My Age of Investment

  Chapter 1006 Waist cut or ankle cut

   "Wells Fargo, 100 million put option contracts, the transaction strike price is 15 US dollars per share, the term is one year, and each option premium is 2 US dollars."

  Xia Jingxing sat in the office and looked at this option trading contract sent by Goldman Sachs with interest. The document also specifically indicated the seller-Berkshire Hathaway.

  He rubbed his eyebrows, and Old Man Bar was going to come to this muddy water. Is everyone scared now?

   Liu Hai sat opposite Xia Jingxing, immersed in the analysis of this contract.

After a while, he raised his head and said: "This business can be done!"

  Xia Jingxing did not answer, opened the cigar box, handed a cigar to Liu Hai, and then lit a cigar by himself, vomiting fog.

Liu Hai also lit a cigar. He smoked his cigar while expounding his point of view: “From now on until the end of January 2009, as long as Wells Fargo’s stock price is less than US$15 minus US$2 in option premiums, In other words, if it is less than $13, we will make a profit.

  If Wells Fargo’s stock price drops to $10 in the next year, we can buy it from the market for $10, and then resell it to Mr. Bar at the contract price of $15.

  After deducting the premium, you can earn $3 per share, and 100 million shares is a profit of $300 million.

  The principal invested by us is the US$200 million in option premiums, and the rate of return can reach 150%.

In addition to the option expiration exercise, before the option expires, if Wells Fargo has a big drop, the price of the option will rise sharply. We can sell the put option in our hands at a price of 3 US dollars, 4 US dollars or even higher. Wait until the option expires.

  In this way, profits can be locked in advance, and the risk of profit taking and loss caused by the rebound of stock prices in the future can also be avoided. "

   President Xia Jing spit out the smoke ring, thinking carefully in his mind.

  Liu Hai talked about two profit methods for put options, and did not mention the loss method.

  Under which circumstances will you lose money?

If Wells Fargo’s stock price does not fall below $15, Envision Capital will naturally not be able to engage in a loss-making business like "buying stocks at a price of $16 or higher, and then reselling it to Buffett at a price of $15", and can only give up the exercise. .

  The US$2 option premium was therefore squandered, and Buffett’s side made a profit, with a net profit of US$200 million by selling 100 million put options.

  This transaction was formed by the two parties' different judgments based on the stock price trend of Wells Fargo in the next year.

  Whoever has a better vision will cut the other side’s leeks.

  Xia Jingxing dangling his cigar, smiled and said, “Do you think Wells Fargo will fall to 10 dollars in the next year? Or 13 dollars at the break-even point?”

   Liu Hai replied solemnly: “Now Wells Fargo’s stock price fluctuates at around 28 U.S. dollars, and it must fall by more than 50%.

   Normally, this is difficult to achieve, otherwise Buffett would not sell this kind of put option contract.

  However, if the subprime mortgage crisis broke out this year with unprecedented power, the stock price would still be cut in half. "

  Xia Jingxing nodded slightly. In his memory, Citibank was probably the worst one of the five major banks, and it was cut to the ankle.

  As for Wells Fargo’s performance, he vaguely remembered that it was much better than Citibank. Whether the stock price would be cut in half, he thought it should be a high probability event.

  This put option agreement signed with Buffett, he felt that he should have a 60-70% chance of winning.

  Even if he made a wrong judgment and Vision Capital lost, he would only lose the $2 option premium and the loss was limited.

  The profit margin is infinite, even several times, dozens of times.

  If the stock price of a certain stock drops to $1, they sell it to Buffett at a price of $25 in accordance with the agreement. If 100 million shares are sold, the other party will lose $2.4 billion, even if the option premium is subtracted, they will lose more than $2 billion.

   Thinking of this, Xia Jingxing drew out several other contracts with a smile, and read them in turn:

   "Citibank, 100 million put option contracts, the transaction strike price is 25 US dollars per share, the term is one year, and each option premium is 2.5 US dollars."

  "JP Morgan, 100 million put option contracts, the transaction strike price is $22 per share, the term is one year, and the premium per option is $2.25."

   "Bank of America, 100 million put option contracts, the transaction strike price is $19 per share, the term is one year, and each option premium is $1.85."

  "Mid Union Bank, 50 million put option contracts, the transaction strike price is 18 US dollars per share, the term is one year, and each option fee is 1.6 US dollars."

  ……

   Liu Hai smoked a big cigar, then smiled and exclaimed: “Buffett is really magnificent. He has smashed 450 million put options for the five major banks with a contract value of 9 billion U.S. dollars. He can receive a total of 940 million U.S. dollars in option premiums.

  If the stock prices of the five major banks have fallen by less than 50% this year, he will easily put the $940 million in his pocket, and there will be no business!

  Even if the decline reaches 55% or even 60%, the US$940 million option premium can offset almost the entire loss, or a small loss.

  Only if the decline reaches more than 60% or even greater, Buffett will suffer a big loss.

  But if the timeline is extended to three, five years or even longer, value investment should be able to make up for all losses. "

  Xia Jingxing smiled. The three examples Liu Hai gave actually represent three probabilities. In Buffett’s mind, it may be a ratio of seven to one.

  That is, 70% probability of earning the US$940 million, 20% probability of no loss, no profit or a small loss, 10% probability of a big loss...

  The 10% probability of a big loss is based on the fact that the overall decline of the five major banks has reached more than 60%. The more the decline exceeds 60%, the greater the loss.

  I have to say that Buffett’s abacus is still very precise.

   "Buffett is still a little stingy, the five major investment banks and AIG actually didn't take a fancy."

Xia Jingxing’s tone was full of regrets, because he felt that the old man was too old and cunning. Bank stocks are more stable than investment bank stocks in any respect. Choosing bank stocks and Vision Capital as counterparties will undoubtedly have lower risks. Old man Bar is still not dizzy.

  In addition, the other party didn’t even like AIG, which is also an insurance company, which is even more interesting.

   Liu Hai smiled, “The five major banks in China are the establishment of diplomatic relations between workers and peasants. This is more stable than the stock price of any securities company?

   may not rise sharply, but there will be a bottom line when it falls. Buffett’s estimated bottom line is cut in half. "

  Xia Jingxing nodded slightly, "Yes, this is our different views on the market outlook.

  I guess Old Man Barbara is eating burgers and drinking Coca-Cola happily right now, and he is still complaining: I don’t know which fool has bought so many put options, what a good man! The money earned is enough for me to eat hamburgers for a lifetime. "

   Liu Hai laughed, "It's not that exaggerated! They also have risks, but in his opinion, the risks are controllable!"

  Xia Jingxing chuckled lightly, stopped mentioning this, and asked about other things.

  "In addition to short selling the underlying stocks, we still have $6 billion betting on put options. If we come to five more Barbarians, we should be able to finish the bullet."

   "It's not that easy. How many Buffetts can there be in the United States, and other institutional investors don't have that big hand."

   Liu Hai first shook his head, then sighed, “There is still a position problem. Take Bank of America as an example, the total equity is about 8 billion shares, and 160 million put options can account for 2% of the total equity.

  Our estimate of 6 billion US dollars is not only to be sold, but we have to continue to short the underlying stocks.

  There is a cap on the return on short-selling underlying stocks, which will not exceed 100%.

  But we have no choice, only this short-selling tool can carry more funds. "

  Xia Jingxing did not speak, and sighed slightly in his heart. This is the problem of too much capital, so they can only use various financial tools such as short selling of underlying stocks and buying put options.

  In addition, it is necessary to diversify a part of the funds to the stock index futures side. Otherwise, the positions will be concentrated on these large financial stocks, and the income limit will be obvious. At the same time, it is very dangerous and easy to be shorted.

   "Beep toot~"

  The phone on the desk rang suddenly, and Xia Jingxing glanced at it. Jiang Ping was calling.

  As soon as he answered the phone, a hurried voice came from the other end: "Jingxing, look at it! The Fed cut interest rates! U.S. stocks rebounded!"

  Xia Jingxing turned on the computer and was speechless for a moment. The screen was all green, with green light shining.

  (End of this chapter)