My Age of Investment

  Chapter 1003 Put Options

  "Lehman Brothers has a short position of US$300.25 million, and Bear Stearns has US$744.4 million...

  Holds Morgan Stanley US$18.56 million and Goldman Sachs US$19.87 million...

  Five major banks, five major investment banks, plus an AIG American International Group, hold a total of $2.79582 million in short positions in these 11 largest financial institutions in the United States. "

  Building No. 40 Wall Street, a spacious and bright conference room, Liu Hai is standing on the stage, using PPT to report to Xia Jinghang.

  Xia Jingxing seemed to sit lazily in the audience, but in fact he was carefully reading the summary report on short positions in stocks that was far more detailed than those held by Bellan Kefan and Mai Jinheng.

  "Goldman Sachs and Morgan Stanley have already disclosed a lot of the risks of investing in subprime mortgages. In particular, Goldman Sachs is still profitable, and there should be very limited room for price decline.

  Our next short-selling key target is the other three investment banks, Lehman, Bear Stearns and Merrill Lynch.

  It was investment banks that first exposed the risks last year. Once the impact of the subprime mortgage crisis continues to expand, the banking industry should take over from investment banks, so the banking industry also needs to take care of it. "

Xia Jingxing raised his head, lightly nodded towards the bangs, and slowly said: "We have invested nearly US$2.8 billion on these 11 large financial institutions for shorting, and there are also US$700 million for shorting some areas. Banks and specialty financial institutions, such as Fannie Mae and Freddie Mac."

   Liu Hai said: “Yes, it can only be distributed in this way, because our current amount of funds is too large. If it all falls on Goldman Sachs, Goldman Sachs can be bought directly.

  Although small financial institutions are mosquito legs, the total number is comparable to that of several large financial institutions. "

   "Good job!"

Xia Jingxing said with a smile: "The two unlucky ghosts of the two housing companies have held and guaranteed more than $6 trillion in mortgage-backed bonds, which accounted for half of the mortgage bond market in the United States. It is time to stand up for the American people. NS."

  Hearing this, the bangs did not hold back, and he chuckled.

  He saw Xia Jingxing’s gaze swept over, and hurriedly said, “Yes, that’s right, we are walking the way for the sky! The Fed does not manage things badly, and our Vision Capital will take care of it!”

  Jiang Ping and Abel both smiled on the sidelines, short-selling was originally a market behavior, and they did not have any psychological pressure to do it.

  Throwing the documents on the table at will, Xia Jingxing said: "All of them add up to only 3.5 billion US dollars in short positions, which is a bit small!"

   Liu Hai replied: “Don’t dare to short too many stocks at once, for fear of causing sharp fluctuations in stock prices. In addition to alerting the short-selling company, it is also easy to affect the final short-selling profit.

  However, Goldman Sachs and Morgan Stanley are currently vigorously helping us to match some "put options" transactions.

  I think, we can try to buy put options in a large amount to realize shorting later. "

  Xia Jingxing nodded slightly. The options here are not the same as the options of startups. They are circulated in the secondary market.

  As a financial derivative tool, options are divided into bullish and bearish. At the same time, because buyers and sellers are involved, they are divided into four trading strategies:

  Buy put options, corresponding to the counterparty to sell put options;

  Buy call options, corresponding to the counterparty to sell call options.

   "I heard that Old Man Barbara is also playing options recently. Isn't he very disgusted with financial innovation?"

  As soon as Xia Jingxing’s voice fell, Abel answered: “The old man has mixed appearances. Recently, Berkshire Hathaway is selling a large number of S&P 500 bearish contracts.”

  Xia Jingxing's heart moved, "How long is the deadline?"

  "Boss, don’t worry about it. I have asked about it. With the exception of long-term funds such as pension and retirement funds, for contracts ranging from 15 to 20 years, no institution will buy such long-term contracts."

  Abel shrugged, and then introduced: "But Buffett was able to play a beautiful hand that year, and he is definitely a master of options.

  In April 1993, when Coca-Cola's stock price hovered around US$40, Buffett sold 5 million put options that expired in December of that year with an exercise price of US$35 at a price of US$1.50.

  Finally, Coca-Cola's stock price fluctuated around US$40-45 throughout the year, and the lowest did not fall below US$35.

  So no one is willing to exercise the put option and sell Coca-Cola stock to Buffett for $35.

  The option was therefore directly invalidated, and Buffett made the $7.5 million in option premium income effortlessly. "

  If Xia Jingxing had a sense of it, he guessed that Buffett’s main purpose should not be simply to earn a premium, but that Coca-Cola’s stock price is a bit expensive, and he wants to buy it at a psychologically expected price of $35.

   Although it was not bought in the end, it also received a premium as a consolation.

The risk of the entire transaction is that if Coca-Cola’s stock price falls below 35 US dollars, for example, it falls to 25 US dollars, the counterparty will definitely exercise the right at this time. Buffett can only cry at a price that is 10 US dollars higher than the market price, which is an option. The agreed execution price was $35 and 5 million shares were eaten, resulting in a direct loss of $50 million.

  The US$7.5 million in option premiums does not need to be refunded and can offset the loss slightly, but it also lost more than US$40 million.

  However, it is obvious that Buffett is very confident in Coca-Cola's stock price judgment and is optimistic about its later stock price trend before daring to sell put options.

  Similarly, institutions that dare to sell put options on financial institutions such as Lehman Brothers and Bear Stearns are definitely confident in these companies.

  It's just that the days of the major investment banks are not very good, I am afraid that I can't find this kind of Tiehan as a rival.

  Xia Jingxing expressed his thoughts.

  After listening, Liu Hai frowned, "That's right, but we can set the option strike price lower!

  For example, Goldman Sachs, the company’s current stock price is close to $200. Although they have a bad reputation, and there are even voices that they want to investigate and prosecute them, they are in good financial condition and are the most fundamental of the five major investment banks.

  How about you say that we set the option strike price to $100? Can you attract a group of counterparties to sell some of our put options?

  If the option premium is $20, this part of the cost must also be taken into account.

  In other words, Goldman Sachs' stock price must fall below $80 before we have room for profit.

  Compared with the current stock price of Goldman Sachs, we need to reach a 60% drop before we can win.

  Is this attractive enough? In the eyes of most people, it should be that they have a greater probability of winning. "

  Xia Jingxing thought carefully, in fact, this is also a kind of gambling, betting on stock price expectations.

  Whoever has a better vision and is more accurate is the winner.

   Jiang Ping couldn’t help but said, “Too risky, isn’t it? Goldman Sachs’ risks are partially cleared, and the possibility of a 60% fall is too small.”

   Liu Hai smiled, “I’m just giving an example, don’t take it seriously, when it comes to the pricing of derivatives, it must be calculated by various formulas.”

  Xia Jingxing thought silently on the side that it is more profitable to play the option thing than to short the underlying stocks directly.

  But the risk is very high. Ninety percent of the put options bought are gifts. To put it bluntly, it is speculation, just like buying lottery tickets.

  However, it is not without exception. In the face of a century-old opportunity like the subprime mortgage crisis, many counterparties' formulas, calculations, analysis...all will fail.

  "You can try it with a portion of the funds, but the final plan must be shown to me."

  Liu Hai saw Xia Jingxing agreed, and he was very happy: "I must show it to you. You are the true **** who predicted the subprime mortgage crisis. The option strike price is unreasonable, and the probability of winning is not large. You can see at a glance."

  Xia Jingxing laughed loudly, "You treat me as a god."

   Liu Hai smiled and did not speak, because he really felt that way, Xia Jingxing was almost on the altar in his mind.

  Realizing profit through put options, Xia Jingxing is not very sure in his heart, because to be successful, many conditions such as time and execution price need to be judged.

  However, he still remembers the time when Lehman Brothers collapsed, and he still remembers that the stock prices of several stocks fell to $1.

  (End of this chapter)