If we know a global recession is coming, is there anything we can do to profit off it it? Does gold, Bitcoin, etc. go up during recessions?
Or is the best strategy to just buy low (during recession) and sell high (after recession)?
Or is the best strategy to just buy low (during recession) and sell high (after recession)?
Also no two recessions are 100% alike. Most importantly - will the next one be deflationary or inflationary? Even that is hard to say. Growth in credit suggests deflation, but then if we face mass bailouts then gold and oil will be the places to be. Also, the virus thingy may be quite inflationary (disruption of supply chains, no more stuff from China!) if it materializes. I guess what I'm trying to say is that it's not about "crisis/not crisis", but rather "what is currently severely mispriced, and will correct when the market volatility rises?". This can be either up or down in price.
Finally, if the world temperature goes to, say, +5*C or the virus is really super bad then this is risk that's not hedge-able via capital markets, because it will fuck up capital markets themselves. Think of this as counterparty risk.
So just use a spread?
No. You get less on the other side. You should look up Black-Scholes to understand how option pricing works.
A put option's value comes from integrating the underlying lognormal distribution between 0 and the strike price. A spread's value comes from integrating the underlying distribution between the two spread strikes. Both heavily depend on IV (i.e. the sigma of the log-normal distribution).
Also, always think about the guy on the other side of the trade. Why would he sell you a spread cheaply if it's obvious that the underlying is very shitty and volatile? Options are bets on the probability distribution of some asset. High IV means "anything is possible". And if anything is possible then it stands that there's little money to be made on a move like "give me insurance against it going up/down". There is some money to be made on "I can underwrite the risk of it going down/up", i.e. on selling the options, i.e. selling the IV.
Rolling options orders are the only way. Plus, depending on the spread in-month you can probably hedge your hedge, and buy a call on the other side.
Today on the other had was a very, very good day.
In case of deep recession your counterparty can just go bankrupt and you would have to take losses (sell their assets at after-recession prices).
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173. A hundred Zuz [invested] in business, and every day meat and wine; a hundred Zuz [invested] in land, and salt and vegetables (Jeb. 63a; D. 463).
The Jews seem at one time to have had a disinclination to acquire much land, possibly on account of the uncertainty of tenure in the time of persecution. Cf. the wording of proverb no. 130. The opinions on the question of landed property differ very widely. Ben Sira says: "Hate not laborious work, neither husbandry, which the Most High hath ordained" (Ecclus. vii. 15). The fact that "husbandry" is specially mentioned is in keeping with Ben Sira's general view, shared by the Greeks, that occupation with the soil led to boorishness. A Rabbi of the second century AḌ. gives it as his opinion that there could be no worse occupation than agriculture, and on seeing a field ploughed across its breadth he exclaimed sarcastically, "Plough it also long-wise, and still you will find that to engage in commerce is more profitable" (Jeb. 63a). Rab, who lived in the third century, noticed the ears of corn being fanned by the breeze, and declared "However much you may fan, it is better to devote oneself to commerce" (ibid.). On the other hand, it is also said, "A man who does not possess a piece of land is not fit to be called a man" (ibid.); and another Rabbi adopts a middle course by advising "Let every man divide his money into three parts, and invest a third in land, a third in business, and a third let him keep by him in reserve" (B. M. 42a).
If you can time the market you can always get rich. The trouble is timing the market.
I didn't realize it was impossible to become insolvent just by spending money.
You borrow a security at price $X, and sell it immediately. The price declines to $X - $Y. You buy it for $X - $Y, and return the security to the original owner. You just made $Y.
So if you think there will be a recession, all you need to do is short the assets that will experience a decline in value as a result. The trick, as mentioned elsewhere in this thread, is knowing exactly when that will happen. If the price goes up instead of down in the time period you agreed upon with the lender, you lose $Y.
Another technique mentioned elsewhere is via options. You can buy the right (or "option") to sell a security at a later date at a fixed price. This is known as a "put" option [2].
It's a very volatile high risk product.