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sancho panza

The Big Short Thread

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On 21/06/2018 at 11:13, sancho panza said:

Be interesting to get some BCA and AA dates and see what happens.Bad news is coming to both those two I suspect-hattip @DurhamBorn

 

I didn't see anything on that LSE diary page but registered for AA investor emails and got one from them today.

Intermediate results ended 31 Jan 2018

http://www.theaaplc.com/investors/announcements

 

 

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33 minutes ago, Democorruptcy said:

I didn't see anything on that LSE diary page but registered for AA investor emails and got one from them today.

Intermediate results ended 31 Jan 2018

http://www.theaaplc.com/investors/announcements

 

 

Compare and contrast...is it me or is it just uncanny.

I will declare an AA Relay membership here for me and Mrs P

image.png.f8cdf816520f8073434ff5d7761902d8.png

image.png.0c9e632cb9b6fd37daa4dedcf70f0271.png

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I am holding some long dated puts on TSLA. The thing is the stock is pure drama. Elon Musk is clearly out of his depth, and actually seems to have some psychological issues. There are some active short traders getting involved there too.

My advice:

1. If you go short TSLA, do so by long put options. Anything can happen with this stock, it's crazy.

2. Try to tune out as much daily noise as possible. Believe in your original decision or don't get involved.

This stock has the feeling that one day a book/movie will be made about it.

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17 hours ago, Donald McFlurry said:

I am holding some long dated puts on TSLA. The thing is the stock is pure drama. Elon Musk is clearly out of his depth, and actually seems to have some psychological issues. There are some active short traders getting involved there too.

My advice:

1. If you go short TSLA, do so by long put options. Anything can happen with this stock, it's crazy.

2. Try to tune out as much daily noise as possible. Believe in your original decision or don't get involved.

This stock has the feeling that one day a book/movie will be made about it.

Long dated puts are a sensible choice imho for playing FB and Tesla.

As @@MvR has pointed out they are backed by the Fed, so no risk of default.

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5 hours ago, sancho panza said:

Builders getting brutalised over the last month

image.png.484efeafd6fb36f6c6cc4dd34e0efee8.png

 

image.png.a463611a4d4dad5a1c33717e4972aeef.png

Yeah. Was looking at Persimmon earlier today. Looks like a double top is in. I think that’s as good as it will get.

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2 hours ago, Castlevania said:

Yeah. Was looking at Persimmon earlier today. Looks like a double top is in. I think that’s as good as it will get.

Yeah 2016 low is 50% down from here.

Edited by sancho panza

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Quick question on shorting that you folks may be able to help me with (as part of my continuing financial education via this website and others):-

I understand the principle of shorting, the dangers of doing it 'naked' and how you would avoid this by hedging but am a little confused how the hedge works in some cases. So lets say we short a house builder as we think the market is declining due to recession, to hedge we go long on a brick/cement company. Now if our short doesn't work we reduce its impact slightly by (hopefully) the increase in the long, and vice versa if the short does work BUT by buying both 'sides' is one not just cancelling out the other?

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2 hours ago, MrXxx said:

Quick question on shorting that you folks may be able to help me with (as part of my continuing financial education via this website and others):-

I understand the principle of shorting, the dangers of doing it 'naked' and how you would avoid this by hedging but am a little confused how the hedge works in some cases. So lets say we short a house builder as we think the market is declining due to recession, to hedge we go long on a brick/cement company. Now if our short doesn't work we reduce its impact slightly by (hopefully) the increase in the long, and vice versa if the short does work BUT by buying both 'sides' is one not just cancelling out the other?

Yes you are in many ways.

Personally, I short as an end in itself, although we do use options sometimes to hedge.

 

Currently,I'm shorting a couple of builders and looking to add more.Given that I think the residential builders are overvalued,it's highly likely that the cement/brick companies will be overvalued too,so it would be pointless in my eyes going long the latter as I think they're going down and all my profit on the shorts will go to subsidize my losses on the cement makers.

There are options strategies eg straddles, collars- where you're effectively hedging either side of a single stock or an index,which are valid and workable strategies in my limited experience. @MvR has a lot more expereince with options than I do so if you have a question post it and reference him and he may reply.

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7 hours ago, MrXxx said:

Quick question on shorting that you folks may be able to help me with (as part of my continuing financial education via this website and others):-

I understand the principle of shorting, the dangers of doing it 'naked' and how you would avoid this by hedging but am a little confused how the hedge works in some cases. So lets say we short a house builder as we think the market is declining due to recession, to hedge we go long on a brick/cement company. Now if our short doesn't work we reduce its impact slightly by (hopefully) the increase in the long, and vice versa if the short does work BUT by buying both 'sides' is one not just cancelling out the other?

That's more of a pairs trade you're talking about. For pairs trading one would generally pick two instruments that are normally closely correlated, but for some reason you expect them to become less so. A common way to do this is by shorting one market index and going long the other, or shorting a particular stock while going long a broader index related to that stock.  Or if you expect one company to eat into another's market share you could short the expected loser and go long the expected winner.   The whole idea is that if broader macro circumstances come into play and move the market as a whole against you, you're at least partly protected.  It's important to understand how much of a given instrument you need to trade to offset the movement in the other instrument too, which is where the concept of "beta" and beta-weighting comes in. 

Pairs trading is also quite common in futures trading, where the prices of the instruments are actually related, such as crude oil and heating oil, or soya beans and soya meal.  Or agricultural products that are in some way "interchangable" by the producers. Wheat and corn for example. If Wheat is low, and corn is high, farmers might switch from growing one to the other, thus closing the gap. 

If you're thinking about hedging because your "not sure".. particularly if it's a trade you plan to carry for a longish duration, a pairs trade can still go badly against you, particularly if your "hedging" position doesn't go the way you expect.  In these circumstances, it's probably safer to simply reduce your size to something that would hurt you less if you get it wrong, and maybediversify into other positions at the same time.

Or, as @sancho panzasuggests you could use options to create a short position, or hedge a short stock position, but that's a whole other area of study. Check out Tastytrade.com for a very good, entertaining, free education on all of the above, but happy to try to answer questions here too.

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MvR (and SP) thanks for your replies to this question and the other on Gold...obviously by my example I don't understand the concept fully yet and you and SP have given me some more terms to go away, look up and think about/digest...I find it takes me a while (not a naturally gifted mathematician) and then eventually it clicks.

Thanks

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14 hours ago, MrXxx said:

Quick question on shorting that you folks may be able to help me with (as part of my continuing financial education via this website and others):-

I understand the principle of shorting, the dangers of doing it 'naked' and how you would avoid this by hedging but am a little confused how the hedge works in some cases. So lets say we short a house builder as we think the market is declining due to recession, to hedge we go long on a brick/cement company. Now if our short doesn't work we reduce its impact slightly by (hopefully) the increase in the long, and vice versa if the short does work BUT by buying both 'sides' is one not just cancelling out the other?

I can understand it if say someone buys a share for the dividend, if they then take out an hedging position on the share to protect their capital outlay. That's lessening risk for some reward. However your short and hedge seems increasing the risk and lessening the reward. I could see both those particular bets losing at the same time. If say you risk 1000 pts on the short, then risk 1000 hedging it on a long, after cancelling out, if it goes well, you might net say 100 pts. However you have risked 2000 pts so it's only +5%, on the total outlay IF both could lose. If you risk 1000pts to "naked" win 1000 pts and are right, it's +100% (or -100% if you are wrong gulp!). If you are nervous about a short, I wouldn't bother, or just risk 100 pts unhedged instead of 1000 pts hedged. It boils down to how many times do you think your opinion will be correct? At even money odds you need 6 out of 10 for a profit.

 

 

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On 27/06/2018 at 21:28, Donald McFlurry said:

This stock has the feeling that one day a book/movie will be made about it.

Tesla seems to defy all rules of logic. I don't doubt for one minute that the future is electric vehicles, however I can't make the numbers add up for Tesla.  Some people think the Elon Musk is the new Messiah, however the same was said of Fred "the shred" Goodwin (probably...).

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22 hours ago, MrXxx said:

MvR (and SP) thanks for your replies to this question and the other on Gold...obviously by my example I don't understand the concept fully yet and you and SP have given me some more terms to go away, look up and think about/digest...I find it takes me a while (not a naturally gifted mathematician) and then eventually it clicks.

Thanks

Every day's a learning day for me.Keep asking and if I can enlighten I will.

7 hours ago, InLikeFlynn said:

Tesla seems to defy all rules of logic. I don't doubt for one minute that the future is electric vehicles, however I can't make the numbers add up for Tesla.  Some people think the Elon Musk is the new Messiah, however the same was said of Fred "the shred" Goodwin (probably...).

Just looked at their chart and it's a real mish mash with no real clear direction.

Having said that,I thinkmsome big cash will be made shorting Tesla, Facebook.Netflix....and dare I even suggest it...Amazon(the ultimate trade).My view is that these companies have no real earnings to sustain current prices.I'm still of the view that there will be some weakness this year but the real bang will be next year.

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26 minutes ago, sancho panza said:

Every day's a learning day for me.Keep asking and if I can enlighten I will.

Just looked at their chart and it's a real mish mash with no real clear direction.

Having said that,I thinkmsome big cash will be made shorting Tesla, Facebook.Netflix....and dare I even suggest it...Amazon(the ultimate trade).My view is that these companies have no real earnings to sustain current prices.I'm still of the view that there will be some weakness this year but the real bang will be next year.

I looked at the PE of Amazon, its nuts how can such a mature company have such a huge PE

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9 hours ago, sancho panza said:

Every day's a learning day for me.Keep asking and if I can enlighten I will.

Just looked at their chart and it's a real mish mash with no real clear direction.

Having said that,I thinkmsome big cash will be made shorting Tesla, Facebook.Netflix....and dare I even suggest it...Amazon(the ultimate trade).My view is that these companies have no real earnings to sustain current prices.I'm still of the view that there will be some weakness this year but the real bang will be next year.

Tesla is a cult stock with a lot of hype, hence a tweet from Musk or an article in the press can move it 4%. This is what I mean by drama, which needs to be ignored. Fundamentals are what matters and the longer term value will reflect that. That being said the volatility of the stock offers good entry points either side of the trade now and again. Big issues right now are funding and a possible undisclosed SEC investigation.

The other big tech stocks I'm not getting into until they show a downtrend, but believe they will eventually come back down to earth if the wider market turns.

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1 hour ago, Donald McFlurry said:

Tesla is a cult stock with a lot of hype, hence a tweet from Musk or an article in the press can move it 4%. This is what I mean by drama, which needs to be ignored. Fundamentals are what matters and the longer term value will reflect that. That being said the volatility of the stock offers good entry points either side of the trade now and again. Big issues right now are funding and a possible undisclosed SEC investigation.

The other big tech stocks I'm not getting into until they show a downtrend, but believe they will eventually come back down to earth if the wider market turns.

Would it be a better all-round play to just short the S&P500 with a stop loss set at 3,000? No way it's going above 3,000. Previous low in 2008 was what, 650-something?

Edited by azzuri82

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14 hours ago, sancho panza said:

Shamelessly nicked of ToS hattip Will

Market internals are flagging red.

https://www.bloomberg.com/news/articles/2018-07-02/these-10-stocks-account-for-all-the-s-p-500-s-first-half-gains

'Big tech stocks are still doing the heavy lifting when it comes to S&P 500 Index returns.

 
David Kostin, chief U.S. equity strategist at Goldman Sachs, highlighted that more than 100 percent of the S&P 500’s total return of nearly 3 percent in the first half is attributable to just 10 equities. Amazon.com Inc. alone accounts for roughly two-fifths of the benchmark gauge’s advance.
 
image.png.3ba7fa2d293a19496d80e36c646f2253.png

 

3 hours ago, azzuri82 said:

Would it be a better all-round play to just short the S&P500 with a stop loss set at 3,000? No way it's going above 3,000. Previous low in 2008 was what, 650-something?

As above,I think the overvaluation is in certain stocks.They are moving on tailwinds that aren't based on nay rational set of parmeters from what I can see.

Tesla,Facebook,AMZN could double from here.Not saying they will but there's nothing in their charts saying it's turned.

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5 hours ago, Donald McFlurry said:

Tesla is a cult stock with a lot of hype, hence a tweet from Musk or an article in the press can move it 4%. This is what I mean by drama, which needs to be ignored. Fundamentals are what matters and the longer term value will reflect that. That being said the volatility of the stock offers good entry points either side of the trade now and again. Big issues right now are funding and a possible undisclosed SEC investigation.

The other big tech stocks I'm not getting into until they show a downtrend, but believe they will eventually come back down to earth if the wider market turns.

Fundamentals do need to reassert themselves.And they will.It could jsut take some time.As i've said previously,the FANG stocks are the mother ship.

Downtrends look nowhere near.Even FB dip in April barely scratched the 50 wk MA

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10 hours ago, sancho panza said:

 

As above,I think the overvaluation is in certain stocks.They are moving on tailwinds that aren't based on nay rational set of parmeters from what I can see.

Tesla,Facebook,AMZN could double from here.Not saying they will but there's nothing in their charts saying it's turned.

I assume when these crash, so would everything else.  What's the lowest risk plan?  Try to be in cash by that point?  Gold?  Some sort of short position?  

I quite like this article: https://www.fool.com/investing/mutual-funds/2009/01/21/the-only-investing-strategy-for-a-bear-market.aspx

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14 hours ago, Bear Hug said:

I assume when these crash, so would everything else.  What's the lowest risk plan?  Try to be in cash by that point?  Gold?  Some sort of short position?  

I quite like this article: https://www.fool.com/investing/mutual-funds/2009/01/21/the-only-investing-strategy-for-a-bear-market.aspx

I think a good strategy is to move to cash using some long term chart indicators,maybe keep your income shares especially given how beat up some already are.

Shorting and options trading carry significant risk.

Then as you watch and learn may be trade a few small punts on IG with minimal amounts and see how you get feel about it.

Traded options are a good way of limiting liability as are guranteed stop losses on IG

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On 23/06/2018 at 23:07, sancho panza said:

It's the timing that makes it hard re Tesla,it's hard to discertain the roll over point

Nice idea on Starbucks

1) Mundane product-easily replicated-tick

2) saturated market for said mundane product-tick

3) stocks got a bubble like quality to it's chart-tick

 

re Dominoes.

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