@NorthmanTrader Yes. It’s called gamma hedging. If you buy a $30 option on a stock that trades at $850 with a 0.50 beta, you pay $3,000 ($30 x 100), while the person selling that option to you has to buy: $850 * 50 = $42,500 in the underlying stock to fully hedge. This is why stocks are soaring.
@NorthmanTrader There was a natural cap on this kind of speculation before as banks would increase the borrow cost for the gamma options purchases as demand went higher. The Fed has stepped into this market, and taken borrowing costs LOWER. So now... activity in options has EXPLODED higher.
@NorthmanTrader So... now... instead of buying stocks... retail traders are buying options. And, so are the market makers. It’s completely out of control. But, recent Fed comments suggest they’re completely ok with this. And, Congress is completely asleep at the wheel.
@NorthmanTrader Instead of talking about someone’s worth, or how big a market cap a company has... investigative journalists should be focusing on these topics as they are setting the market up for a massive collapse.
@NorthmanTrader Retail buyers are using calls to essentially buy 10x the stock they could otherwise via Robinhood. This is causing the stock to go up more than it otherwise would, and will cause a collapse when it falls. An example? Well,...
@NorthmanTrader ... weekly Jan. 2021 calls with a $900 strike cost $29.95 and have a delta of 0.42. So, for $2,995, you can buy one contract, which is the same as buying 42shrs of stock and delta hedging until Fri. So, 42 x $880 = $39,690 worth of TSLA stock for only $2.9K of margin, or 12.3x...
@NorthmanTrader ... leverage. Normally, you can only get 2:1 margin/leverage. Retail investors are working around this rule by using short dated out of the money call options. As the stock goes up, they are rewarded. When it falls, they'll lose everything, and won't be able to buy anymore.
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