If you knew the exact date of a black swan event...

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KDI

New member
Aug 10, 2018
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#1
(Hypothetical situation based on extensive market trend analysis and non-insider information, nothing illegal.)


...that would negatively affect equity markets and only had a couple thousand dollars to trade on it, what would you do to maximize profit in the current market environment?

Thx!
 

sminicooper

Well-known member
Jun 13, 2016
1,140
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#2
(Hypothetical situation based on extensive market trend analysis and non-insider information, nothing illegal.)


...that would negatively affect equity markets and only had a couple thousand dollars to trade on it, what would you do to maximize profit in the current market environment?

Thx!
If you want to make it big time then you'd do a "Jesse Livermore" (y)

Nb – read Tom Rubython's biography "The Boy Plunger" for details.
 

tomorton

Well-known member
Feb 28, 2002
6,984
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Exeter
#3
This is a worthwhile question as although we can't in reality know the exact date, nevertheless, we will all live through Black Swans, so the risk - and opportunity - is always there.

I have looked at this before. I have gamed the 1929 Wall Street Crash as if I had been a trader then, and I must admit, although I wouldn't have gone broke and stepped off a window-sill, I wouldn't have made millions either, net up a few k, maybe 10k, in today's money.

By nature I'm not looking for the one big win, I have to hold back so I can get another small win next month and every month next year and the year after and so on. That's why I didn't make a million through the SNB debacle 3 years ago...... but could have......
 

Morris

Active member
Jan 28, 2001
297
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#4
You would use options for maximum leverage.

Actually I have experience of such an event...

A few years ago I was bearish on the FTSE... it was summer and it was pretty elevated, so I bought a small FTSE put position.

A few days later (I think it was less than a week), I watched the markets fall sharply, the date was 7th July, 2005.

https://en.wikipedia.org/wiki/7_July_2005_London_bombings
 
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KDI

New member
Aug 10, 2018
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#5
Thank you for the responses. Sounds like put options where buyer doesn't actually hold the stock or index fund (naked put?), within the all-in $2k budget, is the answer. The goal being to buy puts where the expiry is after the supposed black swan date and the strike price close to the stock price when the put is purchased. Is that correct?

Continuing this scenario, what would be the second choice, if not engaging in options trading? Loading up on 3x index short ETFs like SPXU and/or VOL related like TVIX right before the date?
 
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Morris

Active member
Jan 28, 2001
297
2
28
#6
Thank you for the responses. Sounds like put options where buyer doesn't actually hold the stock or index fund (naked put?), within the all-in $2k budget, is the answer. The goal being to buy puts where the expiry is after the supposed black swan date and the strike price close to the stock price when the put is purchased. Is that correct?

Continuing this scenario, what would be the second choice, if not engaging in options trading? Loading up on 3x index short ETFs like SPXU and/or VOL related like TVIX right before the date?
I think a 'naked' options position is to be short the contracts, not long. If you buy the puts, the max loss is the cost of the option (s).

Being short calls, on the other hand, exposes the seller to potentially unlimited loss.

As to the strikes, maybe an ATM put ?
 

KDI

New member
Aug 10, 2018
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#7
I think a 'naked' options position is to be short the contracts, not long. If you buy the puts, the max loss is the cost of the option (s).

Being short calls, on the other hand, exposes the seller to potentially unlimited loss.

As to the strikes, maybe an ATM put ?
Thank you for your input. Yes, buying puts where trader does not have the corresponding stocks already as a hedge. You're right, that is not a naked put though I don't know what the correct term would be.

What do you think second most profitable trade would be, if avoiding options? Inverse ETFs? VOL related?
 

peto

Active member
Dec 12, 2002
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Lincoln
#8
If your black swan is a sure thing at a definite date, then buying puts which have a strike price far out of the money and an expiry which is asap after your swan event would be the way to go. They would cost a few pennies and should sell for big bucks each. If it all goes wrong then your loss would be limited to the cost of the puts.
 
Apr 22, 2013
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#10
calling black swan so accurately may attract interest from the government agencies

so be careful what you wish for :)
I'm thinking the same. What's he planning on blowing up with only $2000 ....

Looks like he joined just to ask how to profit from a tragedy..