long tail risk: buy cheap OTM puts on HYG 4-12 months...

📉 Bill Stock market thread 7/13, go:

Mhmm long tail risk: buy cheap OTM puts on HYG 4-12 months out,roll every 2 months, using kevinpmooney monte carlo blogger post as a basic framework, but using generalized extreme value distribution to calc the probabilities of payouts 100x premium fitted 2 shape of the returns from par of the underlying;did it all 2019 and paid out in feb/march, stared to load up again in june.i expect fireworks into the 20 sept 20 cdx rolls

4y, 18w 2 replies

📉 Bill Oh wow HYG/JNK was THE option play in feb. so you think the Fed won't stop in if this repeats in high yield? I know there's a lot of insolvent shitcos being propped up right now tho

4y, 18w 1 reply

Mhmm Spreads r higher now so its more expensive, but plenty meat on the bone.Theyre not really being propped up though, most ppl think they are. The problem is that dollar denom IG and HY bonds are used in international repo markets as collateral mixed with the insolvent nature. Mix that with 90% of underlying are unsecured with the risk of the overnight chapter 11 or IG downgrade (Ford downgrade in sept '19 before SOFR went tits up). stats on underlying r worse now than jan/feb.

4y, 18w reply