I have recently heard a lot of investors talking about the possibility of a full market crash sometime this year (Marc Faber, George Soros, Jim Rogers, etc.) I'm curious to know how many people use options, like buying puts, in order to profit from a possible crash. Would buying something like OTM puts on the SPY or other stocks, ETF's, etc. be a good way to play this? I have thought about buying a few puts on the SPY with strikes in the $150-160 range. Anyone else trading/investing with this idea in mind?
Betting on a Crash With Options
- Thread starter louisjxn
- Start date
e.g
SPY closed at 191.92
http://stockcharts.com/h-sc/ui?s=spy
http://finance.yahoo.com/echarts?s=SPY+Interactive#{"range":"10y","allowChartStacking":true}
Long Put:
Buy 1 Jan'17 190 put for 16.33
Price............ Profit / Loss............ ROI %
142.50.............. 3117.00.............. 190.88%
161.19.............. 1247.60................ 76.40%
173.67.................. 0.00................. 0.00%
180.87............... (720.10)............. -44.10%
190.00............... (1633.00)........... -100.00%
200.55............... (1633.00)........... -100.00%
Put Spread:
Buy 1 Jan '17 190 put and Sell 1 Jan '17 170 put for a net debit of 6.95
Price.................. Profit / Loss........... ROI %
127.50................... 1305.00.............. 187.77%
149.07................... 1305.00.............. 187.77%
170.00................... 1305.00.............. 187.77%
171.78................... 1127.00.............. 162.16%
183.05......................... 0.00................. 0.00%
190.00..................... (695.00).......... -100.00%
194.49..................... (695.00).......... -100.00%
217.20..................... (695.00).......... -100.00%
239.90..................... (695.00).......... -100.00%
SPY closed at 191.92
http://stockcharts.com/h-sc/ui?s=spy
http://finance.yahoo.com/echarts?s=SPY+Interactive#{"range":"10y","allowChartStacking":true}
Long Put:
Buy 1 Jan'17 190 put for 16.33
Price............ Profit / Loss............ ROI %
142.50.............. 3117.00.............. 190.88%
161.19.............. 1247.60................ 76.40%
173.67.................. 0.00................. 0.00%
180.87............... (720.10)............. -44.10%
190.00............... (1633.00)........... -100.00%
200.55............... (1633.00)........... -100.00%
Put Spread:
Buy 1 Jan '17 190 put and Sell 1 Jan '17 170 put for a net debit of 6.95
Price.................. Profit / Loss........... ROI %
127.50................... 1305.00.............. 187.77%
149.07................... 1305.00.............. 187.77%
170.00................... 1305.00.............. 187.77%
171.78................... 1127.00.............. 162.16%
183.05......................... 0.00................. 0.00%
190.00..................... (695.00).......... -100.00%
194.49..................... (695.00).......... -100.00%
217.20..................... (695.00).......... -100.00%
239.90..................... (695.00).......... -100.00%
sure, buy some Puts, if you think a crash might come 
my sources tell me, there could be [more] volatility in the future;
but when, and how much?
we are in new territory; the world is [still] changing, thanks to the .WWW
so, anything can happen
"Anything can happen" is copyrighted,
and cannot be used without my permission
marc
my sources tell me, there could be [more] volatility in the future;
but when, and how much?
we are in new territory; the world is [still] changing, thanks to the .WWW
so, anything can happen
"Anything can happen" is copyrighted,
and cannot be used without my permission
marc
The odds are strongly against you making money on long-term puts on market indexes. The decay can so weaken your position that by the time something does happen - IF it does - you'll not see any profit.
If you feel strongly that you want to bet against the market, then at least have patience to wait until we have a rally and you can more clearly see some sky below you. And even in that case, simply shorting the indexes is a better bet than puts that will decay on you.
Best of luck.
If you think the market is gonna go down -- buy puts.
if you think it's gonna go up -- buy calls.
It's pretty simple...are you waiting for someone with a crystal ball to give you 100% guaranteed confirmation...
if you think it's gonna go up -- buy calls.
It's pretty simple...are you waiting for someone with a crystal ball to give you 100% guaranteed confirmation...
Last edited:
buy puts. do it an as much as you can afford.
there is no much play now other than the ultrarisky
in playing the long side of the markets
when its obvious the tide has turn on high order level
and the multiyeartrend is broken.
I have 89 puts.
expirations:
march2016
june2016
sept2016
jan2017
and strikes from 700-1600. on spx.
they all in fat paper profits since december.
now i am looking at cashin these fat paper profits
timing it to when we test soon and prolly break the aug.lows,
and volatility will be at heigtened levels, 35-45 vix possible.
so then i will cash all my march puts,
and if we get bounce and volatility decreases,
I reinvest all that into new long-term put positions
with expiries in 2017-2018 with as high strikes as i will be able to afford for that cash.
get rich !!! next 2 years are time-compressed gift for skillful and wise speculators.
there is no much play now other than the ultrarisky
in playing the long side of the markets
when its obvious the tide has turn on high order level
and the multiyeartrend is broken.
I have 89 puts.
expirations:
march2016
june2016
sept2016
jan2017
and strikes from 700-1600. on spx.
they all in fat paper profits since december.
now i am looking at cashin these fat paper profits
timing it to when we test soon and prolly break the aug.lows,
and volatility will be at heigtened levels, 35-45 vix possible.
so then i will cash all my march puts,
and if we get bounce and volatility decreases,
I reinvest all that into new long-term put positions
with expiries in 2017-2018 with as high strikes as i will be able to afford for that cash.
get rich !!! next 2 years are time-compressed gift for skillful and wise speculators.
The back-of-the-envelope way to do this is to make a couple of simple assumptions. Define the "crash" -- say, 50%. Define the tenor -- say, over 6 months. Next, think about what vol would carry you there over that time. Probably around 75-80%, which I believe is in-line with where VIX topped out during Lehman.
Price a few different expirations -- 6 months, 9 months, a year, etc. Pick a deep OTM strike -- ideally one which maximizes your vega convexity and gives you the most bang for your buck. For a six month SPX option this is likely around 950 priced today with 80% vol.
Calculate the fair values for the options around 6 months from now, and compute your return %'s off the current market value of the options you selected.
These are lottery tickets. No one can predict a crash, and I wouldn't dump a lot of money into these. But owning a couple might not a bad idea. I would think you could easily find some options that'd give you 10,000%+ IF your crash scenario played out.
I'm sure others could give you a more technical, superior method; but this is my way of thinking from 50,000 feet.
Price a few different expirations -- 6 months, 9 months, a year, etc. Pick a deep OTM strike -- ideally one which maximizes your vega convexity and gives you the most bang for your buck. For a six month SPX option this is likely around 950 priced today with 80% vol.
Calculate the fair values for the options around 6 months from now, and compute your return %'s off the current market value of the options you selected.
These are lottery tickets. No one can predict a crash, and I wouldn't dump a lot of money into these. But owning a couple might not a bad idea. I would think you could easily find some options that'd give you 10,000%+ IF your crash scenario played out.
I'm sure others could give you a more technical, superior method; but this is my way of thinking from 50,000 feet.