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

[KDI]

(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]

(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" 👍

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

 

[tomorton]

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]

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

 

[KDI]

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?

 

[Morris]

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]

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]

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.

 

[NVP]

calling black swan so accurately may attract interest from the government agencies

so be careful what you wish for 🙂

 

[MrBrilliant]

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..

 

[Acme]

Looks like this kid anticipated a Black Swan (maybe not technically a black swan, but at least made a contrarian bet on an event with a known date) and hit pay dirt big time:

What secrets are you hiding from your parents?

Anonymous answer: I'm 19 year old from Netherland and I'm a millionaire already, but I haven't told anyone yet including my parents. On the eve before Brexit, I took a huge risk and invested almost 10,000 euros in put options on Expert option that markets will fall. Imagine my surprise the next d...

www.quora.com

Is something like this* even possible? (I'm a total newbie at trading , so I have no idea).

I am also aware that this Quora answer is possibly a lie and might actually be an ad for the trading account provider mentioned in the answer. My question is really, regardless of whether the story mentioned in this Quora answer is true, is something like this* possible with a contrarian bet on an event with a known date (like a referendum/elections/BoE MPC rates meetings). If this is possible, how would one go about setting oneself up for it? i.e. what strategies would one adopt?

* By 'this' I mean an outsize return of 2000+ times as described in this Quora answer.

 

[Acme]

If you want to make it big time then you'd do a "Jesse Livermore"

sminicooper, I haven't read 'The Boy Plunger' but read up about Jesse Livermore on Wikipedia, and looks like he basically shorted the market, and had the good fortune to time it close enough to the event to ensure that he was still around and solvent to benefit when the '29 crash happened?

 

[NVP]

more thoughts .....

watch the spreads ...they could kill your well laid pre-plans

be careful on investment size..... if your trade is flagged on the "Black Swan" as more than coincidental you will be tracked down and grilled...so spread a few other trades and track record out there in advance to support your trade....

imagine what happened to the short sellers immediately after 9-11 ......you think the big plays didnt get investigated ?

N

 

[Acme]

watch the spreads ...they could kill your well laid pre-plans

Thanks for your reply NVP - how would this happen? Apologies if this is too basic a question, but I am a beginner so would appreciate it if you could elaborate. My understanding is that if you were to buy a contrarian Put for say 10p (cheap because it's a contrarian bet you're making, and it's OTM) at a strike price of say £90 and the underlying asset does suffer a steep fall say from £100 to £85 your Put would still be worth £5? So you're at a profit of £4.90. Am I mistaken?

be careful on investment size..... if your trade is flagged on the "Black Swan" as more than coincidental you will be tracked down and grilled...so spread a few other trades and track record out there in advance to support your trade....

I don't know what the OP had in mind, but their question did make me wonder what uncomfortable information/hunches they might have in their mind. What I'm referring to is not specifically a black swan but a contrarian bet on an event with a known date - the examples I gave were referendums/BoE MPC meetings etc.

For instance, during the run-up to the Brexit referendum I felt the markets (and the world at large) were too dismissive of the possibility of a Leave win - with the consequence that there was a very real possibility of a sharp fall in the £ in the morning after.

Now this is a classic 'event with a known date' and because I felt that the markets were possibly overconfident of a Remain win, if I had put my money where my hunch was, this would have been a 'contrarian bet on an event with a known date'.

Why would/should this raise eyebrows?

Of course, it's a different matter that I had no idea how I would go about this business of putting my money where my hunch was (beyond betting on the outcome of the referendum at say Paddy Power) - only on this forum in the past couple of days I've learnt that I could have bought a Put to trade on my hunch.

 

[Bubba27]

Since I am a beginner I had to read the definition for black swan at Investopedia.

My thought was to always set a stop loss on all open trades and that should be enough to rescue any account balance.... right?

 

[cantagril]

Since I am a beginner I had to read the definition for black swan at Investopedia.

My thought was to always set a stop loss on all open trades and that should be enough to rescue any account balance.... right?

Wrong. Just look back to the SNB f*** up and what happened with FXCM afterwards.

I was the wrong way round on that day and I can tell you with absolutely certainty that having a stop only protects you from "normal" market conditions. I gave up 9 mths profits on that one day despite my stops.

 

[fibo_trader]

Wrong. Just look back to the SNB f*** up and what happened with FXCM afterwards.

I was the wrong way round on that day and I can tell you with absolutely certainty that having a stop only protects you from "normal" market conditions. I gave up 9 mths profits on that one day despite my stops.

My my my my my my, Cantagril of the core 30 finally delivers in spades. 🙂

 

[fibo_trader]

(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!

With 2000 dollars? That would already be a black swan ongoing event with no end in sight.

 

[Acme]

Just look back to the SNB f*** up and what happened with FXCM afterwards.

FXCM Gives a Second-by-Second Account of SNB Flash Crash

The broker blames liquidity providers for failure, does not explain why CHF leverage was not limited and say technology performed in client's best interests

www.financemagnates.com

WOW.

 

[Bubba27]

Wrong. Just look back to the SNB f*** up and what happened with FXCM afterwards.

I was the wrong way round on that day and I can tell you with absolutely certainty that having a stop only protects you from "normal" market conditions. I gave up 9 mths profits on that one day despite my stops.

Well I am new to this... Can you describe how it all went down?

You had open trades in the Forex market and it was business as usual and then out of nowhere there was a black swan event and prices dropped fast, but the whole market was shook so hard that none of your stop losses were never triggered in time? None of them triggered?

Did the triggers eventually go off automatically, or did you have to call your brokerage to have them manually close your trades? That must have been awful. What is SNB? What month and year did that black swam occur??