EPTTrading/Investing Thread - Page 29
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farvacola
United States18832 Posts
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micronesia
United States24701 Posts
On April 22 2020 03:44 CorsairHero wrote: 50% is way too high to allocate into a single asset. Stock picking / trading should be allocated to whatever amount you could potentially lose forever. I'd say no more than 10% of a total portfolio if you really need to scratch that itch. The rest should obviously be fixed income / global index etfs. Non leveraged obviously. It depends on what you are investing with, and what you are investing in. In many cases, 50% is way too high, but not all. My point is, rather than getting into the details/intricacies, starting with a hard and fast rule of 50% prevents the ridiculous situation where someone suddenly loses their entire net worth based on one foolish assumption about a specific part of the market. | ||
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RenSC2
United States1063 Posts
Is it okay to not feel bad for this guy? Who puts 100% of their savings into oil? That was greedy to an extreme. Bulls make money, bears make money, pigs get slaughtered. At least we have a story of the market working as intended to brighten up the dreary mood. If he was managing some retirement fund, then I'd feel really bad. However, he's a 28 year old with a job that makes a decent salary. He can bounce back from this, hopefully a bit wiser. | ||
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Vivax
22043 Posts
Btw, they really piled into later futures: If there turns out to be a supply constraint in oil for some reason, this is a recipe for disaster. Though I'm not 100% sure about that, gold was briefly constrained too and nothing too crazy happened contrary to my expectations. | ||
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Blitzkrieg0
United States13132 Posts
On April 22 2020 03:51 RenSC2 wrote: Is it okay to not feel bad for this guy? Who puts 100% of their savings into oil? That was greedy to an extreme. Bulls make money, bears make money, pigs get slaughtered. At least we have a story of the market working as intended to brighten up the dreary mood. If he was managing some retirement fund, then I'd feel really bad. However, he's a 28 year old with a job that makes a decent salary. He can bounce back from this, hopefully a bit wiser. If he's 28 then he probably started investing after the last bottom we had and has only ever seen his money go up. Definitely stupid to bet all your life savings on oil, but if he went long then oil should recover eventually right? | ||
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Vivax
22043 Posts
On April 22 2020 04:33 Blitzkrieg0 wrote: If he's 28 then he probably started investing after the last bottom we had and has only ever seen his money go up. Definitely stupid to bet all your life savings on oil, but if he went long then oil should recover eventually right? Yeah, when demand picks up and they burn through all the rolled forward futures he might start seeing something minuscule on what's left after fees for storage and exchanging futures. On the other hand, if supply drops for some reason, you have a shitton of futures that can't be serviced. Btw I was speculating on oil too. 10% in May, 70% in August, and 20% in September are my allocations by expiry (of what I bet on oil, not my entire PF). Not quite USOs formula lol | ||
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CorsairHero
Canada9491 Posts
On April 22 2020 04:33 Blitzkrieg0 wrote: If he's 28 then he probably started investing after the last bottom we had and has only ever seen his money go up. Definitely stupid to bet all your life savings on oil, but if he went long then oil should recover eventually right? I went long hou on Friday and I’m just learning how to trade options so I also did a short position on HOD. The combination of the two which was redundant and pointless is what has crushed me. https://www.reddit.com/r/PersonalFinanceCanada/comments/g5i3mo/lost_life_savings_in_the_market_today_not_sure | ||
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farvacola
United States18832 Posts
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KwarK
United States42973 Posts
On April 22 2020 04:47 Vivax wrote: Yeah, when demand picks up and they burn through all the rolled forward futures he might start seeing something minuscule on what's left after fees for storage and exchanging futures. On the other hand, if supply drops for some reason, you have a shitton of futures that can't be serviced. Btw I was speculating on oil too. 10% in May, 70% in August, and 20% in September are my allocations by expiry (of what I bet on oil, not my entire PF). Not quite USOs formula lol Supply dropping is good for him. | ||
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Vivax
22043 Posts
Definitely, but moving a bet further into the future raises the risk that the counterparty can't service the futures. Sure, he could be rich on paper, but only if he gets paid for it. What'd happen if by August oil was nowhere to be found or CME went broke? I don't want to imply that it's likely, just a thought. | ||
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KwarK
United States42973 Posts
On April 22 2020 06:37 Vivax wrote: Definitely, but moving a bet further into the future raises the risk that the counterparty can't service the futures. Sure, he could be rich on paper, but only if he gets paid for it. What'd happen if by August oil was nowhere to be found or CME went broke? I don't want to imply that it's likely, just a thought. The more scarce a commodity is the more valuable a contract that entitles you to receive that commodity is. Surely you see that? These are paper settled anyway. He has paid a fixed price to receive his oil on a set date. When the date arrives they’re not going to give him oil, they’re going to give him the market price of the oil they’re not delivering. You’re suggesting that there’s a risk of a massive shortage of oil in August and that oil will be worth its weight in gold, and that this will somehow hurt him. | ||
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Vivax
22043 Posts
On April 22 2020 06:43 KwarK wrote: The more scarce a commodity is the more valuable a contract that entitles you to receive that commodity is. Surely you see that? These are paper settled anyway. He has paid a fixed price to receive his oil on a set date. When the date arrives they’re not going to give him oil, they’re going to give him the market price of the oil they’re not delivering. You’re suggesting that there’s a risk of a massive shortage of oil in August and that oil will be worth its weight in gold, and that this will somehow hurt him. To keep it simple, I'm afraid of something like this becoming more common among commodity markets. A fund or trading company could liquidate its pledged inventory on a price recovery in order to serve debt and leave a contract buyer empty-handed. https://www.ft.com/content/d812abf2-6e54-412c-9a2b-1ac3a1206219 | ||
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micronesia
United States24701 Posts
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Vivax
22043 Posts
On April 22 2020 07:00 micronesia wrote: My friend bought 500 barrels for 0.50 per, thinking the most he could lose was his $250 position... but with negative prices he lost almost 20 grand I think. I'm staying the heck away from futures. Damn. I've got options on it, but to my knowledge they can't print negative or be settled in physical delivery. I don't know how it works for the issuing banks (they might have to call dibs on oil for option buyers). Hedging against negative prices is something nobody has ever had to do before. I've had my fair share of burns too though. Especially shorting. Now says options on crude can trade negative. Let's see what happens. Might have to start looking for storage somewhere lmao. Though I don't think that's likely. Either way, you will be able to bet on oil prices going further into the neg. now! | ||
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Acrofales
Spain18050 Posts
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KwarK
United States42973 Posts
On April 22 2020 08:51 Acrofales wrote: What I want in oil right now is a fund that invests in stashing crude in a tank somewhere that allows me to buy in, pay for storage and sell in X months (depending on the management). Worst case in this situation is the oil is still worthless in X months and you lose the money for the storage. But I can't find a reputable fund that does this. Just some people I know who are planning to pool money and set it up themselves. I'm not quite crazy enough to send my money to a gaming buddy in Texas so they can rent 11 tankers and fill them with crude. Apparently oil is prohibitively expensive to store. It was judged to be more efficient to achieve the same with rolling futures until everything went wrong. A rolling futures fund has effectively a tanker one month out holding the oil for future use. As the tanker approaches the refinery you sell the contents of that tanker and buy the contents of one further out. Under normal conditions you always have effective ownership of one tanker worth of oil and can cash out whenever it arrives. What went wrong this time is that the oil in a tanker 2 months out became way more valuable than the oil in a tanker 1 month out because the 1 month out one had no market. What you’re describing though is how SLV and IAU work, just a vault of silver and gold respectively. And it’s how all the nerds buying USO think it works. It’s how I thought it worked until a few weeks ago. Once I learned how it worked I dropped it like a rock. Then it crashed and I bought back in to try and daytrade it. Then I lost all my money. True story. | ||
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Belisarius
Australia6232 Posts
On April 22 2020 08:51 Acrofales wrote: What I want in oil right now is a fund that invests in stashing crude in a tank somewhere that allows me to buy in, pay for storage and sell in X months (depending on the management). Worst case in this situation is the oil is still worthless in X months and you lose the money for the storage. But I can't find a reputable fund that does this. Just some people I know who are planning to pool money and set it up themselves. I'm not quite crazy enough to send my money to a gaming buddy in Texas so they can rent 11 tankers and fill them with crude. This runs into the exact same issue though. The problem is that something has to happen to the oil nobody wants. It doesn't just disappear and it clearly costs a bunch to hold. If the oil is worthless in X months you are still responsible for a giant pile of oil that has to be sold, disposed of or stored indefinitely, and that's where you start paying someone to deal with it. On April 22 2020 07:00 micronesia wrote: My friend bought 500 barrels for 0.50 per, thinking the most he could lose was his $250 position... but with negative prices he lost almost 20 grand I think. I'm staying the heck away from futures. 20k to get rid of $250 worth of oil seems absurd though. Were those definitely the guy's numbers? | ||
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micronesia
United States24701 Posts
On April 22 2020 09:06 Belisarius wrote: 20k to get rid of $250 worth of oil seems absurd though. Were those definitely the guy's numbers? I don't want to pester him for the details, but those numbers line up if the price went to -40 per barrel. I think there were other factors involved like interactive brokers not being able to process negative prices, so the position could not be sold out. | ||
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Acrofales
Spain18050 Posts
On April 22 2020 08:54 KwarK wrote: Apparently oil is prohibitively expensive to store. It was judged to be more efficient to achieve the same with rolling futures until everything went wrong. A rolling futures fund has effectively a tanker one month out holding the oil for future use. As the tanker approaches the refinery you sell the contents of that tanker and buy the contents of one further out. Under normal conditions you always have effective ownership of one tanker worth of oil and can cash out whenever it arrives. What went wrong this time is that the oil in a tanker 2 months out became way more valuable than the oil in a tanker 1 month out because the 1 month out one had no market. What you’re describing though is how SLV and IAU work, just a vault of silver and gold respectively. And it’s how all the nerds buying USO think it works. It’s how I thought it worked until a few weeks ago. Once I learned how it worked I dropped it like a rock. Then it crashed and I bought back in to try and daytrade it. Then I lost all my money. True story. Yup, I know about that and effectively have a clump of gold sitting in a vault somewhere with my name on it. I also assumed USO worked like that until I read up on it with serious intention to buy into it and realized it was futures instead, which as people found out yesterday, carry additional risks. | ||
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Vivax
22043 Posts
On April 22 2020 08:51 Acrofales wrote: What I want in oil right now is a fund that invests in stashing crude in a tank somewhere that allows me to buy in, pay for storage and sell in X months (depending on the management). Worst case in this situation is the oil is still worthless in X months and you lose the money for the storage. But I can't find a reputable fund that does this. Just some people I know who are planning to pool money and set it up themselves. I'm not quite crazy enough to send my money to a gaming buddy in Texas so they can rent 11 tankers and fill them with crude. You'd have to get in line for several months if such a fund existed. Crude producers will have to halt their business until the price picks up again, their loans will have to be frozen. If they pay to get rid of their produce, then it means they have a money printer to keep them working. On April 22 2020 09:08 micronesia wrote: I don't want to pester him for the details, but those numbers line up if the price went to -40 per barrel. I think there were other factors involved like interactive brokers not being able to process negative prices, so the position could not be sold out. Well if you buy a contract for 1000 barrels for a penny, and the price goes to -35, you get a margin call of 35000$ (I'm sure there's a wrong zero here somewhere, but you get the idea. Not fun. Essentially the closer to zero you bought, the more screwed you were. (If you planned on gambling 100 bucks at 10 you'd have been better off since you held less contracts). | ||
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