Thursday, March 23, 2017

Picking the Top

In Shorting With Reckless Abandon I expressed my views. I have now started documenting my journey at Picking The Top for anyone who wants to see my foolishness in realtime.

Wednesday, March 15, 2017

Puts as Protection

Many asset management firms are happily enjoying record revenue and profits driven not by inorganic growth or skillful portfolio management but by a seemingly endless increase in US equity prices. These firms are effectively commodity producers entirely dependent on the price of an index over which the firm has no control. The options market presents an easy, cheap, and liquid form of protection in the form of puts with which the firm could hedge its revenues, its clients, or both. However, many of these firms in blissful disregard for the brutality of asymmetric arithmetic choose to ignore this opportunity for protection.

Here is some very quick and ugly code with which anyone can evaluate various put options for the hedge and their potential outcomes. I hope someone, somewhere might benefit from the idea

Load Our Helpful Packages


Use quantmod To Gather Data

## [1] "SPY"
spy_opts <- getOptionChain("SPY", Exp = "2017-12-15")

Construct Simple Hedged Portfolio

outcomes <- spy_opts$puts %>%
  tbl_df() %>%
  filter(Strike >= 230, Strike <= 260, Ask > 0) %>%
    spy_pos = floor(100*tail(SPY,1)[[4]]-100*Ask),
    option_pos = ceiling(100*Ask)
  ) %>%
  select(Strike, spy_pos, option_pos)

portfolio <- map(
  ~.x %>>%
    {outcomes[.,]} %>>%
          outcome = .x,
          value = strike$spy_pos * (1+.x/100) + 
                  max(c(strike$Strike - tail(SPY)[[4]] * (1+.x/100),0)) * 100
      ) %>>%

strike_port <- tibble(
  strike = outcomes$Strike,
  outcomes = map(portfolio, ~.x)

Plot Outcomes in $

  value ~ outcome,
  data = strike_port[1,]$outcomes[[1]],
  ylim = c(0,40000),
  type = "l"
  ~lines(value ~ outcome, data = strike_port[.x,]$outcomes[[1]])

Make Outcomes Interactive in Plotly


pltly <- reduce(
  function(left, right) {
    left %>%
        x = strike_port[right,]$outcomes[[1]]$outcome,
        y = strike_port[right,]$outcomes[[1]]$value/(100*tail(SPY,1)[[4]]) - 1,
        inherit = FALSE,
        name = strike_port[right,]$strike
  .init = plot_ly()
Live Plotly Example

Tuesday, February 28, 2017

Shorting with Reckless Abandon

As always, anything you read on this blog will likely lead to significant losses, and anyone with any sense will just ignore my silliness and move on. However, just for posterity, I am beginning to short US equities with reckless abandon. Beyond that, I realize that I have lost a lot of respect for investors and speculators that I have admired over the years. In time, we shall see.