Does anyone plan for Doomsday?

[demoship]

vetten, another way you can protect yourself against a market crash, instead of getting insurance, is to have some long and some short positions.

I mostly write options, so I'd get screwed with a big move in either direction, but I keep some long and some short, so if I do get fucked over, at least I still win on some of my positions.

If you're long and short stocks, this is even better protection, since your shorts go down in value just as much as your longs (provided you have equal amounts). I think that there's better ways of protecting yourself against a crash then just buying puts for insurance.. MUCH better ways.

Personally, I stopped doing protective spreads for the most part, 95% of my positions (both puts and calls) are naked.

 

[stevegee58]

Go long brass.

 

[mschey]

Quote from TimeCorrosion:

I looked back at the 1927 and 1987 crash. All the major indices lost 1/4 to 1/3 of their values in a few days. In today's terms, that is similar to the Dow losing 3000 to 4000 points in a day. This may be a black swan, but if one is not careful, wealth accumulated in a life time can be wiped out in a day. This can happen, for instance, a sudden war and the markets are closed.

Do any of you incorporate this rare possibility in your daily trading? If so, how do you do it? I plan to include this contingency plan in most, if not all, my trades.

I've got a shot gun, a rifle, my four wheel drive, and my secret stash of cash and bullion, and I will survive.

 

[EMRGLOBAL]

You will not see such a drop in the current markets due to Circ. Breakers (as we witness on the monday after 911). You will not see a crash in the sense of 87, 29.

It will be a slow grind down, with massive layoffs, rising oil prices, and will last for years and years. This is the "Doomsday" more likely to come our way.

E

 

[vetten]

Quote from demoship:

If you're long and short stocks, this is even better protection, since your shorts go down in value just as much as your longs (provided you have equal amounts). I think that there's better ways of protecting yourself against a crash then just buying puts for insurance.. MUCH better ways. [/B]

demo

that would mean that I would have to organise a whole new portfolio, which is twice the effort and would have to put half of my capital there.
the problem in an uptrending market is that I lose on my short portfolio or break-even at best.
also I would have a big opportunity cost, `cos I could have placed that money into my long portfolio and make 30-50%.
So my solution is not a short portfolio.

So my solution is not put options.

My solution is not buying/selling anything until the day it happens

Just a stop sell order for 7 ES futures in Globex at 2-3% below present price.
This will cover me year in, year out without owning/losing/worrying about anything

cant see how it can get any better

 

[ajna]

vetten,
Selling futures works as well. Just need to have a plan to limit losses on that position if the market rallies again.
Alternatively you could sell otm call spreads on an index.

Quote from vetten:

demo

that would mean that I would have to organise a whole new portfolio, which is twice the effort and would have to put half of my capital there.
the problem in an uptrending market is that I lose on my short portfolio or break-even at best.
also I would have a big opportunity cost, `cos I could have placed that money into my long portfolio and make 30-50%.
So my solution is not a short portfolio.

So my solution is not put options.

My solution is not buying/selling anything until the day it happens

Just a stop sell order for 7 ES futures in Globex at 2-3% below present price.
This will cover me year in, year out without owning/losing/worrying about anything

cant see how it can get any better

 

[rallymode]

Quote from ajna:

Buy some way otm Puts on any index. Cheap way to cover for armageddon. You may or may not make money during that period, but at least you'll recoup a lot of your portfolio's losses. To not own that sort of cheap insurance is just penny wise pound foolish.

You may smoothen your PnL curve during a crash but that doesnt necessarily mean you will come out ahead once you factor in the money you spent on these puts before you hit a winner.

Running a net long vol or gamma book comes at a cost which may or may not be recovered during a crash. Unless you knew the frequency and magnitude of the black swans before hand than your penny wise and dollar foolish statement is erroneous.

 

[vetten]

Quote from ajna:

vetten,
Selling futures works as well. Just need to have a plan to limit losses on that position if the market rallies again.
Alternatively you could sell otm call spreads on an index.

but I reckon my plan for doomsday is so brilliant, because I never own any protection that will lose money outright and/or opportunity cost until doomsday comes around.

ofcourse I would have a tight stop loss in place for a couple of points at the time of entering my stop sell order for when the market goes against my position.

present price 1480
sell stop 1440
stop loss 1442

I chose ES futures, `cos it has far more liquidity than ES future options and that is very important if something happens in the middle of the night.

Any flaws in my plan?

 

[TimeCorrosion]

No doubt there is increasing financial efficiency and sophistication in the recent years; an evidence is the low long term (30 year mortgage) interest rates. My Doomsday pictures is, for instance, the Dow gapping 1000 points past most reasonable stops, which would not offer any material protection.

On an interesting note, while there are stock market crashes, there are not any stock market "booms," meaning the Dow increases 3000 to 4000 points (1/4 to 1/3 of curent value) in one day. I guess that is because people have to labor and earn their wealth; the world cannot become all wealthy over night; but it takes a blink of an eye to see all the wealth evaporate in a crash. Truly an asymmetrical return.

RS

Quote from EMRGLOBAL:

You will not see such a drop in the current markets due to Circ. Breakers (as we witness on the monday after 911). You will not see a crash in the sense of 87, 29.

It will be a slow grind down, with massive layoffs, rising oil prices, and will last for years and years. This is the "Doomsday" more likely to come our way.

E

 

[ajna]

Quote from rallymode:

You may smoothen your PnL curve during a crash but that doesnt necessarily mean you will come out ahead once you factor in the money you spent on these puts before you hit a winner.

Running a net long vol or gamma book comes at a cost which may or may not be recovered during a crash. Unless you knew the frequency and magnitude of the black swans before hand than your penny wise and dollar foolish statement is erroneous.

Rallymode,
I agree that you likely won't come out ahead just buying otm Puts each cycle. Personally, I think if someone's portfolio is concentrated in various long equity positions, having it gain during a major market collapse is an impossible expectation regardless of your hedge. Perhaps I just have lower expectations for such a situation and would be happy if my downside hedge simply helped flatten my max drawdown.