Probabilities of SP increases until Dec 31

[Robocop]

Bulls / Anyone want to comment on these numbers? I'm not running a Monte Carlo simulation or anything, but I am doing some rough (rough) probability estimates to determine how much of my brokerage account (margin account) to move into some lottery tickets / short term options. Vast majority is long term shares, but I want to have one foot in the "crazy S&P inclusion spike". These are my thoughts on probabilities of the stock price before December 31, 2020. Chosen due to options expiration date post-inclusion.

Stock price - % chance of happening
$600 - 98% (we were at $599 today)
$700 - 40% (this may be high?)
$800 - 20%
$900 - 10%
$1000 - 8% (Getting into temporary squeeze/spike territory here and below)
$1100 - 6%
$1200 - 4%
$1300 - 3%
$1400 - 2%
$1500 - 1% (Again, likely just a spike here, would expect a very rapid drop after an event like this)

Is my $700 more likely than 40%? Is a $1500 crazy spike even more a fat-tail chance (say 2-5%?).

Also I understand probabilities can probably be inferred mathematically from current options pricing, but the point here is I / we believe those prices to be too low, eh?

Not projecting steady declines from here to Dec 31, even though I recognize that risk is very real. Just less fun to talk about here!

 

[ggr]

I don't think you understand the meaning of "probability".

 

[mickificki]

Bulls / Anyone want to comment on these numbers? I'm not running a Monte Carlo simulation or anything, but I am doing some rough (rough) probability estimates to determine how much of my brokerage account (margin account) to move into some lottery tickets / short term options. Vast majority is long term shares, but I want to have one foot in the "crazy S&P inclusion spike". These are my thoughts on probabilities of the stock price before December 31, 2020. Chosen due to options expiration date post-inclusion.

Stock price - % chance of happening
$600 - 98% (we were at $599 today)
$700 - 40% (this may be high?)
$800 - 20%
$900 - 10%
$1000 - 8% (Getting into temporary squeeze/spike territory here and below)
$1100 - 6%
$1200 - 4%
$1300 - 3%
$1400 - 2%
$1500 - 1% (Again, likely just a spike here, would expect a very rapid drop after an event like this)

Is my $700 more likely than 40%? Is a $1500 crazy spike even more a fat-tail chance (say 2-5%?).

Also I understand probabilities can probably be inferred mathematically from current options pricing, but the point here is I / we believe those prices to be too low, eh?

Not projecting steady declines from here to Dec 31, even though I recognize that risk is very real. Just less fun to talk about here!

If you’re really considering purchasing options at this point I’d wait for after Monday, when the S&P reveals the date and tranches of purchasing that’s going to occur after market close.

Imo Monday will be an up day but Tuesday could be a whole different ball game.

I keep thinking we’re going to hit $700+, but in the back of my mind is the feeling that it can’t be this easy...there has to be a catch of some sort.

 

[lafrisbee]

If you’re really considering purchasing options at this point I’d wait for after Monday, when the S&P reveals the date and tranches of purchasing that’s going to occur after market close.

Imo Monday will be an up day but Tuesday could be a whole different ball game.

I keep thinking we’re going to hit $700+, but in the back of my mind is the feeling that it can’t be this easy...there has to be a catch of some sort.

Huh? I have the image of the Announcement of how the tranche(s) are going to be done reducing the uncertainty. And supposedly the Market hates one thing, uncertainty. So I expect tuesday to be a big buying day because the buyers will have their strategies all figured out for each tranche(s) scenario. Tuesday will be a whole new "start" of buying.

 

[BigPeePee]

If you’re really considering purchasing options at this point I’d wait for after Monday, when the S&P reveals the date and tranches of purchasing that’s going to occur after market close.

Imo Monday will be an up day but Tuesday could be a whole different ball game.

I keep thinking we’re going to hit $700+, but in the back of my mind is the feeling that it can’t be this easy...there has to be a catch of some sort.

Most people are expecting a crash (See Tesla vs Berkshire marketcap thread on /r/investing), so I'm going to come out and say the stock is going to go to $2000.

 

[enzo]

I would shift your thinking in several ways. Don't know how much options trading you've done, but here are my suggestions.

If you are using options, why focus on the 12/31 exp? You agree there will be a peak/spike, of uncertain date/duration. Trading options with a volatile event like this should be a daily task anyway. So, if you want to dabble in near term calls, then you are talking about active trading and trying to time your sale properly. Otherwise, you are likely to have weak or negative returns even if the stock does well. Your probability guesses, even if they were good guesses, are actually not helpful, because they assume you will time the peak correctly. If you select a strike of 900 because your estimate of 10% seems reasonable, do you realize that your chance of success is much less than 10%? You have a very high chance of losing everything if you miss the peak or something unexpected happens.

Your risk tolerance flows from your investment goal. Then, your strategy flows from your risk tolerance. I would read the excellent posts of paydirt76 from earlier this year concerning TSLA options.

Even in an event like this, I would not call options a lottery/gamble, because psychologically this is a way to relieve oneself of the responsibility to use the options correctly. Options precisely define your risk and reward balance, with the tradeoff being more variables to deal with (greeks). Even a super high risk trade can be planned with care and hence not lead to excessive worrying.

 

[TheTalkingMule]

I would shift your thinking in several ways. Don't know how much options trading you've done, but here are my suggestions.

If you are using options, why focus on the 12/31 exp? You agree there will be a peak/spike, of uncertain date/duration. Trading options with a volatile event like this should be a daily task anyway. So, if you want to dabble in near term calls, then you are talking about active trading and trying to time your sale properly. Otherwise, you are likely to have weak or negative returns even if the stock does well. Your probability guesses, even if they were good guesses, are actually not helpful, because they assume you will time the peak correctly. If you select a strike of 900 because your estimate of 10% seems reasonable, do you realize that your chance of success is much less than 10%? You have a very high chance of losing everything if you miss the peak or something unexpected happens.

Your risk tolerance flows from your investment goal. Then, your strategy flows from your risk tolerance. I would read the excellent posts of paydirt76 from earlier this year concerning TSLA options.

Even in an event like this, I would not call options a lottery/gamble, because psychologically this is a way to relieve oneself of the responsibility to use the options correctly. Options precisely define your risk and reward balance, with the tradeoff being more variables to deal with (greeks). Even a super high risk trade can be planned with care and hence not lead to excessive worrying.

99.99% of the time, all of that is true. Stating the obvious, this is different.

 

[enzo]

99.99% of the time, all of that is true. Stating the obvious, this is different.

Which part is different? I agree it is unlike anything since perhaps the dot com era, but the trading tools and methods remain the same. Can you be more specific?

 

[zeed]

I watched the Jan 15 1000 calls go from $7.4 to $11 on a $22 upward run of the sp yesterday, representing a 48% increase in premium in a matter of minutes. The issue with options is that the goal posts move much and often, via the flexible and indeterminate IV component, which dramatically changes your probability of success or failure at any given point.

 

[Robocop]

99.99% of the time, all of that is true. Stating the obvious, this is different.

Not sure if this was their point, but in this scenario the 'peak' is expected to happen near-ish Dec 21. Not trading for a potential spike in the next year, or even the next 3 months, just trading for this very very specific window as the SP increases during inclusion. Post-inclusion I truly have no guess what will happen. This just feels like an unprecedented event.

Additionally, I should phrased these as 'guesses'. I've looked into the historical probabilities based on IV and looking at standard deviation moves, and my guesses obviously exceed those by 2x in some cases. Again, because this is an unprecedented event where I (and others) feel the upside is much greater than the down.

Lastly, re: timing, the majority of the up move (in my mind) will occur prior to Dec 31. There might be catalysts after that, but this play is capitalize on the inclusion and nothing more.