Agree with what has already been said by Vince and Jin. I do think you can make money with put options or (my favorite) put spreads. But this is trading not investing. That means more intense monitoring and focus. Timing needs to be spot on.
Would be cool if you wrote an article on put spread with real world examples. I get the idea but would still enjoy the read. Especially when you prefer put spread vs put vs short vs selling naked calls or call spreads.
The catch I think is that there's clearly no easy way to profit here. The theoretical answers have real practical concerns.
Short the stocks directly and a) you risk blowing up and b) borrow fees can eat up a lot of your profit if you're right (assuming you can even find a borrow).
Buy put options and a) you have to get timing right b) the pricing is insane and c) implied volatility can get you.
Just as a quick look, the BBBY Nov 23 put last traded at $10.50. So if the stock gets halved from where it opened today ($23) in two months, you make a 9.5% return. (Those numbers probably aren't completely fresh but they're directionally correct enough to make the point.)
So you say, OK, volatility is hugely expensive, I'll sell vol by selling out of the money call options to all the traders trying to engineer a gamma squeeze. Well, if that trade goes wrong, you blow up.
So maybe the answer is to wait until this all settles down, and short once the fever breaks. (The idea we talked about in the article and previously of shorting once the trend has clearly shifted, rather than trying to precisely time that shift.) Well, GME went up 300% between February and March of last year, after it plunged following the late January nonsense. Selling an out of the money call three weeks after the peak probably seemed like an easy trade. It definitely didn't work.
Broadly speaking, there's money to be made betting against a lot of this. Good traders already have made a lot of money betting against this. But a lot of good traders have gotten crushed too.
It's just such an unprecedented thing, to have this many departures from the basic "rules" of, like, finance and fundamentals. I mean, GameStop still has a market cap of $12 billion. It's been 19 months!
Statista says there are ~2,600 ETFs in the US as of 2021. Finviz says there are ~5,400 stocks on US exchanges with market caps over $50M. So you can argue there's basically one ETF for every two stocks, roughly speaking.
It doesn't capture this exact list but there is the option to use the SARK ETF.
I consider it closer to gambling than investing, but you can buy puts that are way out of the money. It's a better risk/reward equation than shorting where the fees can eat you up as Vince points out. You don't have to actually get in the money on your put to make money on it. Just sell at a profit before it expires, but if the timing is off you'll lose your whole principle. Still better than a trip to Vegas in my opinion since you can pull this off for the price of a flight/hotel package (which has a 0% chance of paying for itself).
Humans are capable of incredible things sometimes, but it's funny how often we make the same mistakes over and over again and never learn our lessons...
you'd buy *calls* on SARK - it's inverse $ARKK right?
that's actually a really good point though - whether you go puts on ARKK or calls on SARK, that's a good thematic way to play the OP's question (betting against the reinflated bubble or however you want to term it).
There's more than enough correlation, and $ARKK pretty incredibly has almost certainly lagged on a factor basis. It's up only 35% from the lows, *down* 1.3% over the past month (down!).
But yes, it's a gamble going that route. Fun gamble though.
agreed & ‚overlooked‘ action at the tail
Fantastic article, thank you! I wish there were a Shitco ETF so I could short it. What is the best/easiest way to profit from the inevitable?
Agree with what has already been said by Vince and Jin. I do think you can make money with put options or (my favorite) put spreads. But this is trading not investing. That means more intense monitoring and focus. Timing needs to be spot on.
Would be cool if you wrote an article on put spread with real world examples. I get the idea but would still enjoy the read. Especially when you prefer put spread vs put vs short vs selling naked calls or call spreads.
we'll file paperwork for the $POOP ETF shortly.
The catch I think is that there's clearly no easy way to profit here. The theoretical answers have real practical concerns.
Short the stocks directly and a) you risk blowing up and b) borrow fees can eat up a lot of your profit if you're right (assuming you can even find a borrow).
Buy put options and a) you have to get timing right b) the pricing is insane and c) implied volatility can get you.
Just as a quick look, the BBBY Nov 23 put last traded at $10.50. So if the stock gets halved from where it opened today ($23) in two months, you make a 9.5% return. (Those numbers probably aren't completely fresh but they're directionally correct enough to make the point.)
So you say, OK, volatility is hugely expensive, I'll sell vol by selling out of the money call options to all the traders trying to engineer a gamma squeeze. Well, if that trade goes wrong, you blow up.
So maybe the answer is to wait until this all settles down, and short once the fever breaks. (The idea we talked about in the article and previously of shorting once the trend has clearly shifted, rather than trying to precisely time that shift.) Well, GME went up 300% between February and March of last year, after it plunged following the late January nonsense. Selling an out of the money call three weeks after the peak probably seemed like an easy trade. It definitely didn't work.
Broadly speaking, there's money to be made betting against a lot of this. Good traders already have made a lot of money betting against this. But a lot of good traders have gotten crushed too.
It's just such an unprecedented thing, to have this many departures from the basic "rules" of, like, finance and fundamentals. I mean, GameStop still has a market cap of $12 billion. It's been 19 months!
I just found out about this https://www.roundhillinvestments.com/etf/meme/full-holdings
OMFG
Maybe it's easier to create an ETF than I imagine it is...
Great find!
MOON is another one along these lines: https://www.direxion.com/product/moonshot-innovators-etf
lot of really questionable growth names (though a couple of decent ones: U, RBLX, AMBA). ETF is down 50%+ from late 2021 highs.
to your point about it being easy to create ETFs, there famously are more indexes than there are stocks:
https://www.bloomberg.com/news/articles/2017-05-12/there-are-now-more-indexes-than-stocks
Statista says there are ~2,600 ETFs in the US as of 2021. Finviz says there are ~5,400 stocks on US exchanges with market caps over $50M. So you can argue there's basically one ETF for every two stocks, roughly speaking.
It doesn't capture this exact list but there is the option to use the SARK ETF.
I consider it closer to gambling than investing, but you can buy puts that are way out of the money. It's a better risk/reward equation than shorting where the fees can eat you up as Vince points out. You don't have to actually get in the money on your put to make money on it. Just sell at a profit before it expires, but if the timing is off you'll lose your whole principle. Still better than a trip to Vegas in my opinion since you can pull this off for the price of a flight/hotel package (which has a 0% chance of paying for itself).
Humans are capable of incredible things sometimes, but it's funny how often we make the same mistakes over and over again and never learn our lessons...
Thanks for the fun article.
you'd buy *calls* on SARK - it's inverse $ARKK right?
that's actually a really good point though - whether you go puts on ARKK or calls on SARK, that's a good thematic way to play the OP's question (betting against the reinflated bubble or however you want to term it).
There's more than enough correlation, and $ARKK pretty incredibly has almost certainly lagged on a factor basis. It's up only 35% from the lows, *down* 1.3% over the past month (down!).
But yes, it's a gamble going that route. Fun gamble though.
Yes I mean buy SARK or calls on SARK. It’s bad to get that wrong! 😂
From A to Z interesting!
glad you enjoyed it, I really enjoyed writing it. you can say this market is bullish or bearish, but it sure as heck isn't boring!