WEEK 71

Brokers Statement
Portfolio
Transcript

Please find an Explainer on How to find the true cost of an option below.

Explainer

Time Stamps
What Happened Last Week – 00:23
What’s Happening Next Week – 1:34
Nick’s Update – 15:35

16 Responses

  1. Hi Nick. Just a reminder that 1 SPY call option and 5 micro-options or simply 15 micro-options (ticker $MES) would almost perfectly replace the current equities allocation. I’m saying this and I can’t even trade options myself, but it’s just a heads-up. Cheers!

    1. Interesting tip Miguel! I noticed that the $MES trade on the S&P index value (and thus currently have a notional value of $5241 per contract) instead of the approximate value of the $SPY ETF (~$520 right now). And the micro options have a $5 multiplier on the $MES futures contract, so one option is $5 * $5.241 = $26.205. So it appears to be about half the size of the regular 100 lot $SPY options. Thought I’d share in case anybody intends to use this for the stock replacement.

      1. Hi Budi. This seems to be the best way to accurately perform the replacement, but I understand how micro-options may be a niche form of expressing a view via options, they are not available on most brokers and I also suspect that most clients will probably be using a multiplier for their AUM and won’t immediately see utility in micros.
        I wasn’t aware of the pricing discrepancy favoring micros, so I guess our tips tips as a whole might even offer clients of the service more optionality in expressing the portfolio update regardless of the AUM size.

  2. The 9/24 SPY 520 Calls appear to be trading 20.86/97, not 12.60(that appears to be the Puts)??
    This would mean 1.40%(5.34% equity posn) capital in premium not 0.84%(3.20%) … do you still consider this a good risk reward for the optionality out to Sep’24?
    Thx

    1. I think Nick is explaining (in the explainer – did you see that?) that the cash balance you will get from selling earns interest. Thus the cost of the call to you has to be net of the interest you are earning on the new cash you raised. Your net cost of the call is less than what you see on screen after earning interest.

        1. Exactly as Holly says. Puts and calls in ATM options, after taking into account interest and dividends, trade at parity. You can see the real cost by just looking at the puts and prove it by doing the actual calculation, as I did in explainer.

  3. Out of semi-idle curiosity, if you were required to retain one of the ETFs in our current portfolio, which one would you select and why?

    1. EUFN and XLF have probably done nearly all the outperformance they are likely to. Hence if I absolutely had to choose, which fortunately I don’t have to, it would be the Qs, because you never know what new tech trend might emerge in nest few months. As insurance Vs some unexpected development, basically, not for market reasons, if that even makes sense.

    1. Do nothing, I guess.
      Wait for numbers and then either increase equities or go to minimum, according to what the new macro landscape looks like.

  5. The high level point here is that when you are faced with a potential “macro changing” set of data and volatility is this cheap, seems foolish not to take advantage. It might not work. But it’s playing the odds correctly. After the numbers we can rearrange everything at leisure. I still think that equities are likely to be fine. But I could be wrong. Why take the chance, when the price of certainty is this cheap? So much as to path of interest rates and hence equity multiples should be clearer after Wednesday.

    1. Not selling puts, buying them. If you don’t want to sell your holdings and buy calls, buying puts is the alternative. And I would buy only an amount equal to the current value of the equities. PS: I am not aware of such a video by Andy. Maybe write him an email to ask?

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