How to Day Trade without Using Margin - 5 Benefits

If my account says I’m not eligible for Margin Trading, does that mean I can day trade freely without the PDT rule?

If my account says I’m not eligible for Margin Trading, does that mean I can day trade freely without the PDT rule? (TDAmeritrade)
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Does the Pattern Day Trading rule not apply to those using a cash account without margin?

So if I have $10k in a cash account without margin, I get unlimited day trades?
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Can I day trade without a margin account

I am a very young investor who is wanting to trade this summer. Can I day trade with a capital of 1000 dollars without a margin account?
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Former investment bank FX trader: some thoughts

Former investment bank FX trader: some thoughts
Hi guys,
I have been using reddit for years in my personal life (not trading!) and wanted to give something back in an area where i am an expert.
I worked at an investment bank for seven years and joined them as a graduate FX trader so have lots of professional experience, by which i mean I was trained and paid by a big institution to trade on their behalf. This is very different to being a full-time home trader, although that is not to discredit those guys, who can accumulate a good amount of experience/wisdom through self learning.
When I get time I'm going to write a mid-length posts on each topic for you guys along the lines of how i was trained. I guess there would be 15-20 topics in total so about 50-60 posts. Feel free to comment or ask questions.
The first topic is Risk Management and we'll cover it in three parts
Part I
  • Why it matters
  • Position sizing
  • Kelly
  • Using stops sensibly
  • Picking a clear level

Why it matters

The first rule of making money through trading is to ensure you do not lose money. Look at any serious hedge fund’s website and they’ll talk about their first priority being “preservation of investor capital.”
You have to keep it before you grow it.
Strangely, if you look at retail trading websites, for every one article on risk management there are probably fifty on trade selection. This is completely the wrong way around.
The great news is that this stuff is pretty simple and process-driven. Anyone can learn and follow best practices.
Seriously, avoiding mistakes is one of the most important things: there's not some holy grail system for finding winning trades, rather a routine and fairly boring set of processes that ensure that you are profitable, despite having plenty of losing trades alongside the winners.

Capital and position sizing

The first thing you have to know is how much capital you are working with. Let’s say you have $100,000 deposited. This is your maximum trading capital. Your trading capital is not the leveraged amount. It is the amount of money you have deposited and can withdraw or lose.
Position sizing is what ensures that a losing streak does not take you out of the market.
A rule of thumb is that one should risk no more than 2% of one’s account balance on an individual trade and no more than 8% of one’s account balance on a specific theme. We’ll look at why that’s a rule of thumb later. For now let’s just accept those numbers and look at examples.
So we have $100,000 in our account. And we wish to buy EURUSD. We should therefore not be risking more than 2% which $2,000.
We look at a technical chart and decide to leave a stop below the monthly low, which is 55 pips below market. We’ll come back to this in a bit. So what should our position size be?
We go to the calculator page, select Position Size and enter our details. There are many such calculators online - just google "Pip calculator".

https://preview.redd.it/y38zb666e5h51.jpg?width=1200&format=pjpg&auto=webp&s=26e4fe569dc5c1f43ce4c746230c49b138691d14
So the appropriate size is a buy position of 363,636 EURUSD. If it reaches our stop level we know we’ll lose precisely $2,000 or 2% of our capital.
You should be using this calculator (or something similar) on every single trade so that you know your risk.
Now imagine that we have similar bets on EURJPY and EURGBP, which have also broken above moving averages. Clearly this EUR-momentum is a theme. If it works all three bets are likely to pay off. But if it goes wrong we are likely to lose on all three at once. We are going to look at this concept of correlation in more detail later.
The total amount of risk in our portfolio - if all of the trades on this EUR-momentum theme were to hit their stops - should not exceed $8,000 or 8% of total capital. This allows us to go big on themes we like without going bust when the theme does not work.
As we’ll see later, many traders only win on 40-60% of trades. So you have to accept losing trades will be common and ensure you size trades so they cannot ruin you.
Similarly, like poker players, we should risk more on trades we feel confident about and less on trades that seem less compelling. However, this should always be subject to overall position sizing constraints.
For example before you put on each trade you might rate the strength of your conviction in the trade and allocate a position size accordingly:

https://preview.redd.it/q2ea6rgae5h51.png?width=1200&format=png&auto=webp&s=4332cb8d0bbbc3d8db972c1f28e8189105393e5b
To keep yourself disciplined you should try to ensure that no more than one in twenty trades are graded exceptional and allocated 5% of account balance risk. It really should be a rare moment when all the stars align for you.
Notice that the nice thing about dealing in percentages is that it scales. Say you start out with $100,000 but end the year up 50% at $150,000. Now a 1% bet will risk $1,500 rather than $1,000. That makes sense as your capital has grown.
It is extremely common for retail accounts to blow-up by making only 4-5 losing trades because they are leveraged at 50:1 and have taken on far too large a position, relative to their account balance.
Consider that GBPUSD tends to move 1% each day. If you have an account balance of $10k then it would be crazy to take a position of $500k (50:1 leveraged). A 1% move on $500k is $5k.
Two perfectly regular down days in a row — or a single day’s move of 2% — and you will receive a margin call from the broker, have the account closed out, and have lost all your money.
Do not let this happen to you. Use position sizing discipline to protect yourself.

Kelly Criterion

If you’re wondering - why “about 2%” per trade? - that’s a fair question. Why not 0.5% or 10% or any other number?
The Kelly Criterion is a formula that was adapted for use in casinos. If you know the odds of winning and the expected pay-off, it tells you how much you should bet in each round.
This is harder than it sounds. Let’s say you could bet on a weighted coin flip, where it lands on heads 60% of the time and tails 40% of the time. The payout is $2 per $1 bet.
Well, absolutely you should bet. The odds are in your favour. But if you have, say, $100 it is less obvious how much you should bet to avoid ruin.
Say you bet $50, the odds that it could land on tails twice in a row are 16%. You could easily be out after the first two flips.
Equally, betting $1 is not going to maximise your advantage. The odds are 60/40 in your favour so only betting $1 is likely too conservative. The Kelly Criterion is a formula that produces the long-run optimal bet size, given the odds.
Applying the formula to forex trading looks like this:
Position size % = Winning trade % - ( (1- Winning trade %) / Risk-reward ratio
If you have recorded hundreds of trades in your journal - see next chapter - you can calculate what this outputs for you specifically.
If you don't have hundreds of trades then let’s assume some realistic defaults of Winning trade % being 30% and Risk-reward ratio being 3. The 3 implies your TP is 3x the distance of your stop from entry e.g. 300 pips take profit and 100 pips stop loss.
So that’s 0.3 - (1 - 0.3) / 3 = 6.6%.
Hold on a second. 6.6% of your account probably feels like a LOT to risk per trade.This is the main observation people have on Kelly: whilst it may optimise the long-run results it doesn’t take into account the pain of drawdowns. It is better thought of as the rational maximum limit. You needn’t go right up to the limit!
With a 30% winning trade ratio, the odds of you losing on four trades in a row is nearly one in four. That would result in a drawdown of nearly a quarter of your starting account balance. Could you really stomach that and put on the fifth trade, cool as ice? Most of us could not.
Accordingly people tend to reduce the bet size. For example, let’s say you know you would feel emotionally affected by losing 25% of your account.
Well, the simplest way is to divide the Kelly output by four. You have effectively hidden 75% of your account balance from Kelly and it is now optimised to avoid a total wipeout of just the 25% it can see.
This gives 6.6% / 4 = 1.65%. Of course different trading approaches and different risk appetites will provide different optimal bet sizes but as a rule of thumb something between 1-2% is appropriate for the style and risk appetite of most retail traders.
Incidentally be very wary of systems or traders who claim high winning trade % like 80%. Invariably these don’t pass a basic sense-check:
  • How many live trades have you done? Often they’ll have done only a handful of real trades and the rest are simulated backtests, which are overfitted. The model will soon die.
  • What is your risk-reward ratio on each trade? If you have a take profit $3 away and a stop loss $100 away, of course most trades will be winners. You will not be making money, however! In general most traders should trade smaller position sizes and less frequently than they do. If you are going to bias one way or the other, far better to start off too small.

How to use stop losses sensibly

Stop losses have a bad reputation amongst the retail community but are absolutely essential to risk management. No serious discretionary trader can operate without them.
A stop loss is a resting order, left with the broker, to automatically close your position if it reaches a certain price. For a recap on the various order types visit this chapter.
The valid concern with stop losses is that disreputable brokers look for a concentration of stops and then, when the market is close, whipsaw the price through the stop levels so that the clients ‘stop out’ and sell to the broker at a low rate before the market naturally comes back higher. This is referred to as ‘stop hunting’.
This would be extremely immoral behaviour and the way to guard against it is to use a highly reputable top-tier broker in a well regulated region such as the UK.
Why are stop losses so important? Well, there is no other way to manage risk with certainty.
You should always have a pre-determined stop loss before you put on a trade. Not having one is a recipe for disaster: you will find yourself emotionally attached to the trade as it goes against you and it will be extremely hard to cut the loss. This is a well known behavioural bias that we’ll explore in a later chapter.
Learning to take a loss and move on rationally is a key lesson for new traders.
A common mistake is to think of the market as a personal nemesis. The market, of course, is totally impersonal; it doesn’t care whether you make money or not.
Bruce Kovner, founder of the hedge fund Caxton Associates
There is an old saying amongst bank traders which is “losers average losers”.
It is tempting, having bought EURUSD and seeing it go lower, to buy more. Your average price will improve if you keep buying as it goes lower. If it was cheap before it must be a bargain now, right? Wrong.
Where does that end? Always have a pre-determined cut-off point which limits your risk. A level where you know the reason for the trade was proved ‘wrong’ ... and stick to it strictly. If you trade using discretion, use stops.

Picking a clear level

Where you leave your stop loss is key.
Typically traders will leave them at big technical levels such as recent highs or lows. For example if EURUSD is trading at 1.1250 and the recent month’s low is 1.1205 then leaving it just below at 1.1200 seems sensible.

If you were going long, just below the double bottom support zone seems like a sensible area to leave a stop
You want to give it a bit of breathing room as we know support zones often get challenged before the price rallies. This is because lots of traders identify the same zones. You won’t be the only one selling around 1.1200.
The “weak hands” who leave their sell stop order at exactly the level are likely to get taken out as the market tests the support. Those who leave it ten or fifteen pips below the level have more breathing room and will survive a quick test of the level before a resumed run-up.
Your timeframe and trading style clearly play a part. Here’s a candlestick chart (one candle is one day) for GBPUSD.

https://preview.redd.it/moyngdy4f5h51.png?width=1200&format=png&auto=webp&s=91af88da00dd3a09e202880d8029b0ddf04fb802
If you are putting on a trend-following trade you expect to hold for weeks then you need to have a stop loss that can withstand the daily noise. Look at the downtrend on the chart. There were plenty of days in which the price rallied 60 pips or more during the wider downtrend.
So having a really tight stop of, say, 25 pips that gets chopped up in noisy short-term moves is not going to work for this kind of trade. You need to use a wider stop and take a smaller position size, determined by the stop level.
There are several tools you can use to help you estimate what is a safe distance and we’ll look at those in the next section.
There are of course exceptions. For example, if you are doing range-break style trading you might have a really tight stop, set just below the previous range high.

https://preview.redd.it/ygy0tko7f5h51.png?width=1200&format=png&auto=webp&s=34af49da61c911befdc0db26af66f6c313556c81
Clearly then where you set stops will depend on your trading style as well as your holding horizons and the volatility of each instrument.
Here are some guidelines that can help:
  1. Use technical analysis to pick important levels (support, resistance, previous high/lows, moving averages etc.) as these provide clear exit and entry points on a trade.
  2. Ensure that the stop gives your trade enough room to breathe and reflects your timeframe and typical volatility of each pair. See next section.
  3. Always pick your stop level first. Then use a calculator to determine the appropriate lot size for the position, based on the % of your account balance you wish to risk on the trade.
So far we have talked about price-based stops. There is another sort which is more of a fundamental stop, used alongside - not instead of - price stops. If either breaks you’re out.
For example if you stop understanding why a product is going up or down and your fundamental thesis has been confirmed wrong, get out. For example, if you are long because you think the central bank is turning hawkish and AUDUSD is going to play catch up with rates … then you hear dovish noises from the central bank and the bond yields retrace lower and back in line with the currency - close your AUDUSD position. You already know your thesis was wrong. No need to give away more money to the market.

Coming up in part II

EDIT: part II here
Letting stops breathe
When to change a stop
Entering and exiting winning positions
Risk:reward ratios
Risk-adjusted returns

Coming up in part III

Squeezes and other risks
Market positioning
Bet correlation
Crap trades, timeouts and monthly limits

***
Disclaimer:This content is not investment advice and you should not place any reliance on it. The views expressed are the author's own and should not be attributed to any other person, including their employer.
submitted by getmrmarket to Forex [link] [comments]

DDDD - Retail Investors, Bankruptcies, Dark Pools and Beauty Contests

DDDD - Retail Investors, Bankruptcies, Dark Pools and Beauty Contests
For this week's edition of DDDD (Data-Driven DD), we're going to look in-depth at some of the interesting things that have been doing on in the market over the past few weeks; I've had a lot more free time this week to write something new up, so you'll want to sit down and grab a cup of coffee for this because it will be a long one. We'll be looking into bankruptcies, how they work, and what some companies currently going through bankruptcies are doing. We'll also be looking at some data on retail and institutional investors, and take a closer look at how retail investors in particular are affecting the markets. Finally, we'll look at some data and magic markers to figure out what the market sentiment, the thing that's currently driving the market, looks like to help figure out if you should be buying calls or puts, as well as my personal strategy.
Disclaimer - This is not financial advice, and a lot of the content below is my personal opinion. In fact, the numbers, facts, or explanations presented below could be wrong and be made up. Don't buy random options because some person on the internet says so; look at what happened to all the SPY 220p 4/17 bag holders. Do your own research and come to your own conclusions on what you should do with your own money, and how levered you want to be based on your personal risk tolerance.

How Bankruptcies Work

First, what is a bankruptcy? In a broad sense, a bankruptcy is a legal process an individual or corporation (debtor) who owes money to some other entity (creditor) can use to seek relief from the debt owed to their creditors if they’re unable to pay back this debt. In the United States, they are defined by Title 11 of the United States Code, with 9 different Chapters that govern different processes of bankruptcies depending on the circumstances, and the entity declaring bankruptcy.
For most publicly traded companies, they have two options - Chapter 11 (Reorganization), and Chapter 7 (Liquidation). Let’s start with Chapter 11 since it’s the most common form of bankruptcy for them.
A Chapter 11 case begins with a petition to the local Bankruptcy court, usually voluntarily by the debtor, although sometimes it can also be initiated by the creditors involuntarily. Once the process has been initiated, the corporation may continue their regular operations, overseen by a trustee, but with certain restrictions on what can be done with their assets during the process without court approval. Once a company has declared bankruptcy, an automatic stay is invoked to all creditors to stop any attempts for them to collect on their debt.
The trustee would then appoint a Creditor’s Committee, consisting of the largest unsecured creditors to the company, which would represent the interests creditors in the bankruptcy case. The debtor will then have a 120 day exclusive right after the petition date to file a Plan of Reorganization, which details how the corporation’s assets will be reorganized after the bankruptcy which they think the creditors may agree to; this is usually some sort of restructuring of the capital structure such that the creditors will forgive the corporation’s debt in exchange for some or all of the re-organized entity’s equity, wiping out the existing stockholders. In general, there’s a capital structure pecking order on who gets first dibs on a company’s assets - secured creditors, unsecured senior bond holders, unsecured general bond holders, priority / preferred equity holders, and then finally common equity holders - these are the classes of claims on the company’s assets. After the exclusive period expires, the Creditor’s Committee or an individual creditor can themselves propose their own, possibly competing, Restructuring Plan, to the court.
A Restructuring Plan will also be accompanied by a Disclosure Statement, which will contain all the financial information about the bankrupt company’s state of affairs needed for creditors and equity holders to make an informed decision about how to proceed. The court will then hold a hearing to approve the Restructuring Plan and Disclosure Statement before the plan can be voted on by creditors and equity holders. In some cases, these are prepared and negotiated with creditors before bankruptcy is even declared to speed things up and have more favorable terms - a prepackaged bankruptcy.
Once the Restructuring Plan and Disclosure Statement receives court approval, the plan is voted on by the classes of impaired (i.e. debt will not be paid back) creditors to be confirmed. The legal requirement for a bankruptcy court to confirm a Restructuring Plan is to have at least one entire class of impaired creditors vote to accept the plan. A class of creditors is deemed to have accepted a Restructuring Plan when creditors that hold at least 2/3 of the dollar amount and at least half of the number of creditors vote to accept the plan. After another hearing, and listening to any potential objections to the proposed Restructuring Plan, such as other impaired classes that don't like the plan, the court may then confirm the plan, putting it to effect.
This is one potential ending to a Chapter 11 case. A case can also end with a conversion to a Chapter 7 (Liquidation) case, if one of the parties involved file a motion to do so for a cause that is deemed by the courts to be in the best interest of the creditors. In Chapter 7, the company ceases operating and a trustee is appointed to begin liquidating (i.e. selling) the company’s assets. The proceeds from the liquidation process are then paid out to creditors, with the most senior levels of the capital structure being paid out first, and the equity holders are usually left with nothing. Finally, a party can file a motion to dismiss the case for some cause deemed to be in the best interest of the creditors.

The Tale of Two Bankruptcies - WLL and HTZ

Hertz (HTZ) has come into news recently, with the stock surging up to $6, or 1500% off its lows, for no apparent fundamental reason, despite the fact that they’re currently in bankruptcy and their stock is likely worthless. We’ll get around to what might have caused this later, for now, we’ll go over what’s going on with Hertz in its bankruptcy proceedings. To get a clearer picture, let’s start with a stock that I’ve been following since April - Whiting Petroleum (WLL).
WLL is a stock I’ve covered pretty extensively, especially with it’s complete price dislocation between the implied value of the restructured company by their old, currently trading, stock being over 10x the implied value of the bonds, which are entitled to 97% of the new equity. Usually, capital structure arbitrage, a strategy to profit off this spread by going long on bonds and shorting the equity, prevents this, but retail investors have started pumping the stock a few days after WLL’s bankruptcy to “buy the dip” and make a quick buck. Institutions, seeing this irrational behavior, are probably avoiding touching at risk of being blown out by some unpredictable and irrational retail investor pump for no apparent reason. We’re now seeing this exact thing play out a few months later, but at a much larger scale with Hertz.
So, how is WLL's bankruptcy process going? For anyone curious, you can follow the court case in Stretto. Luckily for Whiting, they’ve entered into a prepackaged bankruptcy process and filed their case with a Restructuring Plan already in mind to be able to have existing equity holders receive a mere 3% of new equity to be distributed among them, with creditors receiving 97% of new equity. For the past few months, they’ve quickly gone through all the hearings and motions and now have a hearing to receive approval of the Disclosure Statement scheduled for June 22nd. This hearing has been pushed back a few times, so this may not be the actual date. Another pretty significant document was just filed by the Committee of Creditors on Friday - an objection to the Disclosure Statement’s approval. Among other arguments about omissions and errors the creditor’s found in the Disclosure Statement, the most significant thing here is that Litigation and Rejection Damage claims holders were treated in the same class as a bond holders, and hence would be receiving part of their class’ share of the 97% of new equity. The creditors claim that this was misleading as the Restructuring Plan originally led them to believe that the 97% would be distributed exclusively to bond holders, and the claims for Litigation and Rejection Damage would be paid in full and hence be unimpaired. This objection argues that the debtors did this gerrymandering to prevent the Litigation and Rejection Damage claims be represented as their own class and able to reject the Restructuring Plan, requiring either payment in full of the claims or existing equity holders not receiving 3% of new equity, and be completely wiped out to respect the capital structure. I’d recommend people read this document if they have time because whoever wrote this sounds legitimately salty on behalf of the bond holders; here’s some interesting excerpts:
Moreover, despite the holders of Litigation and Rejection Damage Claims being impaired, existing equity holders will still receive 3% of the reorganized company’s new equity, without having to contribute any new value. The only way for the Debtors to achieve this remarkable outcome was to engage in blatant classification gerrymandering. If the Debtors had classified the Litigation and Rejection Damage Claims separately from the Noteholder claims and the go-forward Trade Claims – as they should have – then presumably that class would reject a plan that provides Litigation and Rejection Damage Claims with a pro rata share of minority equity.
The Debtors have placed the Rejection Damage and Litigation Claims in the same class as Noteholder Claims to achieve a particular result, namely the disenfranchisement of the Rejection Damage and Litigation Claimants who, if separately classified, may likely vote to reject the Plan. In that event, the Debtor would be required to comply with the cramdown requirements, including compliance with the absolute priority rule, which in turn would require payment of those claims in full, or else old equity would not be entitled to receive 3% of the new equity. Without their inclusion in a consenting impaired class, the Debtors cannot give 3% of the reorganized equity to existing equity holders without such holders having to contribute any new value or without paying the holders of Litigation and Rejection Damage Claims in full.
The Committee submits that the Plan was not proposed in good faith. As discussed herein, the Debtors have proposed an unconfirmable Plan – flawed in various important respects. Under the circumstances discussed above, in the Committee’s view, the Debtors will not be able to demonstrate that they acted with “honesty and good intentions” and that the Plan’s results will not be consistent with the Bankruptcy Code’s goal of ratable distribution to creditors.
They’re even trying to have the court stop the debtor from paying the lawyers who wrote the restructuring agreement.
However, as discussed herein, the value and benefit of the Consenting Creditors’ agreements with the Debtors –set forth in the RSA– to the Estates is illusory, and authorizing the payment of the Consenting Creditor Professionals would be tantamount to approving the RSA, something this Court has stated that it refuses to do.20 The RSA -- which has not been approved by the Court, and indeed no such approval has been sought -- is the predicate for a defective Plan that was not proposed in good faith, and that gives existing equity holders an equity stake in the reorganized enterprise even though Litigation and Rejection Damage Creditors will (presumably) not be made whole under the Plan and the existing interest holders will not be contributing requisite new value.
As a disclaimer, I have absolutely zero knowledge nor experience in law, let alone bankruptcy law. However, from reading this document, if what the objection indicates to be true, could mean that we end up having the court force the Restructuring agreement to completely wipe out the current equity holders. Even worse, entering a prepackaged bankruptcy in bad faith, which the objection argues, might be grounds to convert the bankruptcy to Chapter 7; again, I’m no lawyer so I’m not sure if this is true, but this is my best understanding from my research.
So what’s going on with Hertz? Most analysts expect that based on Hertz’s current balance sheet, existing equity holders will most likely be completely wiped out in the restructuring. You can keep track of Hertz’s bankruptcy process here, but it looks like this is going to take a few months, with the first meeting of creditors scheduled for July 1. An interesting 8-K got filed today for HTZ, and it looks like they’re trying to throw a hail Mary for their case by taking advantage of dumb retail investors pumping up their stock. They’ve just been approved by the bankruptcy court to issue and sell up to $1B (double their current market cap) of new shares in the stock market. If they somehow pull this off, they might have enough money raised to dismiss the bankruptcy case and remain in business, or at very least pay off their creditors even more at the expense of Robinhood users.

The Rise of Retail Investors - An Update

A few weeks ago, I talked about data that suggested a sudden surge in retail investor money flooding the market, based on Google Trends and broker data. Although this wasn’t a big topic back when I wrote about it, it’s now one of the most popular topics in mainstream finance news, like CNBC, since it’s now the only rational explanation for the stock market to have pumped this far, and for bankrupt stocks like HTZ and WLL to have surges far above their pre-bankruptcy prices. Let’s look at some interesting Google Trends that I found that illustrates what retail investors are doing.

Google Trends - Margin Calls
Google Trends - Robinhood
Google Trends - What stock should I buy
Google Trends - How to day trade
Google Trends - Pattern Day Trader
Google Trends - Penny Stock
The conclusion that can be drawn from this data is that in the past two weeks, we are seeing a second wave of new retail investor interest, similar to the first influx we saw in March. In particular, these new retail investors seem to be particularly interested in day trading penny stocks, including bankrupt stocks. In fact, data from Citadel shows that penny stocks have surged on average 80% in the previous week.
Why Retail Investors Matter
A common question that’s usually brought up when retail investors are brought up is how much they really matter. The portfolio size of retail investors are extremely small compared to institutional investors. Anecdotally and historically, retail investors don’t move the market, outside of some select stocks like TSLA and cannabis stocks in the past few years. However when they do, shit gets crazy; the last time retail investors drove the stock market was in the dot com bubble. There’s a few papers that look into this with similar conclusions, I’ll go briefly into this one, which looks at almost 20 years of data to look for correlations between retail investor behavior and stock market movements. The conclusion was that behaviors of individual retail investors tend to be correlated and are not random and independent of each other. The aggregate effect of retail investors can then drive prices of equities far away from fundamentals (bubbles), which risk-averse smart money will then stay away from rather than try taking advantage of the mispricing (i.e. never short a bubble). The movement in the prices are typically short-term, and usually see some sort of reversal back to fundamentals in the long-term, for small (i.e. < $5000) trades. Apparently, the opposite is true for large trades; here’s an excerpt from the paper to explain.
Stocks recently sold by small traders perform poorly (−64 bps per month, t = −5.16), while stocks recently bought by small traders perform well (73 bps per month, t = 5.22). Note this return predictability represents a short-run continuation rather than reversal of returns; stocks with a high weekly proportion of buys perform well both in the week of strong buying and the subsequent week. This runs counter to the well-documented presence of short-term reversals in weekly returns.14,15 Portfolios based on the proportion of buys using large trades yield precisely the opposite result. Stocks bought by large traders perform poorly in the subsequent week (−36 bps per month, t = −3.96), while those sold perform well (42 bps per month, t = 3.57). We find a positive relationship between the weekly proportion of buyers initiated small trades in a stock and contemporaneous returns. Kaniel, Saar, and Titman (forthcoming) find retail investors to be contrarians over one-week horizons, tending to sell more than buy stocks with strong performance. Like us, they find that stocks bought by individual investors one week outperform the subsequent week. They suggest that individual investors profit in the short run by supplying liquidity to institutional investors whose aggressive trades drive prices away from fundamental value and benefiting when prices bounce back. Barber et al. (2005) document that individual investors can earn short term profits by supplying liquidity. This story is consistent with the one-week reversals we see in stocks bought and sold with large trades. Aggressive large purchases may drive prices temporarily too high while aggressive large sells drive them too low both leading to reversals the subsequent week.
Thus, using a one-week time horizon, following the trend can make you tendies for a few days, as long as you don’t play the game for too long, and end up being the bag holder when the music stops.

The Keynesian Beauty Contest

The economic basis for what’s going on in the stock market recently - retail investors driving up stocks, especially bankrupt stocks, past fundamental levels can be explained by the Keynesian Beauty Contest, a concept developed by Keynes himself to help rationalize price movements in the stock market, especially during the 1920s stock market bubble. A quote by him on the topic of this concept, that “the market can remain irrational longer than you can remain solvent”, is possibly the most famous finance quote of all time.
The idea is to imagine a fictional newspaper beauty contest that asks the reader to pick the six most attractive faces of 100 photos, and you win if you pick the most popular face. The naive strategy would be to pick the faces that you think are the most attractive. A smarter strategy is to figure out what the most common public perception of attractiveness would be, and to select based on that. Or better yet, figure out what most people believe is the most common public perception of what’s attractive. You end up having the winners not actually be the faces people think are the prettiest, but the average opinion of what people think the average opinion would be on the prettiest faces. Now, replace pretty faces with fundamental values, and you have the stock market.
What we have today is the extreme of this. We’re seeing a sudden influx of dumb retail money into the market, who don’t know or care about fundamentals, like trading penny stocks, and are buying beaten down stocks (i.e. “buy the dip”). The stocks that best fit all three of these are in fact companies that have just gone bankrupt, like HTZ and WLL. This slowly becomes a self-fulfilling prophecy, as people start seeing bankrupt stocks go up 100% in one day, they stop caring about what stocks have the best fundamentals and instead buy the stocks that people think will shoot up, which are apparently bankrupt stocks. Now, it gets to the point where even if a trader knows a stock is bankrupt, and understands what bankruptcy means, they’ll buy the stock regardless expecting it to skyrocket and hope that they’ll be able to sell the stock at a 100% profit in a few days to an even greater fool. The phenomenon is well known in finance, and it even has a name - The Greater Fool Theory. I wouldn’t be surprised if the next stock to go bankrupt now has their stock price go up 100% the next day because of this.

What is the smart money doing - DIX & GEX

Alright that’s enough talk about dumb money. What’s all the smart money (institutions) been doing all this time? For that, you’ll want to look at what’s been going on with dark pools. These are private exchanges for institutions to make trades. Why? Because if you’re about to buy a $1B block of SPY, you’re going to cause a sudden spike in prices on a normal, public exchange, and probably end up paying a much higher cost basis because of it. These off-exchange trades account for about one third of all stock volume. You can then use data of market maker activity in these dark pools to figure out what institutions have been doing, the most notable indicators being DIX by SqueezeMetrics.
Another metric they offer is GEX, or gamma exposure. The idea behind this is that market markets who sell option contracts, typically don’t want to (or can’t legally) take an actual position in the market; they can only provide liquidity. Hence, they have to hedge their exposure from the contracts they wrote by going long or short on the stocks they wrote contracts to. This is called delta-hedging, with delta representing exposure to the movement of a stock. With options, there’s gamma, which represents the change in delta as the stock price moves. So as stock prices move, the market maker needs to re-hedge their positions by buying or selling more shares to remain delta-neutral. GEX is a way to show the total exposure these market makers have to gamma from contracts to predict stock price movements based on what market makers must do to re-hedge their positions.
Now, let’s look at what these indicators have been doing the past week or so.
DIX & GEX
In the graph above, an increasing DIX means that institutions are buying stocks in the S&P500, and an increasing GEX means that market makers have increasing gamma exposure. The DIX whitepaper, it has shown that a high DIX is often correlated with increased near-term returns, and in the GEX whitepaper, it shows that a decreased GEX is correlated with increased volatility due to re-hedging. It looks like from last week’s crash, we had institutions buy the dip and add to their current positions. There was also a sudden drop in GEX, but it looks like it’s quickly recovered, and we’ll see volatility decreased next week. Overall, we’re getting bullish signals from institutional activity.

Bubbles and Market Sentiment

I’ve long held that the stock market and the economy has been in a decade-long bubble caused by liquidity pumping from the Fed. Recently, the bubble has been accelerated and it’s becoming clearer to people that we are in a bubble. Nevertheless, you shouldn’t short the bubble, but play along with it until it bursts. Bubbles are driven by pure sentiment, and this can be a great contrarian indicator to what stage of the bubble we are in. You want to be a bear when the market is overly greedy and a bull when the market is overly bearish. One of the best tools to measure this is the equity put / call ratio.
Put / Call Ratio
The put/call ratio dropped below 0.4 last week, something that’s almost never happened and has almost always been immediately followed up by a correction - which it did this time as well. A low put / call ratio is usually indicative of an overly-greedy market, and a contrarian indicator that a drop is imminent. However, right after the crash, the put/call ratio absolutely skyrocketed, closing right above 0.71 on Friday, above the mean put / call ratio for the entire rally since March’s lows. In other words, a ton of money has just been poured into SPY puts expecting to profit off of a downtrend. In fact, it’s possible that the Wednesday correction itself has been exasperated by delta hedging from SPY put writers. However, this sudden spike above the mean for put/call ratio is a contrarian indicator that we will now see a continued rally.

Technicals

Magic Markers on SPY, Daily
With Technical Indicators, there’s a few things to note
  • 1D RSI on SPY was definitely overbought last week, and I should have taken this as a sign to GTFO from all my long positions. The correction has since brought it back down, and now SPY has even more room to go further up before it becomes overbought again
  • 1D MACD crossed over on Wednesday to bearish - a very strong bearish indicator, however 1W MACD is still bullish
  • For the bulls, there’s very little price levels above 300, with a small possible resistance at 313, which is the 79% fib retracement. SPY has never actually hit this price level, and has gapped up and down past this price. Below 300, there’s plenty of levels of support, especially between 274 and 293, which is the range where SPY consolidated and traded at for April and May. This means that a movement up will be met with very little resistance, while a movement down will be met with plenty of support
  • The candles above 313 form an island top pattern, a pretty rare and strong bearish indicator.
The first line of defense of the bulls is 300, which has historically been a key support / resistance level, and is also the 200D SMA. So far, this price level has held up as a solid support last week and is where all downwards price action in SPY stopped. Overall, there’s very mixed signals coming from technical indicators, although there’s more bearish signals than bullish.
My Strategy for Next Week
While technicals are pretty bearish, retail and institutional activity and market sentiment is indicating that the market still continue to rally. My strategy for next week will depend on whether or not the market opens above or below 300. I’m currently mostly holding long volatility positions, that I’ve started existing on Friday.
The Bullish case
If 300 proves to be a strong support level, I’ll start entering bullish positions, following my previous strategy of going long on weak sectors such as airlines, cruises, retail, and financials, once they break above the 24% retracement and exit at the 50% retracement. This is because there’s very little price levels and resistance above 300, so any movements above this level will be very parabolic up to ATHs, as we saw in the beginning of 2020 and again the past two weeks. If SPY moves parabolic, the biggest winners will likely be the weakest stocks since they have the most room to go up, with most of the strongest stocks already near or above their ATHs. During this time, I’ll be rolling over half of my profits to VIX calls of various expiry dates as a hedge, and in anticipation of any sort of rug pull for when this bubble does eventually pop.
The Bearish case
For me to start taking bearish positions, I’ll need to see SPY open below 300, re-test 300 and fail to break above it, proving it to be a resistance level. If this happens, I’ll start entering short positions against SPY to play the price levels. There’s a lot of price levels between 300 and 274, and we’d likely see a lot of consolidation instead of a big crash in this region, similar to the way up through this area. Key levels will be 300, 293, 285, 278, and finally 274, which is the levels I’d be entering and exiting my short positions in.
I’ve also been playing with WLL for the past few months, but that has been a losing trade - I forgot that a market can remain irrational longer than I can remain solvent. I’ll probably keep a small position on WLL puts in anticipation of the court hearing for the disclosure statement, but I’ve sold most of my existing positions.

Live Updates

As always, I'll be posting live thoughts related to my personal strategy here for people asking.
6/15 2AM - /ES looking like SPY is going to gap down tomorrow. Unless there's some overnight pump, we'll probably see a trading range of 293-300.
6/15 10AM - Exited any remaining long positions I've had and entered short positions on SPY @ 299.50, stop loss at 301. Bearish case looking like it's going to play out
6/15 10:15AM - Stopped out of 50% of my short positions @ 301. Will stop out of the rest @ 302. Hoping this wasn't a stop loss raid. Also closed out more VIX longer-dated (Sept / Oct) calls.
6/15 Noon - No longer holding any short positions. Gap down today might be a fake out, and 300 is starting to look like solid support again, and 1H MACD is crossing over, with 15M remaining bullish. Starting to slowly add to long positions throughout the day, starting with CCL, since technicals look nice on it. Also profit-took most of my VIX calls that I bought two weeks ago
6/15 2:30PM - Bounced up pretty hard from the 300 support - bull case looks pretty good, especially if today's 1D candle completely engulphs the Friday candle. Also sold another half of my remaining long-dated VIX calls - still holding on to a substantial amount (~10% of portfolio). Will start looking to re-buy them when VIX falls back below 30. Going long on DAL as well
6/15 11:30PM - /ES looking good hovering right above 310 right now. Not many price levels above 300 so it's hard to predict trading ranges since there's no price levels and SPY will just go parabolic above this level. Massive gap between 313 and 317. If /ES is able to get above 313, which is where the momentum is going to right now, we might see a massive gap up and open at 317 again. If it opens below 313, we might see the stock price fade like last week.
6/15 Noon - SPY filled some of the gap, but then broke below 313. 15M MACD is now bearish. We might see gains from today slowly fade, but hard to predict this since we don't have strong price levels. Will buy more longs near EOD if this happens. Still believe we'll be overall bullish this week. GE is looking good.
6/16 2PM - Getting worried about 313 acting as a solid resistance; we'll either probably gap up past it to 317 tomorrow, or we might go all the way back down to 300. Considering taking profit for some of my calls right now, since you'll usually want to sell into resistance. I might alternatively buy some 0DTE SPY puts as a hedge against my long positions. Will decide by 3:30 depending on what momentum looks like
6/16 3PM - Got some 1DTE SPY puts as a hedge against my long positions. We're either headed to 317 tomorrow or go down as low as 300. Going to not take the risk because I'm unsure which one it'll be. Also profit-took 25% of my long positions. Definitely seeing the 313 + gains fade scenario I mentioned yesterday
6/17 1:30AM - /ES still flat struggling to break through 213. If we don't break through by tomorrow I might sell all my longs. Norwegian announced some bad news AH about cancelling Sept cruises. If we move below $18.20 I'll probably sell all my remaining positions; luckily I took profit on CCL today so if options do go to shit, it'll be a relatively small loss or even small gain.
6/17 9:45AM - SPY not being able to break through 313/314 (79% retracement) is scaring me. Sold all my longs, and now sitting on cash. Not confident enough that we're actually going back down to 300, but no longer confident enough on the bullish story if we can't break 313 to hold positions
6/17 1PM - Holding cash and long-term VIX calls now. Some interesting things I've noticed
  1. 1H MACD will be testing a crossover by EOD
  2. Equity put/call ratio has plummeted. It's back down to 0.45, which is more than 1 S.D. below the mean. We reached all the way down to 0.4 last time. Will be keeping a close eye on this and start buying for VIX again + SPY puts we this continues falling tomorrow
6/17 3PM - Bought back some of my longer-dated VIX calls. Currently slightly bearish, but still uncertain, so most of my portfolio is cash right now.
6/17 3:50PM - SPY 15M MACD is now very bearish, and 1H is about to crossover. I'd give it a 50% chance we'll see it dump tomorrow, possibly towards 300 again. Entered into a very small position on NTM SPY puts, expiring Friday
6/18 10AM - 1H MACD is about to crossover. Unless we see a pump in the next hour or so, medium-term momentum will be bearish and we might see a dump later today or tomorrow.
6/18 12PM - Every MACD from 5M to 1D is now bearish, making me believe we'd even more likely see a drop today or tomorrow to 300. Bought short-dates June VIX calls. Stop loss for this and SPY puts @ 314 and 315
6/18 2PM - Something worth noting: opex is tomorrow and max pain is 310, which is the level we're gravitating towards right now. Also quad witching, so should expect some big market movements tomorrow as well. Might consider rolling my SPY puts forward 1 week since theoretically, this should cause us to gravitate towards 310 until 3PM on Friday.
6/18 3PM - Rolled my SPY puts forward 1W in case theory about max pain + quad witching end up having it's theoretical effect. Also GEX is really high coming towards options expiry tomorrow, meaning any significant price movements will be damped by MM hedging. Might not see significant price movements until quad witching hour tomorrow 3PM
6/18 10PM - DIX is very high right now, at 51%, which is very bullish. put/call ratio is still very low though. Very mixed signals. Will be holding positions until Monday or SPY 317 before reconsidering them.
6/18 2PM - No position changes. Coming into witching hour we're seeing increased volatility towards the downside. Looking good so far
submitted by ASoftEngStudent to wallstreetbets [link] [comments]

The importance of crosshair placement, why you're doing it wrong, and how to fix it.

The importance of crosshair placement, why you're doing it wrong, and how to fix it.

Valorant and the importance of crosshair placement.



Introduction

Hey guys, I'm Twix, and I'm back with another informative post, this time concerning the aspect of crosshair placement. Through this post I will be discussing the importance of crosshair placement within the tac shooter genre, going over the most common mistakes I see people make in my experience as a coach, and offering structured routines to remedy the majority of these mistakes. If you haven't read through any of my posts before ( I wouldn't they're too long ) I am an FPS player which mainly played CS:GO competitively, with around 7k hours and multiple level 10 faceit accounts and LAN wins in the past 5 years, who transitioned towards the end of my CS:GO days into being an FPS coach, I mainly worked with people trying to gain a competitive edge in CS, but later moved to coaching Apex players, and following the closed beta release of Valorant, I have been coaching Valorant players for the past few months, with unanimously positive feedback. If you haven't read my first post which is a comprehensive general guide for players looking to improve in Valorant, I highly recommend you look at it here before continuing on to this post. In relation to other qualifications / achievements, I have hit top 30 as hitscan DPS in Overwatch, maintained top 500 ranking in Apex ( PC ) for a couple of seasons, and hold numerous 1% rankings on various Kovaak's FPS Aim Trainer maps. My main goal in creating these posts is to contribute to the Valorant community by sharing my knowledge gained over 10k collective hours of FPS experience ( mainly Tactical fps ) and hopefully help the people reading my posts improve and gain that competitive edge they need to progress into their desired ranking. For those of you interested in learning more about my coaching service, or looking for a community of Valorant players looking to improve, I will link my Discord server at the end of this post.

Why is crosshair placement important?


If I was asked about the importance of consistent crosshair placement in games such as PUBG, Apex, Overwatch, Fortnite, etc. I would probably answer by saying that while it's beneficial to maintain solid crosshair placement, it's by no means the most important aspect in relation to performing well in those games, in tactical shooters however, it's a whole different story. Tactical shooters are low TTK ( time to kill ) games, and for the most part, a single bullet to the head is enough to eliminate a player, this means that in contrast to AFPS games, or games like Overwatch or Apex, which have a much higher TTK, first shot accuracy is of extreme importance in Valorant, inevitably leading to the fact that crosshair placement is also extremely important. In a game with higher TTK, even if your first shot accuracy isn't perfect in an aim duel, you can win the fight if you land more shots on the opposing player over x amount of time that you trade with them, while in Valorant, whoever needs to make the least amount of adjustment to their crosshair when engaging in a 1v1 scenario wins the exchange. It doesn't matter if your raw aim is out of this world, even if you have the most precise flicks known to the FPS community, if your crosshair placement is sub-optimal, you will lose vs. someone with consistent crosshair placement, this is simply due to the fact that all they need to do, is click once your head moves into their crosshair, often without even needing to move their mouse. Crosshair placement may very well be the most important aspect in relation to gunplay and generally the mechanical aspect of tac shooters such as CS:GO or Valorant, as it's the deciding factor in the majority of aim duels.

Common mistakes


A large amount of players tend to underestimate the importance of crosshair placement in Valorant, and especially the underlying complexity of maintaining consistency in that context. People think that all you need to do to maintain solid crosshair placement is aim high enough to hit headshots, meaning that the only factor that affects crosshair placement is vertical positioning, others still stick to making their main source of information on game improvement being players who make statements as un-informative and vague as "just click heads", my main goal is to break down and explain the multiple factors that go into proper crosshair placement. Lets start with the basics:

Vertical Positioning:
As mentioned above, one of the elements which ties into crosshair placement is vertical positioning. this is the set distance that you need to position your crosshair at in relation to the ground to be able to align your crosshair's horizontal axis with player model head-level. The good thing about vertical positioning, is that you can get accustomed to the head level that the player models have in Valorant quite rapidly, as the hitbox sizes in this game are identical, meaning you can always use the ground as a point of reference to determine where the enemy player's head would be.
In Valorant, the head level always remains a set distance from the ground
In order to train your general ability to place your crosshair at the correct height, try to make a habit out of constantly reminding yourself to place your crosshair at head level, regardless of where you are or what you're doing on the map. What I mean by this, is that even if there isn't any imminent threat of enemy players peeking you, try to keep constantly keep your crosshair at head level, the more time you spend doing this, the faster it will become a habit and become something you do subconsciously, without having to actively focus on the action. This habit allows you to build muscle-memory during otherwise useless down-time, another way to do this is to track your teammate's heads with your crosshair while rotating, leaving spawn etc.
While vertical positioning is something that people get used to relatively easily, I have come across a recurring issue among the VODs of people I coach, and that is that people generally struggle with adapting the vertical component of their crosshair's position to varying points of elevation. Here's an image to help you visualize a scenario where this could be an issue:
Peeking C Long, Positions marked: Cubby ( right ), Platform ( left ), back-site ( back )
In the image above I am peeking into C back-site from C long on the map 'Haven', I have highlighted three different positions / angles where an enemy could potentially peak from in an in-game reenactment of this scenario, Platform, Cubby, and back-site. What you'll notice is that these positions all have different points of elevation, meaning that while using the ground as reference will allow me to maintain my crosshair at head-level if someone peeks my position from ground level on C site, in order to clear cubby and platform, I would need to adjust my crosshair accordingly, using their lower levels as a reference for where the head-level position would be in those angles.
Unfortunately, if you are struggling with this due to the fact that you aren't familiar with the map layout yet, the only thing that will remedy your situation is more time spent playing the game, if however, your issue stems from a mechanical inability, meaning that your mouse control isn't good enough to allow you to make such adjustments comfortably, the routine provided later in the guide may help you get past that issue.

Horizontal Positioning:
Just as with vertical positioning, horizontal positioning is pretty self-explanatory in terms of it's function. Knowing at what height to position your crosshair at in relation to the environment is far easier to do than knowing where to position it on a horizontal axis, the reasoning behind this is that with vertical placement you will always have the ground or lower level of the object the opponent is standing on as a point of reference which allows you to instantly know at what height head-level is. When focusing on the horizontal aspect of crosshair placement, there isn't a set point of reference at all times; Sometimes you need to hold wide angles, sometimes you need to move along with the object you're playing against, and sometimes you need to pre-aim to swing effectively, all this variability makes it much harder for a newer player to grasp crosshair placement and horizontal positioning is just as crucial as vertical positioning if not even more important.
A very common mistake which I see a lot of in the VODs I review as a coach, is newer players holding angles too tightly, meaning that they're playing in a position where they anticipate an enemy push and are waiting for the engagement, and their crosshair is a position where it's hugging the edge of the wall the enemy will peek from. Here is a visual representation of what I'm talking about:

Example of incorrect horizontal placement
In the image above, I'm holding an angle where if someone crosses moving parallel to the wall I'm looking at, I'll have under 50 ms to react, my crosshair is so close to the edge of the wall that I will need to click my LMB the milli-second I see the enemy. By holding this angle, chances are that by the time I click the enemy will have already crossed to the left of my crosshair resulting in a miss and most likely my death; It would take inhuman reaction times for anyone to hit a player while holding like this, especially if the enemy player is swinging. Instead, you should allow some distance from your crosshair to the edge of the angle you're holding, allowing yourself to spot the enemy's player model, and then time your click effectively. Here is a visual representation of correct crosshair placement while holding the same angle:

Example of correct horizontal placement
As you can see, in the image above I am allowing for some space between the wall and my crosshair, giving me a significantly longer time window to spot an enemy player and react. Holding an angle that's too "tight" would mean I need to make a larger adjustment to hit the enemy, and therefore I increase my margin of error due to vertical overshoot ( see below ). There are exceptions to the rule when it comes to the distance you need to hold at, if the angle you are holding only allows forward movement ( into your crosshair ) you can hold a narrow line of sight. If you are clearing an angle ( moving along it to check for enemies ) and you are the agressor, you can hold tight and move along with the wall / LOS to allow for a faster reaction if you spot an enemy during your movement. If you are the agressor and you want to swing into an angle that you believe / know an enemy is holding, it is sometimes optimal to pre-aim, meaning you position your crosshair in a way where without moving your mouse it will be aimed at the enemy's head once you swing out the angle.

Vertical Offset:
The final common issue I would like to bring up which ties into both crosshair placement and horizontal click-timing, is something I call "vertical offset" or "vertical overshoot", this is a player's inability to move his crosshair horizontally while maintaining the same vertical placement. Vertical offset is a big issue when it comes to switching angles or flicking horizontally, I have seen many scenarios where a player is holding an angle properly with their crosshair at a pixel-perfect vertical position in relation to head level, only to make a 30 degree turn to check a different angle and end up shooting at an enemy's chest and losing the duel. Usually, the larger the movement, the more the player's crosshair deviates vertically. Here is a depiction of what vertical offset / overshooting looks like in-game:

Example of margin of error caused by vertical offset / overshooting
In the image above the green dot is where the crosshair should end up in an ideal scenario while flicking from it's current position to the target dummy, while the green lines represent a theoretical margin of error for overshooting. Fortunately for people that face this issue, I have come up with multiple Kovaak's maps and firing range excercises to help combat it and largely reduce your margin of error when moving your crosshair / flicking horizontally.

Settings: What sensitivity / crosshair should I use?


This part of the post discusses a topic which is highly subjective, both the sensitivity you use and the crosshair you use are something preference-based that you should decide upon on your own, the reason I'm adding this section into the post is for players which are newer to the tac-shooter genre; There are a few guidelines that will help them narrow down the settings that work the best for them.
First off, don't by any means copy your favorite pro's config, just because something works for a professional player that has probably spent well above 10,000 hours playing FPS games and decided upon their ideal sensitivity and crosshair within that massive period of time, doesn't mean that it's going to work for you, use whatever you're most comfortable with. Other than individual preference, and having gotten used to their sensitivity, the Pros you watch may be using gear which feels different at their sensitivity setting. A lighter mouse, faster mouse-pad, and faster feet can feel very different in terms of mouse movement, even if you're playing on the same sensitivity value on paper. In relation to grip-styles and what mice are ideal for each hand size, make sure to check out my first post in this sub before moving forward with this guide, as playing on hardware that caters to your individual preferences plays an important role in increasing your mechanical potential.

Sensitivity:
As I stated in the paragraph above, sensitivity is something quite subjective and while there's no general rule as to which single sens value is superior, Valorant and CS:GO professionals tend to stick to e-dpi or cm/360 much lower than professional players in other titles and FPS subgenres. Your e-dpi is your in-game sensitivity value multiplied by your mouse's DPI setting. The average e-dpi used by Valorant professionals is around 250 e-dpi, which would be a value of 0.625 in-game @ 400 DPI, or around 50 cm/360.

Pro player & Streamer sensitivity settings (e-dpi)
cm/360 is a universal format for sensitivity measurement, it's the amount of centimeters you need to move your mouse in order to perform a full rotation. This is the format adopted within aimer communities due to the simple fact that you asking someone "what sensitivity do you play on?" And them responding with "1.5 in CSGO" is pretty useless information as they could be playing at any DPI range, and you don't necessarily know what each CSGO sens corresponds to in relation to physical movement, or even movement in other games. "e-dpi" solves the issue of different DPI x Sens measurements within the same game, but the cm/360 format is easily transferable from title to title.
The reason professional players in the tac shooter genre use lower sens on average, is due to the fact that in contrast with other FPS games, tac shooters don't require larger or extended movements, instead they require you to hold or clear angles while maintaining stable crosshair placement, the least adjustments you need to make to your crosshair's position on your screen, the better your "aim" will be. The majority of players I have coached report that it has been significantly easier for them to maintain consistent crosshair placement at lower sensitivities. For newer players that still haven't found a "main" sensitivity that they feel comfortable on, I would recommend for them to stick to the range of 200-300 e-dpi, while for more experienced players coming from CS or other similar games, I would recommend a similar range with a higher cap, at 200-400 e-dpi ( very few professional players play above 300 e-dpi ).

Crosshair settings:
This is something even more subjective and preference-based than sensitivity even, so what I will do in this section is simply post my own settings which I use for my in-game crosshair, and explain why I picked each value within the menu.

Crosshair Settings
So, lets break my crosshair down setting by settings:
  • Color: I use "Cyan" as it stands out quite well for me with my current color settings, any color that doesn't match your enemy outline color works perfectly fine here.
  • Inner Line Opacity: This setting basically determines how see through your crosshair will be, I like setting mine at "1" as It makes the crosshair stand out more.
  • Inner Line Thickness: I set this to "1" which is the lowest value, a lot of professional players like to use "2", I think setting the value to "1" makes it easier to align your crosshair with heads or with other objects in the environment, it is also less obstructive, so I highly recommend either this or "2" to newer players
  • Inner Line Offset: This setting determines how large the gap is in your crosshair, I like setting this to "1" as the gap is as small as possible without disappearing, larger gaps make it more difficult to determine where the exact center of your screen is, which can act as a hnderance in your first shot accuracy at longer range engagements.
  • Movement & Firing Error: These settings just turn your crosshair into a dynamic crosshair and make the gap widen significantly while moving or shooting respectively in order to give you a visual representation of how the innacuracy factor works. Useless and distracting, would highly suggest that you keep these both off unless you're very new and still don't understand how movement / spray accuracy works.
  • Outer Lines: Everything is off here, I don't think playing with outer lines provides any benefit whatsoever and it's an extra distraction.

Crosshair Placement Improvement Routine:

A large portion of improving your crosshair placement is based on simply playing the game more, crosshair placement is largely based on muscle memory, part of having good crosshair placement is simply based on having experience in-game allowing it to become a subconscious habit, and the rest is based on your ability to anticipate player model movement and learn to make horizontal movements without simultaneously your crosshair vertically. The routine I will provide is not only a great way to work on your crosshair placement, but also highly beneficial to the click-timing aspect of your aim, which is basically the only element of aiming required in Valorant, as good tracking is unecessary in such a low TTK game. If you are already training using a daily routine on Kovaak's ( as you should be ) you can just implement this into your daily scenarios.

Kovaaks:
( These are all maps which require you to make horizontal movements without overshooting vertically, thus good aim training for those struggling with crosshair placement, see my other posts for a larger variety of Kovaaks maps )

  • 1 wall 2 targets horizontal - 10 minutes ( focus on your flicks, work on hitting both targets in the same movement, not pausing in between )
  • Valorant Small flicks - 10 minutes ( Great routine as head level is that of Valorant, and vertical deviation will cause you to miss, forcing you to maintain head level as you play through it )
  • PatTarget Switch small - 10 minutes ( Works on your ability to swap from one target to another while maintaining head level crosshair placement, keep LMB held while playing, only go for heads )

HSDM:

  • Valorant doesn't currently offer it's own deathmatch servers, therefore the next best thing is practicing in CS:GO. HSDM is a headshot only modifier for community FFA servers in CS:GO. To access these maps go to "Community Server Browser" and simply type in "HSDM", any server with decent population will do ( preferably 128 tick ). Playing FFA on headshot only forces you to maintain head-level crosshair placement as body shots don't count. I advise going for taps rather than spraying, as it limits the RNG, also spraying in CS:GO isn't transferable to Valorant as a mechanic. Make it a challenge for yourself to maintain positive K/D while playing. Use the AK in rifle servers, and the USP-S in pistol servers.

Firing Range:

  • Set the target dummy position to static, and practice your click timing by only going for the targets furthest to the left and furthest to the right interchangeably, do this for around 10 minutes.
  • Play Spike Rush and set it to hard. When set on "Hard" the AI will one shot you as soon as you peek if it has seen you, and one shot you after around half a second if you shift-peek it. Pretty decent warmup in relation to crosshair placement as you will die every single time if you aren't instantly headshotting the targets the moment you peek. Play this for another 10 minutes.

Link to my Discord server for further questions / coaching inquiries:

---------- https://discord.gg/6ZYVZ6x

New twitter : https://mobile.twitter.com/Twix_v2
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How the TFSA works

(Updated August 9th, 2020)

Background


You may have heard about off-shore tax havens of questionable legality where wealthy people invest their money in legal "grey zones" and don't pay any tax, as featured for example, in Netflix's drama, The Laundromat.

The reality is that the Government of Canada offers 100% tax-free investing throughout your life, with unlimited withdrawals of your contributions and profits, and no limits on how much you can make tax-free. There is also nothing to report to the Canada Revenue Agency. Although Britain has a comparable program, Canada is the only country in the world that offers tax-free investing with this level of power and flexibility.

Thank you fellow Redditors for the wonderful Gold Award and Today I Learned Award!

(Unrelated but Important Note: I put a link at the bottom for my margin account explainer. Many people are interested in margin trading but don't understand the math behind margin accounts and cannot find an explanation. If you want to do margin, but don't know how, click on the link.)

As a Gen-Xer, I wrote this post with Millennials in mind, many of whom are getting interested in investing in ETFs, individual stocks, and also my personal favourite, options. Your generation is uniquely positioned to take advantage of this extremely powerful program at a relatively young age. But whether you're in your 20's or your 90's, read on!

Are TFSAs important? In 2020 Canadians have almost 1 trillion dollars saved up in their TFSAs, so if that doesn't prove that pennies add up to dollars, I don't know what does. The TFSA truly is the Great Canadian Tax Shelter.

I will periodically be checking this and adding issues as they arise, to this post. I really appreciate that people are finding this useful. As this post is now fairly complete from a basic mechanics point of view, and some questions are already answered in this post, please be advised that at this stage I cannot respond to questions that are already covered here. If I do not respond to your post, check this post as I may have added the answer to the FAQs at the bottom.

How to Invest in Stocks


A lot of people get really excited - for good reason - when they discover that the TFSA allows you to invest in stocks, tax free. I get questions about which stocks to buy.

I have made some comments about that throughout this post, however; I can't comprehensively answer that question. Having said that, though, if you're interested in picking your own stocks and want to learn how, I recommmend starting with the following videos:

The first is by Peter Lynch, a famous American investor in the 80's who wrote some well-respected books for the general public, like "One Up on Wall Street." The advice he gives is always valid, always works, and that never changes, even with 2020's technology, companies and AI:

https://www.youtube.com/watch?v=cRMpgaBv-U4&t=2256s


The second is a recording of a university lecture given by investment legend Warren Buffett, who expounds on the same principles:

https://www.youtube.com/watch?v=2MHIcabnjrA

Please note that I have no connection to whomever posted the videos.

Introduction


TFSAs were introduced in 2009 by Stephen Harper's government, to encourage Canadians to save.

The effect of the TFSA is that ordinary Canadians don't pay any income or capital gains tax on their securities investments.

Initial uptake was slow as the contribution rules take some getting used to, but over time the program became a smash hit with Canadians. There are about 20 million Canadians with TFSAs, so the uptake is about 70%- 80% (as you have to be the age of majority in your province/territory to open a TFSA).

Eligibility to Open a TFSA


You must be a Canadian resident with a valid Social Insurance Number to open a TFSA. You must be at the voting age in the province in which you reside in order to open a TFSA, however contribution room begins to accumulate from the year in which you turned 18. You do not have to file a tax return to open a TFSA. You do not need to be a Canadian citizen to open and contribute to a TFSA. No minimum balance is required to open a TFSA.

Where you Can Open a TFSA


There are hundreds of financial institutions in Canada that offer the TFSA. There is only one kind of TFSA; however, different institutions offer a different range of financial products. Here are some examples:


Insurance


Your TFSA may be covered by either CIFP or CDIC insuranceor both. Ask your bank or broker for details.

What You Can Trade and Invest In


You can trade the following:


What You Cannot Trade


You cannot trade:

Again, if it requires a margin account, it's out. You cannot buy on margin in a TFSA. Nothing stopping you from borrowing money from other sources as long as you stay within your contribution limits, but you can't trade on margin in a TFSA. You can of course trade long puts and calls which give you leverage.

Rules for Contribution Room


Starting at 18 you get a certain amount of contribution room.

According to the CRA:
You will accumulate TFSA contribution room for each year even if you do not file an Income Tax and Benefit Return or open a TFSA.
The annual TFSA dollar limit for the years 2009 to 2012 was $5,000.
The annual TFSA dollar limit for the years 2013 and 2014 was $5,500.
The annual TFSA dollar limit for the year 2015 was $10,000.
The annual TFSA dollar limit for the years 2016 to 2018 was $5,500.
The annual TFSA dollar limit for the year 2019 is $6,000.
The TFSA annual room limit will be indexed to inflation and rounded to the nearest $500.
Investment income earned by, and changes in the value of TFSA investments will not affect your TFSA contribution room for the current or future years.

https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/tax-free-savings-account/contributions.html
If you don't use the room, it accumulates indefinitely.

Trades you make in a TFSA are truly tax free. But you cannot claim the dividend tax credit and you cannot claim losses in a TFSA against capital gains whether inside or outside of the TFSA. So do make money and don't lose money in a TFSA. You are stuck with the 15% withholding tax on U.S. dividend distributions unlike the RRSP, due to U.S. tax rules, but you do not pay any capital gains on sale of U.S. shares.

You can withdraw *both* contributions *and* capital gains, no matter how much, at any time, without penalty. The amount of the withdrawal (contributions+gains) converts into contribution room in the *next* calendar year. So if you put the withdrawn funds back in the same calendar year you take them out, that burns up your total accumulated contribution room to the extent of the amount that you re-contribute in the same calendar year.

Examples


E.g. Say you turned 18 in 2016 in Alberta where the age of majority is 18. It is now sometime in 2020. You have never contributed to a TFSA. You now have $5,500+$5,500+$5,500+$6,000+$6,000 = $28,500 of room in 2020. In 2020 you manage to put $20,000 in to your TFSA and you buy Canadian Megacorp common shares. You now have $8,500 of room remaining in 2020.

Sometime in 2021 - it doesn't matter when in 2021 - your shares go to $100K due to the success of the Canadian Megacorp. You also have $6,000 worth of room for 2021 as set by the government. You therefore have $8,500 carried over from 2020+$6,000 = $14,500 of room in 2021.

In 2021 you sell the shares and pull out the $100K. This amount is tax-free and does not even have to be reported. You can do whatever you want with it.

But: if you put it back in 2021 you will over-contribute by $100,000 - $14,500 = $85,500 and incur a penalty.

But if you wait until 2022 you will have $14,500 unused contribution room carried forward from 2021, another $6,000 for 2022, and $100,000 carried forward from the withdrawal 2021, so in 2022 you will have $14,500+$6,000+$100,000 = $120,500 of contribution room.

This means that if you choose, you can put the $100,000 back in in 2022 tax-free and still have $20,500 left over. If you do not put the money back in 2021, then in 2022 you will have $120,500+$6,000 = $126,500 of contribution room.

There is no age limit on how old you can be to contribute, no limit on how much money you can make in the TFSA, and if you do not use the room it keeps carrying forward forever.

Just remember the following formula:

This year's contribution room = (A) unused contribution room carried forward from last year + (B) contribution room provided by the government for this year + (C) total withdrawals from last year.

EXAMPLE 1:

Say in 2020 you never contributed to a TFSA but you were 18 in 2009.
You have $69,500 of unused room (see above) in 2020 which accumulated from 2009-2020.
In 2020 you contribute $50,000, leaving $19,500 contribution room unused for 2020. You buy $50,000 worth of stock. The next day, also in 2020, the stock doubles and it's worth $100,000. Also in 2020 you sell the stock and withdraw $100,000, tax-free.

You continue to trade stocks within your TFSA, and hopefully grow your TFSA in 2020, but you make no further contributions or withdrawals in 2020.


The question is, How much room will you have in 2021?
Answer: In the year 2021, the following applies:
(A) Unused contribution room carried forward from last year, 2020: $19,500
(B) Contribution room provided by government for this year, 2021: $6,000
(C) Total withdrawals from last year, 2020: $100,000

Total contribution room for 2021 = $19,500+6,000+100,000 = $125,500.

EXAMPLE 2:
Say between 2020 and 2021 you decided to buy a tax-free car (well you're still stuck with the GST/PST/HST/QST but you get the picture) so you went to the dealer and spent $25,000 of the $100,000 you withdrew in 2020. You now have a car and $75,000 still burning a hole in your pocket. Say in early 2021 you re-contribute the $75,000 you still have left over, to your TFSA. However, in mid-2021 you suddenly need $75,000 because of an emergency so you pull the $75,000 back out. But then a few weeks later, it turns out that for whatever reason you don't need it after all so you decide to put the $75,000 back into the TFSA, also in 2021. You continue to trade inside your TFSA but make no further withdrawals or contributions.

How much room will you have in 2022?
Answer: In the year 2022, the following applies:

(A) Unused contribution room carried forward from last year, 2021: $125,500 - $75,000 - $75,000 = -$24,500.

Already you have a problem. You have over-contributed in 2021. You will be assessed a penalty on the over-contribution! (penalty = 1% a month).

But if you waited until 2022 to re-contribute the $75,000 you pulled out for the emergency.....

In the year 2022, the following would apply:
(A) Unused contribution room carried forward from last year, 2021: $125,500 -$75,000 =$50,500.
(B) Contribution room provided by government for this year, 2022: $6,000
(C) Total withdrawals from last year, 2020: $75,000

Total contribution room for 2022 = $50,500 + $6,000 + $75,000 = $131,500.
...And...re-contributing that $75,000 that was left over from your 2021 emergency that didn't materialize, you still have $131,500-$75,000 = $56,500 of contribution room left in 2022.

For a more comprehensive discussion, please see the CRA info link below.

FAQs That Have Arisen in the Discussion and Other Potential Questions:



  1. Equity and ETF/ETN Options in a TFSA: can I get leverage? Yes. You can buy puts and calls in your TFSA and you only need to have the cash to pay the premium and broker commissions. Example: if XYZ is trading at $70, and you want to buy the $90 call with 6 months to expiration, and the call is trading at $2.50, you only need to have $250 in your account, per option contract, and if you are dealing with BMO IL for example you need $9.95 + $1.25/contract which is what they charge in commission. Of course, any profits on closing your position are tax-free. You only need the full value of the strike in your account if you want to exercise your option instead of selling it. Please note: this is not meant to be an options tutorial; see the Montreal Exchange's Equity Options Reference Manual if you have questions on how options work.
  2. Equity and ETF/ETN Options in a TFSA: what is ok and not ok? Long puts and calls are allowed. Covered calls are allowed, but cash-secured puts are not allowed. All other option trades are also not allowed. Basically the rule is, if the trade is not a covered call and it either requires being short an option or short the stock, you can't do it in a TFSA.
  3. Live in a province where the voting age is 19 so I can't open a TFSA until I'm 19, when does my contribution room begin? Your contribution room begins to accumulate at 18, so if you live in province where the age of majority is 19, you'll get the room carried forward from the year you turned 18.
  4. If I turn 18 on December 31, do I get the contribution room just for that day or for the whole year? The whole year.
  5. Do commissions paid on share transactions count as withdrawals? Unfortunately, no. If you contribute $2,000 cash and you buy $1,975 worth of stock and pay $25 in commission, the $25 does not count as a withdrawal. It is the same as if you lost money in the TFSA.
  6. How much room do I have? If your broker records are complete, you can do a spreadsheet. The other thing you can do is call the CRA and they will tell you.
  7. TFSATFSA direct transfer from one institution to another: this has no impact on your contributions or withdrawals as it counts as neither.
  8. More than 1 TFSA: you can have as many as you want but your total contribution room does not increase or decrease depending on how many accounts you have.
  9. Withdrawals that convert into contribution room in the next year. Do they carry forward indefinitely if not used in the next year? Answer :yes.
  10. Do I have to declare my profits, withdrawals and contributions? No. Your bank or broker interfaces directly with the CRA on this. There are no declarations to make.
  11. Risky investments - smart? In a TFSA you want always to make money, because you pay no tax, and you want never to lose money, because you cannot claim the loss against your income from your job. If in year X you have $5,000 of contribution room and put it into a TFSA and buy Canadian Speculative Corp. and due to the failure of the Canadian Speculative Corp. it goes to zero, two things happen. One, you burn up that contribution room and you have to wait until next year for the government to give you more room. Two, you can't claim the $5,000 loss against your employment income or investment income or capital gains like you could in a non-registered account. So remember Buffett's rule #1: Do not lose money. Rule #2 being don't forget the first rule. TFSA's are absolutely tailor-made for Graham-Buffett value investing or for diversified ETF or mutual fund investing, but you don't want to buy a lot of small specs because you don't get the tax loss.
  12. Moving to/from Canada/residency. You must be a resident of Canada and 18 years old with a valid SIN to open a TFSA. Consult your tax advisor on whether your circumstances make you a resident for tax purposes. Since 2009, your TFSA contribution room accumulates every year, if at any time in the calendar year you are 18 years of age or older and a resident of Canada. Note: If you move to another country, you can STILL trade your TFSA online from your other country and keep making money within the account tax-free. You can withdraw money and Canada will not tax you. But you have to get tax advice in your country as to what they do. There restrictions on contributions for non-residents. See "non residents of Canada:" https://www.canada.ca/content/dam/cra-arc/formspubs/pub/rc4466/rc4466-19e.pdf
  13. The U.S. withholding tax. Dividends paid by U.S.-domiciled companies are subject to a 15% U.S. withholding tax. Your broker does this automatically at the time of the dividend payment. So if your stock pays a $100 USD dividend, you only get $85 USD in your broker account and in your statement the broker will have a note saying 15% U.S. withholding tax. I do not know under what circumstances if any it is possible to get the withheld amount. Normally it is not, but consult a tax professional.
  14. The U.S. withholding tax does not apply to capital gains. So if you buy $5,000 USD worth of Apple and sell it for $7,000 USD, you get the full $2,000 USD gain automatically.
  15. Tax-Free Leverage. Leverage in the TFSA is effectively equal to your tax rate * the capital gains inclusion rate because you're not paying tax. So if you're paying 25% on average in income tax, and the capital gains contribution rate is 50%, the TFSA is like having 12.5%, no margin call leverage costing you 0% and that also doesn't magnify your losses.
  16. Margin accounts. These accounts allow you to borrow money from your broker to buy stocks. TFSAs are not margin accounts. Nothing stopping you from borrowing from other sources (such as borrowing cash against your stocks in an actual margin account, or borrowing cash against your house in a HELOC or borrowing cash against your promise to pay it back as in a personal LOC) to fund a TFSA if that is your decision, bearing in mind the risks, but a TFSA is not a margin account. Consider options if you want leverage that you can use in a TFSA, without borrowing money.
  17. Dividend Tax Credit on Canadian Companies. Remember, dividends paid into the TFSA are not eligible to be claimed for the credit, on the rationale that you already got a tax break.
  18. FX risk. The CRA allows you to contribute and withdraw foreign currency from the TFSA but the contribution/withdrawal accounting is done in CAD. So if you contribute $10,000 USD into your TFSA and withdraw $15,000 USD, and the CAD is trading at 70 cents USD when you contribute and $80 cents USD when you withdraw, the CRA will treat it as if you contributed $14,285.71 CAD and withdrew $18,75.00 CAD.
  19. OTC (over-the-counter stocks). You can only buy stocks if they are listed on an approved exchange ("approved exchange" = TSX, TSX-V, NYSE, NASDAQ and about 25 or so others). The U.S. pink sheets "over-the-counter" market is an example of a place where you can buy stocks, that is not an approved exchange, therefore you can't buy these penny stocks. I have however read that the CRA make an exception for a stock traded over the counter if it has a dual listing on an approved exchange. You should check that with a tax lawyer or accountant though.
  20. The RRSP. This is another great tax shelter. Tax shelters in Canada are either deferrals or in a few cases - such as the TFSA - outright tax breaks, The RRSP is an example of a deferral. The RRSP allows you to deduct your contributions from your income, which the TFSA does not allow. This deduction is a huge advantage if you earn a lot of money. The RRSP has tax consequences for withdrawing money whereas the TFSA does not. Withdrawals from the RRSP are taxable whereas they are obviously not in a TFSA. You probably want to start out with a TFSA and maintain and grow that all your life. It is a good idea to start contributing to an RRSP when you start working because you get the tax deduction, and then you can use the amount of the deduction to contribute to your TFSA. There are certain rules that claw back your annual contribution room into an RRSP if you contribute to a pension. See your tax advisor.
  21. Pensions. If I contribute to a pension does that claw back my TFSA contribution room or otherwise affect my TFSA in any way? Answer: No.
  22. The $10K contribution limit for 2015. This was PM Harper's pledge. In 2015 the Conservative government changed the rules to make the annual government allowance $10,000 per year forever. Note: withdrawals still converted into contribution room in the following year - that did not change. When the Liberals came into power they switched the program back for 2016 to the original Harper rules and have kept the original Harper rules since then. That is why there is the $10,000 anomaly of 2015. The original Harper rules (which, again, are in effect now) called for $500 increments to the annual government allowance as and when required to keep up with inflation, based on the BofC's Consumer Price Index (CPI). Under the new Harper rules, it would have been $10,000 flat forever. Which you prefer depends on your politics but the TFSA program is massively popular with Canadians. Assuming 1.6% annual CPI inflation then the annual contribution room will hit $10,000 in 2052 under the present rules. Note: the Bank of Canada does an excellent and informative job of explaining inflation and the CPI at their website.
  23. Losses in a TFSA - you cannot claim a loss in a TFSA against income. So in a TFSA you always want to make money and never want to lose money. A few ppl here have asked if you are losing money on your position in a TFSA can you transfer it in-kind to a cash account and claim the loss. I would expect no as I cannot see how in view of the fact that TFSA losses can't be claimed, that the adjusted cost base would somehow be the cost paid in the TFSA. But I'm not a tax lawyeaccountant. You should consult a tax professional.
  24. Transfers in-kind to the TFSA and the the superficial loss rule. You can transfer securities (shares etc.) "in-kind," meaning, directly, from an unregistered account to the TFSA. If you do that, the CRA considers that you "disposed" of, meaning, equivalent to having sold, the shares in the unregistered account and then re-purchased them at the same price in the TFSA. The CRA considers that you did this even though the broker transfers the shares directly in the the TFSA. The superficial loss rule, which means that you cannot claim a loss for a security re-purchased within 30 days of sale, applies. So if you buy something for $20 in your unregistered account, and it's trading for $25 when you transfer it in-kind into the TFSA, then you have a deemed disposition with a capital gain of $5. But it doesn't work the other way around due to the superficial loss rule. If you buy it for $20 in the unregistered account, and it's trading at $15 when you transfer it in-kind into the TFSA, the superficial loss rule prevents you from claiming the loss because it is treated as having been sold in the unregistered account and immediately bought back in the TFSA.
  25. Day trading/swing trading. It is possible for the CRA to try to tax your TFSA on the basis of "advantage." The one reported decision I'm aware of (emphasis on I'm aware of) is from B.C. where a woman was doing "swap transactions" in her TFSA which were not explicitly disallowed but the court rules that they were an "advantage" in certain years and liable to taxation. Swaps were subsequently banned. I'm not sure what a swap is exactly but it's not that someone who is simply making contributions according to the above rules would run afoul of. The CRA from what I understand doesn't care how much money you make in the TFSA, they care how you made it. So if you're logged on to your broker 40 hours a week and trading all day every day they might take the position that you found a way to work a job 40 hours a week and not pay any tax on the money you make, which they would argue is an "advantage," although there are arguments against that. This is not legal advice, just information.
  26. The U.S. Roth IRA. This is a U.S. retirement savings tax shelter that is superficially similar to the TFSA but it has a number of limitations, including lack of cumulative contribution room, no ability for withdrawals to convert into contribution room in the following year, complex rules on who is eligible to contribute, limits on how much you can invest based on your income, income cutoffs on whether you can even use the Roth IRA at all, age limits that govern when and to what extent you can use it, and strict restrictions on reasons to withdraw funds prior to retirement (withdrawals prior to retirement can only be used to pay for private medical insurance, unpaid medical bills, adoption/childbirth expenses, certain educational expenses). The TFSA is totally unlike the Roth IRA in that it has none of these restrictions, therefore, the Roth IRA is not in any reasonable sense a valid comparison. The TFSA was modeled after the U.K. Investment Savings Account, which is the only comparable program to the TFSA.
  27. The UK Investment Savings Account. This is what the TFSA was based off of. Main difference is that the UK uses a 20,000 pound annual contribution allowance, use-it-or-lose-it. There are several different flavours of ISA, and some do have a limited recontribution feature but not to the extent of the TFSA.
  28. Is it smart to overcontribute to buy a really hot stock and just pay the 1% a month overcontribution penalty? If the CRA believes you made the overcontribution deliberately the penalty is 100% of the gains on the overcontribution, meaning, you can keep the overcontribution, or the loss, but the CRA takes the profit.
  29. Speculative stocks-- are they ok? There is no such thing as a "speculative stock." That term is not used by the CRA. Either the stock trades on an approved exchange or it doesn't. So if a really blue chip stock, the most stable company in the world, trades on an exchange that is not approved, you can't buy it in a TFSA. If a really speculative gold mining stock in Busang, Indonesia that has gone through the roof due to reports of enormous amounts of gold, but their geologist somehow just mysteriously fell out of a helicopter into the jungle and maybe there's no gold there at all, but it trades on an approved exchange, it is fine to buy it in a TFSA. Of course the risk of whether it turns out to be a good investment or not, is on you.
Remember, you're working for your money anyway, so if you can get free money from the government -- you should take it! Follow the rules because Canadians have ended up with a tax bill for not understanding the TFSA rules.
Appreciate the feedback everyone. Glad this basic post has been useful for many. The CRA does a good job of explaining TFSAs in detail at https://www.canada.ca/content/dam/cra-arc/formspubs/pub/rc4466/rc4466-19e.pdf

Unrelated but of Interest: The Margin Account

Note: if you are interested in how margin accounts work, I refer you to my post on margin accounts, where I use a straightforward explanation of the math behind margin accounts to try and give readers the confidence that they understand this powerful leveraging tool.

How Margin Loans Work - a Primer

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Earning Plays for Dummies: $UA is Under Water (Basic TA & Obvious Catalysts)

Earning Plays for Dummies: $UA is Under Water (Basic TA & Obvious Catalysts)
TL;DR: $UA is taking on a lot of debt because of historically low retail sales causing near bankruptcy cash flow. Largest athletic apparel retailer or not, when the business isn't making money it's losing it. Taking on LARGE amount of debt, to raise cash, to keep the doors open is not the nail in the coffin, but it is damn near close. ER this Friday 7/31 could be a historic miss and future projections, margins, growth and competition will cause a sell off.
Super BEAR: 7/31 $8.50-$9 Puts
Conservative BEAR: 8/14 $7.50-$8 Puts

To Bearish Autists,

Alright retards, this DD is not done by a professional CFA, CPA or single employee LLC day trading firm. I'm a college grad, with a BS in Chemistry, and i'm 100% self taught on trading for the last 5 years. It's a hobby that pays for other hobbies, not a job and definitely not a thing i do without being informed. That being said heres my hypothesis.

$UA Has Struggled

This is no secret as many of us have brand name recognition of $UA and many of us own it. We know its not Nike and it's a step above Champions and other retail store brands, but it is simply the cost efficient/value brand for people that want quality and but aren't willing to pay Nike prices or get chafed nipples from the $WMT brand. It's become the largest athletic apparel brand in the US, with growth potential in China, signing one of the NBAs biggest star Steph Curry.
Heres the problem, the company is facing increased competition and Covid may of burned down the house when they closed retailers. $UA helped prove there is a middle ground between $NKE and $WMT in quality and price, but they failed to build beyond that, and now $AMZN and other other brands have saturated the market. When i need workout clothes, i look online, a small part of $UA business model. I look for value, and although i'm not buying Nike i'm not buying $UA either. There are tons of other brands that provide the same quality cheaper, and i don't care about brand at they gym, just comfort. $UA failed to build a signature style, they got Steph Curry, but i never hear a 24 year old sneaker head dying over their new pair of shoes. They failed to push online channels of distribution, "have you been to their website?", and some compare their pandemic model to $LULU but they are completely different brands by quality, price and consumer segment.
The companies lack of success could be bad marketing, they have the largest athletic apparel market share, but they can't turn a decent YOY earnings report. So it comes down to poor financial management and high levels of competition driving lower margins. In 2016 $UA was nearly $50/share and its lost billions YOY. Now it's facing an unpredictable pandemic, and record low revenue on a house of debt.

Important Factors for ER


  • Covid
The pandemic closed retailers and one of the largest retailers of $UA is Kohl's ($KSS). Because nearly 80% of the companies worth is in their merchandise revenue, this is a major hit. The other 20% is a licensee program that they get from selling the right to 3rd party manufacturers to make and sell the brand. They get revenue from licenses, but i'm not sure about royalties. This means that wholesale manufacturers could sell to other online retailers at a lower competitive rate than $UA if they are crafty enough, and their is supposedly low oversight on this. You can buy $UA on $AMZN but that doesn't mean you will be buying directly from $UA, and this could be true in open retail stores now. from 2017 to Q1 2020 online sales on $UA website have only grown 4%. $UA has had a tough time to have a direct to consumer channel over the past two quarters. The pandemic has lead to huge losses in retail sales, and the brands themselves. This leads us to our next subject.

  • DEBT DEBT & More DEBT
$UA Market Cap: $4.837 Billion
Liabilities: $3.387 Billion (Q1 2020)
Assets: $1.550 Billion (Q1 2020)
Cash is KING and $UA is in desperate need of it with a recent convertible note offering that raised over $400 million dollars. I'm not a finance expert, but here's a snippet that explains the liquidity crunch.

As of March 31, Under Armour had just $959 million in cash. Now, it recently raised another $460 million or so in a convertible note, so its total liquidity is about $1.41 billion. But if it burns through $400 million over the next two quarters, the balance would fall to $600 million or so.
At that point, the company would likely have to raise permanent equity and/or a mixture of equity and debt. Right now the company’s tangible book value per share (TBVPS) is just $1.02 billion, or $2.26 per share, according to data compiled by Seeking Alpha.>So, here is the problem: By the end of Q3, with another $800 million in FCF loses, the tangible book value will fall to $224 million or so, and the TBVPS will be just 49 cents per share. If that’s the case, there is no way that UA stock would still be trading at $9.28 per share, where it was earlier this week.-InvestorsPlace (Mark Hake)
Simply put they need to be frugal and cut cost to prevent bankruptcy. this is shown further in the last two weeks when $UA announced they will sell their running/social app, MyFitnessPal. They also sought to break a sponsorship deal with UCLA to conserve cash (nearly $20mil/year).
The price tag for MyFitnessPal in 2015 was $425million, i don’t think $UA will have a easy time getting anyone to buy it, much less gain on the investment. Also the sponsorship deal isn’t broken, yet, and if they do it may come with a huge monetary penalty....exactly what they want to avoid.
This weeks earnings report will announce a huge amount of new liabilities along with massive reductions in revenue expectations. This is the most important part of the ER this week.

  • China
Good news this week for $UA is that they won a branding lawsuit in China this week...against a competitor that you nor I have and will never hear of.
China is a very interesting component in the American economic and political world. They are a huge market, but politically they are neither our ally nor our foe. India will give us the same problem in 10-15 years. With increased tensions between DC and Beijing the risk of tariffs and american companies suffering are on the rise, especially retail and manufacturing.
However, China presents a huge growth opportunity to whichever lucky retailers and brands can bribe the right officials and not get caught. $UA is one of those lucky companies, but they are competing in a tough sector. Nike, Adidas, New Balance, a zillion new brands that nobody has heard of and of course knock offs. I lived in Shanghai for a year in college, and theirs “Fake mall” everywhere selling the new Jorban’s and Rolex’s and of course $UA and the Chinese government will never stop it because they don’t practice fair trade practices, at least correctly.
30% of revenue for $UA is international business including several asian and european countries and Australia. China could eventually be more of a cash cow than the US for $UA.
The international opportunity is real, but $UA may never see the light at the end of the tunnel due to this dark period of financial ruins and a competitive marketplace.

  • Upside?
The ER for $UA is going to be devastating as it has been in quarters past. you’d be insane to think any differently as the company has only seen worse and worse circumstances with little navigational correction. The only thing that could prevent a total 15-25% downside is some sort of good news. What possible good news could they have, i personally can’t think of any if they are being honest and don’t give BS projections like $TSLA. IF you think of any, or i’m missing any honest upside to this ER please comment.

  • Expectations
EPS: -0.4$ (Big miss)
Revenue: $536mil (Near miss)
Revenue is key, but the Cash flow and added liabilities will be the dagger.

A LITTLE TA & CHART PRICE ACTION

6 month Daily candle
The price of $UA has been hovering around $6.40 & $10.60 for nearly 5 months. $UA has found a solid support at $8.25 and has an upward channel trend, and this has been a very slow recovery relative to other retail brands.
RSI is inching toward overbought. MACD is unsure of the last two months progression and is looking to swing one way or the other after the ER, my bet is down. i expect that $UA will continue on trend nearing $10.60, if the stock price does not fall below the three day trend line(Lilac) then i will wait until thursday afternoon to buy the Puts for the morning ER Call. IF it falls below the lilac line before thursday afternoon i expect my downward channel to be correct and i purchase puts immediately.
Still pondering my strategy for entry and optimizing the return, between there two option ideas.
Super BEAR: 7/31 $9-$9.50
Conservative BEAR: 8/14 $7.50-$8 Puts
$UA has a great value product. It has not done a good job financially due to massive oversight in fiscal management, not creating a better direct to consumer interface, and not being competitive enough in a market with stagnant margins and retail competition that can undercut and or be more popular than the other with celebrities and fashion. $UA is not $LULU, and its drowning in debt with no end in sight. Their model has failed, and their leadership has failed. I suspect retail traders who know $UA by name recognition are propping this up, not understanding their in trouble. As soon as institutional money abandons so will the pocket investors, not to poke fun at you retards.

But hey, i may just be a fucking retard.
P.S. - IF $UA goes under, or is bought out, which athletic apparel company gains the most? My guess is $NKE (long) or $AMZN.
Edit: 7/27 today the SEC notified $UA that they will enforce action against the company for accounting practices seen as fraudulent in 2016 and 2017. It keeps getting worse.
Edit: 7/30 today will most likely be the best opportunity to get cheap 10-20% OTM puts for Friday’s earning call. The stock is shrugged off SEC notices to top executives and a gloomy prediction for earnings. But the market isn’t rational right now, if it ever is, and the stock is looking to squeeze out of its channel past $10.60, and people will take profit before the crash after ER.
Edit: 7/30 AH. 2500 shares pushed the stock up nearly 4%...still expecting big downward projection come morning. Bought 8/14 $8.50 puts this AM.
Edit: 7/30 AH. 10,000 volume pushed the stock up 10% when it moves 1-2% on 5-7 million volume days. I smell stock manipulation by an insider who want to distract from the ER.
Result: AH high of $12.80 and down to $10.25 pre market, I didn’t expect price action to play such a large role in this ER.
Final: watching for 8/14 $8 put, won’t hold till expire most likely. AH/PM on 7/31 was wild and ruined the lotto for 7/31. I’m convinced it was manipulated, why else would a stock increase 25% AH before earnings and drop 27% thereafter from the AH high...in the first hour of trading...they wanted the stock to have buffer and show a new price action target/action...should of dropped below $9 but $9.49 from $12.80 high at least validates my opinion to some degree. $9.31 new support for monday, may blow past support channel at $8.90 and then drop to $8.20 soon after. OR there could be a retracement to the idiotic $12.81. All in all Lost 1% of my account on a yolo, truly retarded.


Daily Candles

1min candles - Note AH pump...
submitted by Miccodaddy to wallstreetbets [link] [comments]

Arbitrage opportunities in options - how options are priced, explained in layman's terms - without resorting to the BS pricing model

Arbitrage opportunities in options - how options are priced, explained in layman's terms - without resorting to the BS pricing model
Alright retards, I've been laid off at work due to beervirus and I've been eyeing and toying with the idea to get back into options trading. I'm writing this post to raise the bar for discussion on this sub, I'm tired of seeing just memes. We'll never match WSB unless there is a healthy mix of dankass memes and geniass discussions.
Now, when it comes to options, I am completely self-taught (completely from first principles, back in 2008, before you autists came up with the idea of watching videos on youtube). Since I am completely self-taught, my perspective will be different from the people who learnt this stuff while studying MBA/finance courses/NSE accredited investing courses. So if what I'm saying is different from what you've heard from the dude who swindled you of 20K for two days of options education or your gay BF's live-in partner, remember when it comes to maths, there are many ways of approaching a problem, ultimately, all are the same - profit means account balance goes up, loss means a loss post on ISB goes up.
Now, I'm assuming that you understand how options work. If not, I suggest heading to Zerodha's Varsity to read up on options. If you're too lazy for this, get your micro-dick outta options, this is a man's game, surprise butt-sex awaits amateurs.
I'm also assuming that you've come to realise that the sustainable way to make money in options is to write options. Unless you've got Trump or Ambani on speed dial to get access to news before it becomes news, YOLOing whatever rent money you have on buying options will blow up your account, eventually.
Writing options also means the possibility of account balance going tits up is a real possibility. You gotta, gotta, gotta measure and manage your risk. You can do this only when you understand options as well as your dick.
Towards this, I intend to put up a bunch of posts (depending on many of you shit heads are still reading at this point) that comment about little things that are more of 'wisdom' than 'education'.
The example below talks about currency derivatives. Why currency? Read below:
  • Lower margin needed. I can short a CE/PE contract with only Rs.2000, unlike the >Rs. 70,000 for index contracts. You get to learn, play and wisen up with an order of magnitude less money than with Nifty or Banknifty contracts.
  • More stable underlying. When you're shorting contracts, the last thing you want is the underlying asset going crazy like a broncho during rodeo.
  • Less autistic crowd in the currency market. While banknifty options attract retards like flies to poop, currency derivatives attract a more educated crowd.
  • Sooner or later, you end up acquiring a more balanced education on economics as a whole, rather than the shit fest that goes on in the local circles.
  • The more contracts you can short, the more strategies you can pursue
  • Decent hedging is possible without throwing away all of your potential profits
  • Lesser stress (anybody else going through premature hairloss or is it just me?) because of points outlined above.
Alright, today, I'm going point how the put-call parity works and by extension, show proof for 'efficient markets' by pointing out how opportunities for arbitrage is pretty much non existent, so you guys can cool it with the whole 'market manipulators' knee jerk reaction.
Alright, to start off, here's the current spot rate of the USD-INR pair:
https://preview.redd.it/qup28ay567j51.jpg?width=452&format=pjpg&auto=webp&s=b79ef1a3480e5cbafa42547143c651397ec57f13
Here's today's USD-INR futures closing rate for Sep expiry:
https://preview.redd.it/krghirc677j51.jpg?width=511&format=pjpg&auto=webp&s=60d52b785baa8a1cd240d0df7949a48c8391ba2d
The difference between spot and futures rates is due to differences in what is construed as 'risk-free' interest rates in the US and in India. Check out this video if you want to understand why the Sep futures is trading at a premium of 27 paisa to the spot rate.
Alright, so the deal is, if you buy 1 futures contract @ 74.49, unless the USDINR exchange rate rises by 27 paisa at the end of Sep (i.e. a spot rate of 74.49) you won't make a profit (ignoring brokerage and stuff). If the exchange rate were to remain the same without any change, you stand to lose (0.27 * 1000, currency derivatives have a lot size of 1000) Rs. 270 per lot. Even worse if the rupee were to appreciate (i.e. exchange spot rate goes down).
Now bear with me if the next few paras are exceedingly boorish, I need to spoon feed people who aren't used to currency derivatives. My strategies are mostly aimed at playing a more risk balanced play, something that yields consistent returns which can be compounded. 10% profit compounded monthly gives 314% growth per year, 3.5% profit compounded weekly gives ~600% growth per year.
Given how the USDINR rate is crashing, one way to profit would be to short a futures contract (duh!).
The orange line indicates the current USDINR exchange rate
As indicated above, if the exchange rate does nothing and remains as is till end of Sep, each lot of USDINR futures shorted yields about Rs. 250 in profit (for something that takes up Rs.3000 in margin, that's a >8% profit in return). Things look even better if the exchange rate were to fall further.
The problem is that things heat up quickly if the exchange rate were to go up. Ideally we would want to hedge against it (which also reduces the margin needed drastically). One way to hedge it would be to buy a at-the-money call (74.25CE @ rate of Rs. 0.555 -> Rs. 555 per lot (i.e 0.555*1000)).
https://preview.redd.it/ze16kyphv7j51.jpg?width=588&format=pjpg&auto=webp&s=a3c2bba9fb314beff309671f03a013e69e08f4e0
Having purchased a call option, the P/L curve now looks like:
The max loss is now limited to Rs. 315
The keen-eyed among you will recognise the above P/L curve as one that matches that of a put option. By shorting a futures contract and buying a call option (both with same expiry), we have created a synthetic put option that would have costed us Rs. 315 (0.315*1000) for one lot.
Now, why go through all of this hassle if we can get the same returns by just buying a put option? Makes sense, as long as we can purchase the 74.25 strike put option at a price lesser than Rs. 0.315 (see above).
Let's see what the put options are going for:
Well, how about that...
The market price of 74.25 puts are exactly the same price as our synthetic put. While the synthetic put came in at Rs. 0.315, the put costs another 0.005 extra to avoid the trouble of shorting a futures contract and buying a call at the same time. This is not by chance, big trading desks have algos (trading bots for the virgins here) that keep an eye out for price disparities. In this case, if someone were to be willing to pay more, the algos would compete amongst themselves to sell the puts at any price above 0.32. And if someone were to be willing to sell a put for less than 0.315, the algos would immediately buy.
The price of the puts move in sync with the prices of the futures and call contracts. Conversely, we can create a synthetic call, and you will notice that the price of the synthetic call works out to be the same as the market price for the 74.25 strike call. We can also create a synthetic futures contract the same way.
The prices of derivatives aren't decided willy-nilly. They are precisely calculated at all times, which forms the basis for the best bid/ask prices. There is no room left for someone to come in and make free money via arbitraging using synthetic contracts.
If you found this insightful, and would like more of this sort of posts, let me know.
Options when used properly, can be used to generate risk adjusted returns that are commensurate with the amount of risk you are taking. If you are YOLO-ing, sure, you can double or triple your money, because you can also lose 100% of your margin. Conversely, you can aim for small, steady returns and compound the crap out of them. Play the long game, don't be penny wise and pound foolish.
submitted by circuit_brain to IndianStreetBets [link] [comments]

How to not get ruined with Options - Part 3a of 4 - Simple Strategies

Post 1: Basics: CALL, PUT, exercise, ITM, ATM, OTM
Post 2: Basics: Buying and Selling, the Greeks
Post 3a: Simple Strategies
Post 3b: Advanced Strategies
Post 4a: Example of trades (short puts, covered calls, and verticals)
Post 4b: Example of trades (calendars and hedges)
---
Ok. So I lied. This post was getting way too long, so I had to split in two (3a and 3b)
In the previous posts 1 and 2, I explained how to buy and sell options, and how their price is calculated and evolves over time depending on the share price, volatility, and days to expiration.
In this post 3a (and the next 3b), I am going to explain in more detail how and when you can use multiple contracts together to create more profitable trades in various market conditions.
Just a reminder of the building blocks:
You expect that, by expiration, the stock price will …
... go up more than the premium you paid → Buy a call
… go down more than the premium you paid → Buy a put
... not go up more than the premium you got paid → Sell a call
... not go down more than the premium you got paid → Sell a put
Buying Straight Calls:
But why would you buy calls to begin with? Why not just buy the underlying shares? Conversely, why would you buy puts? Why not just short the underlying shares?
Let’s take long shares and long calls as an example, but this applies with puts as well.
If you were to buy 100 shares of the company ABC currently trading at $20. You would have to spend $2000. Now imagine that the share price goes up to $25, you would now have $2500 worth of shares. Or a 25% profit.
If you were convinced that the price would go up, you could instead buy call options ATM or OTM. For example, an ATM call with a strike of $20 might be worth $2 per share, so $200 per contract. You buy 10 contracts for $2000, so the same cost as buying 100 shares. Except that this time, if the share price hits $25 at expiration, each contract is now worth $500, and you now have $5000, for a $3000 gain, or a 150% profit. You could even have bought an OTM call with a strike of $22.50 for a lower premium and an even higher profit.
But it is fairly obvious that this method of buying calls is a good way to lose money quickly. When you own shares, the price goes up and down, but as long as the company does not get bankrupt or never recovers, you will always have your shares. Sometimes you just have to be very patient for the shares to come back (buying an index ETF increases your chances there). But by buying $2000 worth of calls, if you are wrong on the direction, the amplitude, or the time, those options become worthless, and it’s a 100% loss, which rarely happens when you buy shares.
Now, you could buy only one contract for $200. Except for the premium that you paid, you would have a similar profit curve as buying the shares outright. You have the advantage though that if the stock price dropped to $15, instead of losing $500 by owning the shares, you would only lose the $200 you paid for the premium. However, if you lose these $200 the first month, what about the next month? Are you going to bet $200 again, and again… You can see that buying calls outright is not scalable long term. You need a very strong conviction over a specific period of time.
How to buy cheaper shares? Sell Cash Covered Put.
Let’s continue on the example above with the company ABC trading at $20. You may think that it is a bit expensive, and you consider that $18 is a more acceptable price for you to own that company.
You could sell a put ATM with a $20 strike, for $2. Your break-even point would be $18, i.e. you would start losing money if the share price dropped below $18. But also remember that if you did buy the shares outright, you would have lost more money in case of a price drop, because you did not get a premium to offset that loss. If the price stays above $20, your return for the month will be 11% ($200 / $1800).
Note that in this example, we picked the ATM strike of $20, but you could have picked a lower strike for your short put, like an OTM strike of $17.50. Sure, the premium would be lower, maybe $1 per share, but your break-even point would drop from $18 to $16.50 (only 6% return then per month, not too shabby).
The option trade will usually be written like this:
SELL -1 ABC 100 17 JUL 20 17.5 PUT @ 1.00
This means we sold 1 PUT on ABC, 100 shares per contract, the expiration date is July 17, 2020, and the strike is $17.5, and we sold it for $1 per share (so $100 credit minus fees).
With your $20 short put, you will get assigned the shares if the price drops below $20 and you keep it until expiration, however, you will have paid them the equivalent of $18 each (we’ll actually talk more about the assignment later). If your short put expires worthless, you keep the premium, and you may decide to redo the same trade again. The share price may have gone up so much that the new ATM strike does not make you comfortable, and that’s fine as you were not willing to spend more than $18 per share, to begin with, anyway. You will have to wait for some better conditions.
This strategy is called a cash covered put. In a taxable account, depending on your broker, you can have it on margin with no cash needed (you will need to have some other positions to provide the buying power). Beware that if you don’t have the cash to cover the shares, it is adding some leverage to your overall position. Make sure you account for all your potential risks at all times. The nice thing about this position is that as long as you are not assigned, you don’t actually need to borrow some money, it won’t cost you anything. In an IRA account, you will need to have the cash available for the assignment (remember in this example, you only need $1800, plus trading fees).
Let’s roll!
Now one month later, the share price is between $18 and $22, there are few days of expiration left, and you don’t want to be assigned, but you want to continue the same process for next month. You could close the current position, and reopen a new short put, or you could in one single transaction buy back your current short put, and sell another put for next month. Doing one trade instead of two is usually cheaper because you reduce the slippage cost. The closing of the old position and re-opening of a new short position for the next expiration is called rolling the short option (from month to month, but you can also do this with weekly options).
The croll can be done a week or even a few days before expiration. Remember to avoid expiration days, and be careful being short an option on ex-dividend dates. When you roll month to month with the same strike, for most cases, you will get some money out of it. However, the farther your strike is from the current share price, the less additional premium you will get (due to the lower extrinsic value on the new option), and it can end up being close to $0. At that point, given the risk incurred, you may prefer to close the trade altogether or just be assigned. During the roll, depending on if the share price moved a bit, you can adjust the roll up or down. For example, you buy back your short put at $18, and you sell a new short put at $17 or $19, or whatever value makes the most sense.
Assignment
Now, let’s say that the share price finally dropped below $20, and you decided not to roll, or it dropped so much that the roll would not make sense. You ended up getting your shares assigned at a strike price of $18 per share. Note that the assigned share may have a current price much lower than $18 though. If that’s the case, remember that you earned more money than if you bought the shares outright at $20 (at least, you got to keep the $2 premium). And if you rolled multiple times, every premium that you got is additional money in your account.
Want to sell at a premium? Sell Covered Calls.
You could decide to hold onto the shares that you got at a discount, or you may decide that the stock price is going to go sideways, and you are fine collecting more theta. For example, you could sell a call at a strike of $20, for example for $1 (as it is OTM now given the stock price dropped).
SELL -1 ABC 100 17 JUL 20 20 CALL @ 1.00
When close to the expiration time, you can either roll your calls again, the same way that you rolled your puts, as much as you can, or just get assigned if the share price went up. As you get assigned, your shares are called away, and you receive $2000 from the 100 shares at $20 each. Except that you accumulated more money due to all the premiums you got along the way.
This sequence of the short put, roll, roll, roll, assignment, the short call, roll, roll, roll, is called the wheel.
It is a great strategy to use when the market is trading sideways and volatility is high (like currently). It is a low-risk trade provided that the share you pick is not a risky one (pick a market ETF to start) perfect to get create some income with options. There are two drawbacks though:
You will have to be patient for the share to go back up, but often you can end up with many shares at a loss if the market has been tanking. As a rule of thumb, if I get assigned, I never ever sell a call below my assignment strike minus the premium. In case the market jumps back up, I can get back to my original position, with an additional premium on the way. Market and shares can drop like a stone and bounce back up very quickly (you remember this March and April?), and you really don’t want to lock a loss.
Here is a very quick example of something to not do: Assigned at $18, current price is $15, sell a call at $16 for $1, share goes back up to $22. I get assigned at $16. In summary, I bought a share at $18, and sold it at $17 ($16 + $1 premium), I lost $1 between the two assignments. That’s bad.
You will have to find some other companies to do the wheel on. If it softens the blow a bit, your retirement account may be purely long, so you’ll not have totally missed the upside anyway.
A short put is a bullish position. A short call is a bearish position. Alternating between the two gives you a strategy looking for a reversion to the mean. Both of these positions are positive theta, and negative vega (see part 2).
Now that I explained the advantage of the long calls and puts, and how to use short calls and puts, we can explore a combination of both.
Verticals
Most option beginners are going to use long calls (or even puts). They are going to gain some money here and there, but for most parts, they will lose money. It is worse if they profited a bit at the beginning, they became confident, bet a bigger amount, and ended up losing a lot. They either buy too much (50% of my account on this call trade that can’t fail), too high of a volatility (got to buy those NKLA calls or puts), or too short / too long of an expiration (I don’t want to lose theta, or I overspent on theta).
As we discussed earlier, a straight long call or put is one of the worst positions to be in. You are significantly negative theta and positive vega. But if you take a step back, you will realize that not accounting for the premium, buying a call gives you the upside of stock up to the infinity (and buying a put gives you the upside of the stock going to $0). But in reality, you rarely are betting that the stock will go to infinity (or to $0). You are often just betting that the stock will go up (or down) by X%. Although the stock could go up (or down) by more than X%, you intuitively understand that there is a smaller chance for this to happen. Options are giving you leverage already, you don’t need to target even more gain.
More importantly, you probably should not pay for a profit/risk profile that you don’t think is going to happen.
Enter verticals. It is a combination of long and short calls (or puts). Say, the company ABC trades at $20, you want to take a bullish position, and the ATM call is $2. You probably would be happy if the stock reaches $25, and you don’t think that it will go much higher than that.
You can buy a $20 call for $2, and sell a $25 call for $0.65. You will get the upside from $20 to $25, and you let someone else take the $25 to infinity range (highly improbable). The cost is $1.35 per share ($2.00 - $0.65).
BUY +1 VERTICAL ABC 100 17 JUL 20 20/25 CALL @ 1.35
This position is interesting for multiple reasons. First, you still get the most probable range for profitability ($20 to $25). Your cost is $1.35 so 33% cheaper than the long call, and your max profit is $5 - $1.35 = $3.65. So your max gain is 270% of the risked amount, and this is for only a 25% increase in the stock price. This is really good already. You reduced your dependency on theta and vega, because the short side of the vertical is reducing your long side’s. You let someone else pay for it.
Another advantage is that it limits your max profit, and it is not a bad thing. Why is it a good thing? Because it is too easy to be greedy and always wanting and hoping for more profit. The share reached $25. What about $30? It reached $30, what about $35? Dang it dropped back to $20, I should have sold everything at the top, now my call expires worthless. But with a vertical, you know the max gain, and you paid a premium for an exact profit/risk profile. As soon as you enter the vertical, you could enter a close order at 90% of the max value (buy at $1.35, sell at $4.50), good till to cancel, and you hope that the trade will eventually be executed. It can only hit 100% profit at expiration, so you have to target a bit less to get out as soon as you can once you have a good enough profit. This way you lock your profit, and you have no risk anymore in case the market drops afterwards.
These verticals (also called spreads) can be bullish or bearish and constructed as debit (you pay some money) or credit (you get paid some money). The debit or credit versions are equivalent, the credit version has a bit of a higher chance to get assigned sooner, but as long as you check the extrinsic value, ex-dividend date, and are not too deep ITM you will be fine. I personally prefer getting paid some money, I like having a bigger balance and never have to pay for margin. :)
Here are the 4 trades for a $20 share price:
CALL BUY 20 ATM / SELL 25 OTM - Bullish spread - Debit
CALL BUY 25 OTM / SELL 20 ATM - Bearish spread - Credit
PUT BUY 20 ATM / SELL 25 ITM - Bullish spread - Credit
PUT BUY 25 ITM / SELL 20 ATM - Bearish spread - Debit
Because both bullish trades are equivalent, you will notice that they both have the same profit/risk profile (despite having different debit and credit prices due to the OTM/ITM differences). Same for the bearish trades. Remember that the cost of an ITM option is greater than ATM, which in turn is greater than an OTM. And that relationship is what makes a vertical a credit or a debit.
I understand that it can be a lot to take in. Let’s take a step back here. I picked a $20/$25 vertical, but with the share price at $20, I could have a similar $5 spread with $15/$20 (with the same 4 constructs). Or instead of 1 vertical $20/$25, I could have bought 5 verticals $20/$21. This is a $5 range as well, except that it has a higher probability for the share to be above $21. However, it also means that the spread will be more expensive (you’ll have to play with your broker tool to understand this better), and it also increases the trading fees and potentially overall slippage, as you have 5 times more contracts. Or you could even decide to pick OTM $25/$30, which would be even cheaper. In this case, you don’t need the share to reach $30 to get a lot of profit. The contracts will be much cheaper (for example, like $0.40 per share), and if the share price goes up to $25 quickly long before expiration, the vertical could be worth $1.00, and you would have 150% of profit without the share having to reach $30.
If you decide to trade these verticals the first few times, look a lot at the numbers before you trade to make sure you are not making a mistake. With a debit vertical, the most you can lose per contract is the premium you paid. With a credit vertical, the most you can lose is the difference between your strikes, minus the premium you received.
One last but important note about verticals:
If your short side is too deep ITM, you may be assigned. It happens. If you bought some vertical with a high strike value, for example:
SELL +20 VERTICAL SPY 100 17 JUL 20 350/351 PUT @ 0.95
Here, not accounting for trading fees and slippage, you paid $0.95 per share for 20 contracts that will be worth $1 per share if SPY is less than $350 by mid-July, which is pretty certain. That’s a 5% return in 4 weeks (in reality, the trading fees are going to reduce most of that). Your actual risk on this trade is $1900 (20 contracts * 100 shares * $0.95) plus trading fees. That’s a small trade, however the underlying instrument you are controlling is much more than that.
Let’s see this in more detail: You enter the trade with a $1900 potential max loss, and you get assigned on the short put side (strike of $350) after a few weeks. Someone paid expensive puts and exercised 20 puts with a strike of $350 on their existing SPY shares (2000 of them, 20 contracts * 100 shares). You will suddenly receive 2000 shares on your account, that you paid $350 each. Thus your balance is going to show -$700,000 (you have 2000 shares to balance that).
If that happens to you: DON’T PANIC. BREATHE. YOU ARE FINE.
You owe $700k to your broker, but you have roughly the same amount in shares anyway. You are STILL protected by your long $351 puts. If the share price goes up by $1, you gain $2000 from the shares, but your long $351 put will lose $2000. Nothing changed. If the share price goes down by $1, you lose $2000 from the shares, but your long $350 put will gain $2000. Nothing changed. Just close your position nicely by selling your shares first, and just after selling your puts. Some brokers can do that in one single trade (put based covered stock). Don’t let the panic set in. Remember that you are hedged. Don’t forget about the slippage, don’t let the market makers take advantage of your panic. Worst case scenario, if you use a quality broker with good customer service, call them, and they will close your position for you, especially if this happens in an IRA.
The reason I am insisting so much on this is because of last week’s event. Yes, the RH platform may have shown incorrect numbers for a while, but before you trade options you need to understand the various edge cases. Again if this happens to you, don’t panic, breathe, and please be safe.
This concludes my post 3a. We talked about the trade-offs between buying shares, buying calls instead, selling puts to get some premium to buy some shares at a cheaper price, rolling your short puts, getting your puts assigned, selling calls to get some additional money in sideways markets, rolling your short calls, having your calls assigned too. We talked about the wheel, being this whole sequence spanning multiple months. After that, we discussed the concept of verticals, with bullish and bearish spreads that can be either built as a debit or a credit.
And if there is one thing you need to learn from this, avoid buying straight calls or puts but use verticals instead, especially if the volatility is very high. And do not ever sell naked calls, again use verticals.
The next post will explain more advanced and interesting option strategies.
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Post 1: Basics: CALL, PUT, exercise, ITM, ATM, OTM
Post 2: Basics: Buying and Selling, the greeks
Post 3a: Simple Strategies
Post 3b: Advanced Strategies
Post 4a: Example of trades (short puts, covered calls, and verticals)
Post 4b: Example of trades (calendars and hedges)
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Day Trading GREEN DAY - MARGIN ACCOUNT +1.96% My Top Three No PDT Trading Brokers - Live Small Account ... Avoiding the Pattern Day Trader Rule When Trading Stocks ... Cash Account or Margin Account for Day Trading - YouTube Best Trading Strategy if You Have a Small Trading Account ...

This article discusses the basic mechanics of day trading, the free-ride regulations, and explains how traders use margin accounts to avoid violating those free-ride regulations. Day trading is the term applied to people who buy and sell stocks through the course of a day, rarely holding a stock overnight. You might be wondering just whatRead More For example, if you have $10,000 you can open a cash trading account (not a margin account) and just trade your $10,000. You can take as many day trades as you like. The PDTR rule applies to traders using margin. There are a few hiccups with the cash account day trading approach. To the top 10% of traders, you continue to do what you do, day trading with or without margin. The bottom line is you are consistently making money. Just to reiterate this point, you are going to go through three phases in your trading career. Without even knowing it, margin can impede your ability to progress through each phase. The pattern day trader rule (PDT Rule) requires any margin account deemed a “Pattern Day Trader” to maintain a minimum of $25,000 in account equity, in order to day trade without the rule restricting your trading. The PDT rule only comes into effect when the net liquidation value goes below the required amount of $25,000. Since day traders hold no positions at the end of each day, they have no collateral in their margin account to cover risk and satisfy a margin call—a demand from a broker to increase the amount of equity in their account—during a given trading day. Brokerage firms wanted an effective cushion against margin calls, which led to the increased

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Day Trading GREEN DAY - MARGIN ACCOUNT +1.96%

Should you use a cash account or a margin account for day trading? One of my followers asked this question on Twitter and so I decided to answer it by making... Day Trading Margin! Should you use it? Now thats a good question and it seems that some people are confused on how Margin works and why its an everyday tool for DayTraders. Talking about Margin ... ★ How to Trade with a Small Trading Account! ★ Trade at Ayondo http://www.financial-spread-betting.com/spreadbetting/Ayondo-compare.html ★ If you found value... How to get around the Pattern Day Trading (PDT Rule) when Trading Stocks. PLEASE LIKE, SUBSCRIBE AND SHARE THIS VIDEO SO WE CAN DO MORE! The Pattern Day Trad... Trading without margin have good benefits Trading without leverage is very important in day trading Benefits of day trading without margin. ... Margin Account - Duration: 23:37. The Boiler Room ...

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