Short term vs. Long term investing

[Mario Kadastik]

I would agree that I don't have the skill set and risk/reward tolerance for short term investing. And its obviously profitable if you can be on the correct side of a trade. But what insight does one have that makes one think that they have a better than 50/50 chance of being on the correct side of a trade?

While I may be deluding myself but when I invest in an AAPL or TSLA, I have a thesis.... Some sort of argument that, if correct, will cause the stock price to seek a new (higher) level. In the case of AAPL, it was the "halo effect" of iPods (and later iPhones), that would increase interest in Apple computers. In the case of TSLA, it is the promise of 8% better battery tech every year for the next few years.

What is the investing thesis of a short term investor? A gut feel that they have seen similar patterns in the stock or overall market before?

It's the fact of short term catalysts. Like the Detroit event or this week the gigafactory. Yes we got both right in the sense that short term calls paid off hugely, but we got it right for the wrong reasons Everyone assumed a Model X or AWD Model S at the Detroit show and we got pre-announcement instead. For the gigafactory we got the MS upgrade instead But it's possible to maximize ones gains by knowing upcoming events with insights before the general market does (i.e. this forum is a great source) and then taking bets. Yes you'll lose some or even most of those, but the ones that click are multibaggers in many cases meaning that your occasional hiccup is forgotten when you take out multibagger profits in just a couple of days. Still mad I sold the weeklies too early after the MS upgrade But making 40% on the whole portfolio in one day is nice

 

[DaveT]

I would agree that I don't have the skill set and risk/reward tolerance for short term investing. And its obviously profitable if you can be on the correct side of a trade. But what insight does one have that makes one think that they have a better than 50/50 chance of being on the correct side of a trade?

While I may be deluding myself but when I invest in an AAPL or TSLA, I have a thesis.... Some sort of argument that, if correct, will cause the stock price to seek a new (higher) level. In the case of AAPL, it was the "halo effect" of iPods (and later iPhones), that would increase interest in Apple computers. In the case of TSLA, it is the promise of 8% better battery tech every year for the next few years.

What is the investing thesis of a short term investor? A gut feel that they have seen similar patterns in the stock or overall market before?

Those who speculate in short-term OTM calls with gut feelings are usually pick-pocketed since decaying time value favors market makers. (note: somehow this doesn't apply to sleepyhead. Actually my thesis on sleepy is that he doesn't invest on gut feeling alone, even though it might seem like he does. He's sub-consciously processing a lot of info like the company's fundamentals, growth, charts, price action, investor sentiment, market mood, industry mood, upcoming catalysts, etc. and his brain is processing all of that in the background (even in his sleep), so when he makes an short-term trade it sometimes feels like gut feeling but that's because his sub-conscious has already been hard at work to help him come to that conclusion.)

On the other hand, many stocks are heavily influenced by technical indicators and there's a whole field of research in this area. You can literally spend thousands and thousands of hours researching patterns, indicators, trends, etc and this can actually give you an increased probability in your short-term speculative trades.

Also, when there's a big upward catalyst, oftentimes big funds might need to cover their short positions by buying stock. However, they aren't able to do it immediately since they hold such large positions. So, they might exit their position over a couple days time, and that will lead to a continued increase in stock price. On the flip side, when there's a big downward catalyst, some big funds might want to exit or trim their large positions and they will likely do so over a couple days period, so this leads to downward price pressure.

If you're able to catch these big moves with options early you can make quite a bit of money. It's not easy and there's a whole skillset/experience required for this. But it's real, and some people are making a lot of money with this.

With long-term investing, you're mostly betting on the direction of the stock (ie., going up). However, with short-term investing you are betting on direction and you are betting on time as well (ie., it needs to go in that direction by certain amount by a certain time). It's much more difficult but the rewards, if done correctly, can be much quicker than long-term investing. And then the proceeds can be used to do it again so you can compound your gains.

 

[pz1975]

I agree about the huge advantage of playing potential major catalysts with short-term calls. If you are wrong, you risk losing 100% of what you put in, but realistically you are more likely to get at least 50% back if the catalyst doe not happen and you close your positions before they expire. But if you are right, you are looking at potential 200-1,000% (or more) return on investment, which has happened twice for me in the last 2 months, although I cashed out too soon after the MD upgrade. I then took those profits and put 75% or so into more LEAPS and the other 25% into more short-term speculation (which mostly lost but it was house money and I got greedy).

So even if you play each of these potential catalysts, you really only need to be 'right' on maybe 25% of them to still be way in the green.

 

[sleepyhead]

Those who speculate in short-term OTM calls with gut feelings are usually pick-pocketed since decaying time value favors market makers. (note: somehow this doesn't apply to sleepyhead. Actually my thesis on sleepy is that he doesn't invest on gut feeling alone, even though it might seem like he does. He's sub-consciously processing a lot of info like the company's fundamentals, growth, charts, price action, investor sentiment, market mood, industry mood, upcoming catalysts, etc. and his brain is processing all of that in the background (even in his sleep), so when he makes an short-term trade it sometimes feels like gut feeling but that's because his sub-conscious has already been hard at work to help him come to that conclusion.)

That is a good way of describing my "gut feeling". My brain constantly processes information and then spits out this "gut feeling" trade.

I have had success with short OTM (S-T meaning 1-3 month out) calls, but had my share of losses as well. The good news is that the winners are usually 5-10 baggers and the losers only lose 100%, and you only have to be right 20% of the time to make money this way; I have probably done better than 20% though. The reason I have been successful is:

1. I only buy those short term options during the darkest of times.
2. I have been doing it with TSLA, which seems to be going up most of the time. Or I have been doing it with solar stocks, because they were significantly undervalued (and probably still are today).

Most recently I started trading deep OTM weeklies and I have had some great success as well as many losses. I am probably in the green trading deep OTM weeklies, but that is because 1 or 2 good bets are usually enough to offset 5 or 6 bad ones. Even though I say that I am in the green, it is probably pretty close to break even.

DaveT is right that it is extremely difficult to make money this way. With the OTM weekly calls I have been correct in price movement about 80% - 90% of the time, but still lost money plenty for the following reasons:

1. Chose a strike price too deep OTM and time decay happened faster than the intrinsic value was able to increase.
2. Held on to a 2-4 bagger and got greedy only to see it reverse in minutes or hours and end up selling at a substantial loss.

The problem with playing weeklies this way is that once you get a trade correct and watch your $0.20 bet turn into $0.60, you are that same percentage away from it becoming $3.00. And now you are talking about making real money, which tends to make you greedy and you lose all of your profits in a heartbeat.

The problem is that it is very hard to know when to cash these out, so the time decay (along with IV crush if the stock turns) usually ends up eating all of your profits.

I do not recommend playing OTM weeklies at all; it really is a losing proposition.

If you are playing 1-3 deep OTM calls, then I recommend buying only during the darkest of times and cashing out as soon as the option doubles in value. You can cash out half to get your capital back and then ride the rest risk-free.

I have had success, but we were in a bull market. If the market turns down or even sideways for a few months, then you can get wiped out very easily.

 

[FluxCap]

I still think this was luv2b..

Driving the Model S, and stumbling across the original Rolling Naked Tesla Short thread by luvb2b early last year is what triggered me to buy a significant quantity of TSLA at around $40/share. I knew then that someone was spending an exorbitant amount of money to suppress a stock destined for greatness. This investment has produced the highest return for partners in the history of the fund I help manage (fund is fairly conservative).

Sharing options trading strategies and learning to position myself well around short/medium term catalysts based on my own experience and analysis of TSLA with Sleepy, DaveT, Citizen-T, CapOp and Curt is what made me a 10-bagger last week in my personal portfolio.

Love you guys.

 

[kenliles]

Driving the Model S, and stumbling across the original Rolling Naked Tesla Short thread by luvb2b early last year is what triggered me to buy a significant quantity of TSLA at around $40/share. I knew then that someone was spending an exorbitant amount of money to suppress a stock destined for greatness. This investment has produced the highest return for partners in the history of the fund I help manage (fund is fairly conservative).

Sharing options trading strategies and learning to position myself well around short/medium term catalysts based on my own experience and analysis of TSLA with Sleepy, DaveT, Citizen-T, CapOp and Curt is what made me a 10-bagger last week in my personal portfolio.

Love you guys.

I'll second that motion... on all those contributors-
Was already in heavy sub $30, but doubled my bet based largely on luvb2b Naked Short analysis and haven't looked back-

 

[sleepyhead]

Driving the Model S, and stumbling across the original Rolling Naked Tesla Short thread by luvb2b early last year is what triggered me to buy a significant quantity of TSLA at around $40/share. I knew then that someone was spending an exorbitant amount of money to suppress a stock destined for greatness. This investment has produced the highest return for partners in the history of the fund I help manage (fund is fairly conservative).

Sharing options trading strategies and learning to position myself well around short/medium term catalysts based on my own experience and analysis of TSLA with Sleepy, DaveT, Citizen-T, CapOp and Curt is what made me a 10-bagger last week in my personal portfolio.

Love you guys.

Are you saying your portfolio went up 10-fold last week?

 

[FluxCap]

Are you saying your portfolio went up 10-fold last week?

Yes sir, I am

 

[sleepyhead]

Yes sir, I am

That is great, congratulations. If my portfolio went up 10 fold I might be retiring very soon.

 

[DaveT]

Yes sir, I am

10-fold within a week? Or 10-fold starting a while back but realized last week?

 

[FluxCap]

10-fold within a week? Or 10-fold starting a while back but realized last week?

Well to be fair, 10-fold starting a while back. I guess it was a 5-bagger starting from the day before. I was hesitating to share the extent of my victory last week on the AJ report (maybe didn't want to jinx it?) but it is hands down the single best trade setup of my life.

 

[DaveT]

Well to be fair, 10-fold starting a while back. I guess it was a 5-bagger starting from the day before. I was hesitating to share the extent of my victory last week on the AJ report (maybe didn't want to jinx it?) but it is hands down the single best trade setup of my life.

Were you holding a lot of calls before the Morgan Stanley report? Or did you load up the morning after?

 

[FluxCap]

Were you holding a lot of calls before the Morgan Stanley report? Or did you load up the morning after?

The morning after I heard Adam Jonas ask the question on the earnings call in which I felt he sounded exuberant, I read his earnings note and based on the very strong language, I theorized a minimum PT raise by him to 260-280. Knowing we hadn't heard gigafactory details yet and that the market had not yet priced it in, I made one of the riskiest bets of my investing career with almost my entire portfolio in naked OTM calls.

I woke up the morning after the raise to eye-popping gains.

Basically I started last year with $x cash in my options portfolio, screwed up royally around Q3 earnings and wound up with $1/2x, then slowly worked my way back up to $1.1x making a few trades at a time. When I decided to pounce in between the AJ earnings note and his actual PT raise, I leveraged some more cash I had not previously intended to trade with to buy naked calls, and it paid off. Could have wiped my portfolio out, instead I'm at $5x (so, 10 times my $1/2x bottom). Sigh of relief/joy/disbelief.

 

[TSLAopt]

The morning after I heard Adam Jonas ask the question on the earnings call in which I felt he sounded exuberant, I read his earnings note and based on the very strong language, I theorized a minimum PT raise by him to 260-280. Knowing we hadn't heard gigafactory details yet and that the market had not yet priced it in, I made one of the riskiest bets of my investing career with almost my entire portfolio in naked OTM calls.

I woke up the morning after the raise to eye-popping gains.

Basically I started last year with $x cash in my options portfolio, screwed up royally around Q3 earnings and wound up with $1/2x, then slowly worked my way back up to $1.1x making a few trades at a time. When I decided to pounce in between the AJ earnings note and his actual PT raise, I leveraged some more cash I had not previously intended to trade with to buy naked calls, and it paid off. Could have wiped my portfolio out, instead I'm at $5x (so, 10 times my $1/2x bottom). Sigh of relief/joy/disbelief.

congrats! That is a great story and great short term risk you took with a nice payoff!

 

[DaveT]

We ought to have a contest. Let's say on June 1st, 2014 each if us opens a new IRA (Roth or conventional) and seeds it with $5500. That is the max amount that ever goes into the account. We log trades and status updates (ie, screenshots) on a separate thread. The goal is to see who reaches $1 million. The rules are you can only contribute $5500 total to the account ever. If you want to start over, you can create another IRA account the next year and seed it with $5500. But you can never add to the original account. Reaching $1 million from $5500 is basically a 200 bagger. I wonder if any of us can do it and how long it would take. Or if we'd all end up failing and losing the full account value due to overly risky plays. There ought to be a nice reward for the person who grows their account from $5500 to $1 million. It doesn't have to be monetary. Maybe this whole thing is a silly idea.

 

[Discoducky]

I'm in! Great idea!

 

[FluxCap]

We ought to have a contest. Let's say on June 1st, 2014 each if us opens a new IRA (Roth or conventional) and seeds it with $5500. That is the max amount that ever goes into the account. We log trades and status updates (ie, screenshots) on a separate thread. The goal is to see who reaches $1 million. The rules are you can only contribute $5500 total to the account ever. If you want to start over, you can create another IRA account the next year and seed it with $5500. But you can never add to the original account. Reaching $1 million from $5500 is basically a 200 bagger. I wonder if any of us can do it and how long it would take. Or if we'd all end up failing and losing the full account value due to overly risky plays. There ought to be a nice reward for the person who grows their account from $5500 to $1 million. It doesn't have to be monetary. Maybe this whole thing is a silly idea.

I love this plan.

 

[sleepyhead]

I am in.

 

[austinEV]

We ought to have a contest. Let's say on June 1st, 2014 each if us opens a new IRA (Roth or conventional) and seeds it with $5500. That is the max amount that ever goes into the account. We log trades and status updates (ie, screenshots) on a separate thread. The goal is to see who reaches $1 million. The rules are you can only contribute $5500 total to the account ever. If you want to start over, you can create another IRA account the next year and seed it with $5500. But you can never add to the original account. Reaching $1 million from $5500 is basically a 200 bagger. I wonder if any of us can do it and how long it would take. Or if we'd all end up failing and losing the full account value due to overly risky plays. There ought to be a nice reward for the person who grows their account from $5500 to $1 million. It doesn't have to be monetary. Maybe this whole thing is a silly idea.

Great idea. The first person to 1M wins fifty bucks? I will play.

I will play the tortoise I think and let you all flame out:

Short Track 500m Crash Gives China Gold - Business Insider

 

[AlMc]

Well to be fair, 10-fold starting a while back. I guess it was a 5-bagger starting from the day before. I was hesitating to share the extent of my victory last week on the AJ report (maybe didn't want to jinx it?) but it is hands down the single best trade setup of my life.

Nicely done.