Classic phrase is “the market can be irrational for longer than you can remain solvent”.
Shorting is based on debt, but in a roundabout way. Let’s say you want to short 100 shares of Nvidia. Your broker would be holding existing shares, and when asked, they sell those shares at current market value, hand you the money for it, and say you now owe them 100 shares of Nvidia.
Like any debt, they don’t let you just hold it for nothing. They will have “calls” that serve a similar function to interest rates. The longer you hold it, the more that little pile of cash they gave you will be sapped away. At some point, you have to buy 100 shares of Nvidia and hand them back to your broker. If that little pile of cash still has money in it at the end, then that’s yours to keep.
However, those calls can sap it away over time. Nvidia’s bubble would have to pop while you still have money in that pile. If you wait too long, then the stock could be pennies per share and you’d still lose money.
I’m not confident that the bubble will pop soon enough to keep this strategy solvent.
While your broker will likely buy a call (a contract opposite a put that is the right to buy a security/stock at a certain price, it’s more insurance for them should the play not work out as you hope.Calls are just the flip side to puts; calls are a bet the price of a stock(or anything) will go up to $x and puts are a bet the price will go down to $x by date.
The “sap away” mechanic of an option (whether you buy call or put, butting a stock goes up or down) is due to “theta decay”. An option contract, by nature, is time bound. X stock(price goes up, down and by how much) by y date at end of trading. That deadline is what drives the value of the option contract, and also what drives the exponential swings in prices for some options. You can buy contracts for the end of any week for most stocks in the US. You can buy it for two weeks out, or up to a few years depending on the contract. Let’s pretend I say Disney is going to $150 a share by 1/1/2027. The “sap away” is that every week Disney doesn’t get to $150 the value of my contract goes down a little bit as there is less time for the stock to make enough of a move to get to $150. Longer contracts have more time to move and are therefore “less volatile” but every options contract has theta decay. This oversimplifies the complex world of options but the point is that “calls” don’t have anything to do with theta decay.
If we know it is coming, can we short it ourselves and get rich I wonder?
“The market can stay irrational longer than you can stay solvent”
Timing is everything and when your trying to short the market being early is just as bad as being wrong
Classic phrase is “the market can be irrational for longer than you can remain solvent”.
Shorting is based on debt, but in a roundabout way. Let’s say you want to short 100 shares of Nvidia. Your broker would be holding existing shares, and when asked, they sell those shares at current market value, hand you the money for it, and say you now owe them 100 shares of Nvidia.
Like any debt, they don’t let you just hold it for nothing. They will have “calls” that serve a similar function to interest rates. The longer you hold it, the more that little pile of cash they gave you will be sapped away. At some point, you have to buy 100 shares of Nvidia and hand them back to your broker. If that little pile of cash still has money in it at the end, then that’s yours to keep.
However, those calls can sap it away over time. Nvidia’s bubble would have to pop while you still have money in that pile. If you wait too long, then the stock could be pennies per share and you’d still lose money.
I’m not confident that the bubble will pop soon enough to keep this strategy solvent.
While your broker will likely buy a call (a contract opposite a put that is the right to buy a security/stock at a certain price, it’s more insurance for them should the play not work out as you hope.Calls are just the flip side to puts; calls are a bet the price of a stock(or anything) will go up to $x and puts are a bet the price will go down to $x by date.
The “sap away” mechanic of an option (whether you buy call or put, butting a stock goes up or down) is due to “theta decay”. An option contract, by nature, is time bound. X stock(price goes up, down and by how much) by y date at end of trading. That deadline is what drives the value of the option contract, and also what drives the exponential swings in prices for some options. You can buy contracts for the end of any week for most stocks in the US. You can buy it for two weeks out, or up to a few years depending on the contract. Let’s pretend I say Disney is going to $150 a share by 1/1/2027. The “sap away” is that every week Disney doesn’t get to $150 the value of my contract goes down a little bit as there is less time for the stock to make enough of a move to get to $150. Longer contracts have more time to move and are therefore “less volatile” but every options contract has theta decay. This oversimplifies the complex world of options but the point is that “calls” don’t have anything to do with theta decay.
This is why everyone is hounding Christian Bale’s character in The Big Short. He’s getting calls for billions while having diamond hands.