd probably use Delta Airlines (DAL) or another US carrier that correlates closely to Easyjet, and then look at the charts to figure out equivalent price targets and sizes. Obviously that won't cover you for Easyjet specific risks, so might not be what you need.

I see the confusion.. By "short stock options positions", I mean I sell(short) calls and puts on various stocks and indices as my main way of making money. I'm not short the stock or index itself. I'm generally betting the stock will stay within a range, between my short put to the downside, and short call to the upside. However I will try to balance my positions and select strategies so overall I carry some "short delta", i.e. all other things being equal, I profit up to a point from the markets falling, which partly compensates for the increase in IV when the market falls. Usually this is enough of a volatility hedge for me, but in this case I expected a largish spike in Vol, but didn't know when, so a specific VIX options trade suited me better. It was a one off really, rather than a regular trade I do. In this case my total VIX position consisted of a short call spread ( sell the lower 12 strike, buy the 13 strike - benefiting from a falling VIX) and a long call spread ( buy the 15, sell the 18, benefiting from a rising VIX ), so my overall VIX options position was kind of neutral at low VIX levels, but become "longer" VIX as volatility increased.

To try to explain for the benefit of anyone interested.. Long options are a useful way to hedge portfolios, lock in fixed prices for a period, or make limited risk speculative bets. Short options traders and market makers take on the risk if they believe the market price for those options reflects the actual risk of large move, plus a little extra for profit. Options sellers are mostly large firms which make markets right across the options universe, arbitraging price/risk imbalances, so all the options are perfectly fairly priced given overall market risk. And there are some small players like me who take on a diversity of very small positions. As a seller of options, you end up with an overall short volatility position.. that is, if people suddenly expect a large move, the options sellers will naturally increase their prices to account for this expectation, meaning the short options positions they already have start losing money. In the case of panic, options premiums can rapidly double or triple, causing big loses, so the market makers need a hedge. Small players like me can hedge with long options further out, but for a big player that suddenly finds itself short a few thousand put options after a hedge fund trade, a quicker, cheaper way to hedge in the near term is needed, which is where the VIX comes in. The VIX is a calculated measure of the market's expectation of large moves, as implied by the prices of all these options ( Hence the term, Implied Volatility). VIX futures are cash settled contracts based on the VIX. There are also options on the VIX, so a big firm can quickly set up a suitable hedging position with a combination of VIX futures and options. There are also long VIX ETFs, with options markets, so at a smaller scale I can do something similar, or speculate on a short term rise in the VIX. All this combines to form a really efficient, convenient market that serves everybody's needs well, spreading risk and providing the opportunities or certainly that people need. So it's not that volatility trading is in itself bad, but it needs to be approached carefully. Sensible options trading is about constantly putting on and managing positions, making adjustments etc to try to keep as neutral as possible, while still being exposed to enough risk to profit. E.g. The other week, I decided there had to be a volatility spike soon, but also thought the market could carry on rising for another month or two. I was already short quite a few put and call options, so I wanted to put on a pure long volatility trade to hedge these. So, I sold(shorted) a 12-13 call spread,- betting VIX would stay below 12, but limiting my loss over 13. With the money I collected for this, I bought a 15-18(long) call spread. Taken together I was betting VIX would either slowly sink, or spike up, but not rise slowly. If it sank, I'd have made £20 ish. If VIX had stayed the same or risen but just a little, I'd have lost maybe £100, and if it went above 18 ish, my max profit was about £200. When VIX spiked, I closed out the whole position, with around £150 profit, which helped offset the small loss to my short stock options positions. ( caused by the same increase in IV) Where it goes wrong is when people use instruments designed for hedging, low risk mechanical trading or yield enhancement, as leveraged investment products on their own. Such as shorting VIX futures or naked VIX call options without upside protection. This is bound to blow up at some point. What's even worse is when such strategies are built into ETFs to be sold to the general public who don't understand how they work. Why trade hedging instruments as speculative products? greed and complacency for some, or outright cynical rinsing of unsuspecting punters for others ( like the ETF providers) I guess.

SVXY, another short VIX ETF blew up yesterday too. https://www.marketwatch.com/story/volatility-armageddon-cratered-one-of-wall-streets-most-popular-trades-2018-02-05 Both these ETFs have been artificially depressing options Implied Volatility, making options cheaper than they should be given the market risk. No doubt some insiders made a killing buying long puts before the crash. Now, with these ETFs gone, options premiums should rise to more sensible levels for the next couple of years. I'm not sure how this will affect the prices of the underlying instruments, but it does increase costs and risk for investors wanting to hedge.. Long VIX ETFs should be safe from blowing up.. though they'll still lose you money unless you're very lucky with your timing.

currently the Dow is down 5.86% now.. I wonder what happens tomorrow when the masses in their index funds see the news headlines and think about selling...

Well that was quite a day. There's a chance of a bit of a rebound tomorrow, but given the selling at the close, and in the futures afterwards, maybe not...

Here's a useful breakdown of the ETF for anyone looking to replicate it.. SIL.pdf

SIL is still available on IG.com sharedealing, but not the ISA. You can always use spreadbetting or CFDs too, though these instruments are expensive to hold long term, and again aren't ISA-able.

There comes a point, as bankruptcy and/or personal ruin becomes inevitable, when it can make sense to use any remaining credit to buy hard assets and stuff you'll need over the coming years. Things you'll still be able to make use of productively like a vehicle and tools for work, new boots, boiler repairs etc. I think the same can apply at a national level. If the money system means we're f**ked anyway, why not at least have some decent infrastructure and housing to show for it all.

I'd recommend Interactive Brokers or Tastyworks, or both. https://www.interactivebrokers.com/en/home.php https://tastyworks.com Interactive Brokers is a more powerful platform, offering every stock, currency, option etc you might want in one account. Very reliable. The platform looks intimidating but worth sussing out.. you won't use 99% of the features. They have sterling based accounts, which means all reports are in sterling, though you can hold any mix of currencies. Cheap commissions. They're particularly good if you're trading options to hedge a stock portfolio as their tools allow you to properly beta-weight your portfolio against an index or ETF, and work out exactly how much to hedge, strikes, dates etc depending on the protection you want and what you're willing to give up in exchange. Tastyworks is a much cleaner, nicer, friendlier platform but limited to US dollar accounts and US markets ( stocks, options and a small selection of futures). Even cheaper options commissions. They do great options education too via Tastytrade.com all day. Their eduction promotes a particular active style of trading which works ( and as a side effect generates them lots of commissions of course ), but you can take the knowledge and apply it to longer term and hedging strategies too. You need more capital to open an Interactive Brokers account, and they require you to declare you have options trading experience, and enough liquid net worth.. a catch-22 if you're just starting. They don't check as far as I can tell - it's a regulatory thing, but if you wanted to be strict about it, I'd open a Tastyworks account first, learn on their platform, then consider an IB account alongside it if you want to trade non-us instruments or take advantage of silly cheap currency transfers.

It depends on the broker. You can trade pretty much anything from the UK, but not all brokers offer access to every market. You can trade individual Japanese stocks in Interactive Brokers, though not through an ISA or SIPP. They're good for foreign instruments because you keep everything including long or short cash balances in any currency in the same account, making it easy to hedge out currency risk. Currency conversions are super cheap too, with 0.01 of a penny spreads.

If you're bearish, you sell now, and then wait, hoping to buy back later at a lower price. If everybody is bearish, they all sell, and wait for a lower price. But once everybody has sold and is waiting, there's nobody left to sell, therefore no more downward pressure on prices. The market is now driven by buyers - either they shorted the stock and will need to buy it back at some point, or they're bargain hunters looking to open a position. So, once everyone is bearish, there's nobody left to sell, but plenty of buyers, so the price goes up.

I've got some Blue Prism - Symbol PRSM. They do automated workflow software. Not quite AI and robotics but vaguely in the same area. I don't know much about them but they've done well over the last year, up around 400% It was a pretty random punt based on a magazine article so take that for what it's worth. Interested to hear what others are investing in.

Yup.. It's hard to hedge the FTSE directly because the you'll never get a good price on the FTSE futures options as a retail investor, and there aren't any liquid ETFs with options that track the FTSE. You could hedge equites generally though with SPY (S&P 500 ETF) options, which are super liquid and cheap to trade, and maybe hedge the currency component separately. Depending on your broker's platform, you should be able to beta weight your portfolio to SPY instead.

Some good info here :- http://media.morningstar.com/uk/MEDIA/ETF/AGuidedTouroftheEuropeanETFMarketplace2017.pdf The European market for ETFs is 1/5th of the US market. It's fragmented due to the multiple exchanges, and competition is focusing on creating complex currency hedged or other exotic ETFs now basic trackers are commoditised. London is the major trading centre for European ETFs, and most ETFs are held and traded by other funds so aren't affected by the new rules. Retail participation is low in Europe, compared with the US, so for US funds, it may not be worth the regulatory hassle to deal with EU retail traders. From my own explorations, the EU isn't a trader-friendly place, with the threat of financial transaction taxes, stamp-duty in the UK, high commissions, data fees and other costs. Markets lack liquidity, so the vast majority of active retail traders trade the US markets. HL has always focused on providing funds for people with a longer term horizon. Hence account fees to make up for lack of trading commissions. Other brokers need active traders for the commissions, so it makes sense they'd focus on US markets at the expense of a very small number of EU traders. That's my theory anyway. Coming back to the theme of the thread, I wonder how this might affect how the crisis plays out. It's interesting/disturbing to see how many ETFs are held by other ETFs too. This could increase the contagion holdings are liquidated, taking down other ETFs, broadening the selloff. And with the increased prevalence of retail-targeted robo-trading systems and sophisticated institution algorithms built, presumably, to exploit these systems, the next crisis / crash could really move the market with some ferocity.

Some interesting discussion on the PRIIPs saga here. https://www.lemonfool.co.uk/viewtopic.php?f=55&t=9098 Seems everyone's confused, but apparently HL have a reputation for conservative interpretation of the rules. There's vagueness around what constitutes a retail investor, and whether it affects only those brokers that make markets in the products, and take the other side of trades, or just act as an intermediary. Maybe if a broker offers direct market access, it's different. Or it could just be down to the broker's post Brexit plans.. Maybe HL sees it's future in the EU so want to stay compliant, whilst other brokers might decide it isn't worth losing customers who want access to US ETFs, so abandon the EU as a market instead.

IG stockbroking are accepting orders for SIL. Not in the ISA though.

I've just put in test orders for SEA and TLT in my IG stockbroking account, and Interactive Brokers, and both are available, so it appears the restriction isn't in place everywhere. Is there a list somewhere of products that are supposed to be blocked?

Fair enough. I'm not a fan of leverage in the traditional sense - trading on margin so as to be able to trade larger - that's a dangerous game indeed. With enough capital, I'd rather just invest and reap the dividends, I must admit.

Do you play the short side too? It sounds like this could be a good environment for pairs trading, or an overall short index hedge, buying undervalued companies and sectors and shorting the main indices.

I'm trying to decide which would be preferable.. 5 minimum terms where the landlord can't evict the tenant, even if they want to sell, or unlimited terms where the landlord can evict to sell. 5 year terms would be an easier to sell politically. I doubt they could apply it retrospectively so it would only apply to new tenancies, which would give landlords a chance to sell up if they didn't want the commitment. But 5 years isn't enough time to raise a family or even see one child through secondary school. It also makes it uneconomical for the tenant to improve the property in any meaningful way, and towards the end of the term the tenant would be in the same insecure position as AST tenants are in now.

I'm really pretty sketchy on the mechanics of the options markets, particularly outside the US, but I assume most of the trade in London is producers and industrial users of the commodities hedging their risk, along with market makers and hedge funds - people who have far lower cost structures. Particularly near expiry when gamma risk is large and there can be large swings in near-the-money options. I'd imagine only a large hedge fund or market maker with a lot of inventory offsetting it's risk could handle those kind of swings at size. The tried and tested strategies do work in a liquid market - at least the short-volatility ones do - straddles, strangles, iron condors etc, since most options are bought as some kind of hedge and are intended to expire worthless. Taking on the risk is a service people pay a premium for, and the trick is to take lots of little nibbles of risk in lots of different markets, manage the trade correctly, and let the probabilities play out. It's like being a bookie or insurance company really. ( although if you have a directional opinion you can trade that way too of course )

The London options markets aren't really liquid enough for the little guy to trade. Spreads are wide and commissions are high, which negates your edge. US stock, ETF and index options, as well as futures options on oil, gas, metals, agricultural etc, are much more liquid, though even then there's only a couple of hundred instruments which are liquid enough and trade large enough volume to create an efficient market, which is what you need.