Originally Posted by
mispoken
1-If BABA is a huge value like you’ve calculated based on a BS metric, taking assignment at a reduced cost basis is an even greater value. Risking $6k with the highest probability of “PERMANENT LOSS OF CAPITAL”. If you’d like to know the probability of profit, it’s 34%. Buying stock gives you at least 50%. Holding shares indefinitely, the probability increases. Again, if permanent loss of capital is what you’re trying to avoid, buying calls ain’t the way to do it. Half of the premium you’re paying is extrinsic value and is lost daily to time decay. It sounds like this is sound long term investing for you. Best of luck with that.
Are those general probabilities? Where are you getting 34% and 50% from? If they are general probabilities those are of no concern to me. I access risk on a per company basis. FYI BABA, GOOG and FB LEAPS are very popular right now amongst value investors. There's a reason why. Sheer outrageous value.
Originally Posted by
mispoken
2-A true stock replacement is a delta of 1. If you want the leaps to act like stock, you buy a 1 delta call or at a minimum 2 standard deviations below the ATM call.
No I don't want a LEAPS to act exactly like a stock. That's why I bought a LEAPS not a stock. Again, buying LEAPS of large, undervalued companies at a Delta of. 7-.8 has a very attractive risk reward profile
Originally Posted by
mispoken
3-Again, you don’t understand how margin works. It’s dependent on if you’re in a regulation T account, a portfolio margin account or a retirement account (cash covered). Each one requires a different amount of buying power to cover a naked put. Your example above says this would tie up $21k of buying power which simply isn’t true unless you’re in a cash covered account like your retirement account at which point a “margin call” that you mentioned in your other post is not a player. Again, you seem to know just enough, but not nearly as much as you think. In your example the Jan 2023 $170 put in my regulation T margin account tied up $1751 in buying power and nets me around $700 in premium.
Again I stated Margin requirements vary among brokerages. Now in your example, you net $700($400 after tax) in premium, then the market goes against you and BABA drops to $170, now a $17,000 margin call is possible if you don't have enough buying power to cover, forcing you to sell other assets if you can't come up with the cash. Meanwhile with my LEAPS only $6100 is at risk with a long time horizon
Originally Posted by
mispoken
3-short term capital gains are treated as ordinary income. That is to say I pay on that, what I pay at my regular job. Do you not go to work because you have to pay taxes? This does not have to be a long screen time event and To say you don’t want to make an extra $100k in a year because you have to pay $30k in taxes is well….stupid. Are there more tax efficient ways of making money out there? Sure, I’ll give you that. But in my world I don’t let the tail wag the dog.
I don't mind short term gains if it's the most efficient way at extracting value. I've had plenty of short term gains from Net Net investing. Selling Puts is flat out inefficient to LEAPS if you have conviction in the direction of the stock over the long term. $700 premium plus risk of $17,000 cash outlay vs $6100 premium and strong possibility of 100%+ ROI taxed at long term capital gains. Moreover if BABA dropped to $170 I can just buy more LEAPS driving down my cost basis and still use less than $17000 in capital
Originally Posted by
mispoken
4-If me telling people to approach what you say with caution and posting a link for people to get a real education on options is snake oil, then what is the garbage you post? Let me provide some examples; you posted “Tesla is due for a STEEP decline” and then posting a tweet from Michael Burry. How about another? You posted “It’s not too late to get out of bubble stocks” and posting a link to a WSJ article. Snake oil salesmen sell fear. That is the crux of your “investing advice” on here; Fear. Bubbles. Margin calls. Overvalued. Oh my. If your due diligence is a tweet and WSJ article, I reiterate my caution.
I’d say your best strategy so far has been trolling me. Hook, line and sinker every time. [emoji482]
When it comes to securities like TSLA and ARKK, I'm not selling fear. I'm advocating for reality. This has happened before in the 2000s. Know your history or be doomed to repeat it. The intrinsic value of a stock is its future cashflows discounted to the present value. If you want to pay eyewatering amounts for cashflows that don't exist and you believe the company will grow those cashflows due to a "Story" that's on you. I'm just here to give folks fair warning to DYODD when listening to such silliness. You probably would have been preaching about Yahoo and Pets.com in the 2000s.
Tesla Enterprise Value: $600 Bil
Tesla Earnings before Tax and Depreciation: $4.7B
Without the stock moving a single penny Tesla would have to grow earnings to $30 Bil just for a valuation of 20x earnings. And again, that's without the stock pricebadvancing a single penny. Unless you're using a momentum strategy with these story stocks, good luck
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