Initially, I had written this post as an update in the daily briefing but decided to make it its own article. The post simply got too long, so it just makes sense to keep it separate. I know this is a very long article and a lot to read through. But I do think it is important and covers some key co...
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Hey Sam, are these trades on watch now or just ideas for now? Thank you
We have a few positions on trade watch posted in the daily briefing.
Excited to watch and follow along here. I do have a few questions:
Excited to watch and follow along here. I do have a few questions:
a) does this scale, say $10M liquid, $100K would be just 1%, any reason you wouldn’t allocate that much here?
b) taxes, maybe partially answering a) above, as this scales, taxes cannot be ignored. As a follow-up to a), would it make sense to run the early trades all-in, with the plan on pulling the cash to cover the tax liability as trades get bigger?
It would asbolutely suck to have paid the IRS, then be in a situation where you suffer a massive loss after having paid a large tax bill late in the cycle, early on the risk could make sense.
I am interested in hearing your thoughts around this.
A) this strategy is extremely high risk. Note the total returns attempted is 20,000 percent. It would be extremely unwise to try and execute this strategy with anything but a highly speculative and disposable part of a portfolio. If you read our portfolio breakdown, this would strategy might represent a 5% allocation of an overall portfolio and that would be high.
Our long-term model portfolios are $100k and this one is $5k. More than anything the Targaryen strategy is mostly done for entertainment and pure speculation. The $5k to $1M challenge is a speculative trade challenge with a low probability of success.
I’d say not scalable given the short-term nature of the trades.
B) We can’t really address taxes here at all. Different jurisdictions and codes apply to different people.
So it’s difficult to get into the tax consequences of different strategy. We also cant give what could even in the most loose interpretation be construed as tax advice. So not something we can really touch on.
There are times where we might be tax conscious on the timing of when we sell positions around the new year and in covered call strategies we might use to defer realizing gains/losses.
Have you checked the bid-ask on the Netflix options? I find that the bid-ask is much wider than AAPL and NVDA. Have you found a 5$ spread that is tight?
Yes. The bid/ask spread is really wide in Netflix when trying to make trades in narrow spreads.
At $50 wide vertical call-spread, the bid/ask narrows considerably. To the point where it’s reasonable.
I really like the low allocation strategy. Hoping there is an opportunity tomorrow to pull the trigger.
If the vertical spread is done with the intention of holding it to expiry, would getting a put with a longer expiry than February make sense since one would be holding longer? Or is it not worth it since we’d have 4000$ left if the market decides to roll over ?
Hi Sam –
First of all, thanks very much for this deep immersive discussion on the Targaryen strategy.. very illuminating and extremely helpful.
Next, I went to my broker to explore these call-spread options you mentioned. To my great dismay, call-spread is not an election. I reached out to chat and learned it’s a vertical call. But the listed premiums were all wrong, compared to your quote of ~$1.30.
So I played with it a bit and came close. The attached picture is my construct. Do I have it defined correctly?
Lastly, this second picture was confusing. I’ve attached it to get some clarity. Do I take the default or change to market? I dunno.. any help would be appreciated. I’m on Schwab. And I suppose I should consider changing my profile name in here to ImaNewbie..
So.. If I follow what you’re saying, I have the values flipped.. should be sell to open 150 and buy to open 145.. that right?
I’ve been doing options for a bit.. I only just got approved for tier two, so no experience with multi-leg options in that regard. I’m going to run this stuff thru Shwab’s trade simulator to get more familiar.. is why I’m asking now rather than in the heat of the moment..
Thanks for your input!
Haha is right. Personally, I’d be extremely careful when dealing with options at all. I think for 99% of investors, the only time options are even worth considering is for (1) hedged purposes as we’ve shown in Tarly and Tyrell; and (2) to sell proper covered calls.
Investing in calls including vertical calls is extremely tricky and hazardous.
I’d be sure to spend a lot of time discussing with your broker. Also, read chapter 3-4 of investing basics. We cover options in those chapters. Particularly chapter 4.
I fully appreciate the cautionary nature of your reply. When you announced the 5K1M (I call it the Targaryen SKIM), I saw an opportunity to set aside 2.5% cash portion of the Schwab portfolio to participate. I consider it the cost of tuition to learn the derivatives side of the market, and I happen to hold a great deal of respect, esteem, and confidence in you, the course professor.
What I’ve observed of you in the past 6 months as you discuss the technical aspects is this: every move you make comes from a place of deeply weighted consideration and every move you’ve made has landed near exactly as you outlined.
I’ve read everything you’ve published in the Investing Basics to date. Multiple times now. I take everything you’ve stated and conduct my own due diligence as best I know how. I strive to learn and understand. I feel rather successful, so far, but know I still have much to learn. For example, Schwab’s trading mechanics. I hate Schwab.. effing hate it. But.. I’m stuck with it because of the Roth. So it’s learn by doing for me. So far the staff has been patient and helpful as I bring questions.
In closing, I take full responsibility for my participation and the associated risks. I’m here to learn and trust in your stewardship. I’m counting on you to tell me if my trust is misguided or misplaced. I just don’t think it is..
Kindest regards,
Cos