COVID-19 Has Reshaped Investing Strategies
Warren Buffet always preached the principle to “buy low and sell high”, but the biggest issue is timing the market and knowing what will happen to stocks. Unless you are privy to insider information and participate in illegal stock trading activity, your only clear sign to buy low and sell high is when a recession plagues the country.
In March 2020, many felt the effects of the stock market drop in their retirement and other investment accounts. Some had taken the opportunity to put any extra money into their accounts, knowing that one day their portfolios would bounce back and they would have made more money from the market.
But what if there were a way to truly maximize gains in extremely short amounts of time?
2020 has presented the opportunity to dive more into Stock Options Trading.
From Investopedia: “A stock option gives an investor the right, but not the obligation, to buy or sell a stock at an agreed upon price and date. There are two types of options: puts, which is a bet that a stock will fall, or calls, which is a bet that a stock will rise. “
When the market dropped, people were selling like mad, but wise investors looked at the future, and new the market would bounce back. They could have bought calls of stock options for a few months out, bet that the market would bounce back, and sell that option at a much higher price than they bought it at. Instead of paying for stocks that could be in the hundreds or thousands of dollars, they bought options that could range from $1 to $100+, but make more than 100% ROI if their bet pays off.
Since the market has regained much of what was lost, is this strategy still applicable?
The short answer: Yes
First, options trading tends to involve smaller amounts of money than buying actual stocks, therefore it’s a less risky way to invest money. The bets you make on stocks going up or down may not be as radical as they could have been earlier in the year.
Second: We don’t know what’s going to happen next. We don’t know how economies are going to react in the coming months, and big events are happening at the end of the year, including a presidential election. There are other opportunities for the market to jump or fall.
Linked above are some resources that go into more detail about what options are and how they work. My question was: can you use options trading to make money at higher-than-standard rates?
Quantmod has a beautiful wrapper to collecting Yahoo Finance Data, including historical price data and options prices for both calls and puts. A simple call to get AAPL options info is:
getOptionChain(“AAPL”)That’s all fine and dandy, but what if you want to loop through all stocks and find really good deals on options? A simple loop can suffice. Quantmod automatically loads in the TTR package to get stock symbols.
library(quantmod)# Get all stock tickerssymbols <- stockSymbols() # From the TTR Package
symbols <- symbols$SymbolmyList <- list()
# Get Optionsfor(i in 1:length(symbols) { temp <- getOptionChain(symbols[i]) myList[[i]] <- temp}
With a list of 6,000+ tickers to loop through, this can take a little bit of time and will need some statements like tryCatch() to do some error checking, but it will put all of the data into a massive list.
You can then loop through the data to get everything into two big dataframes: one for calls and one for puts:
calls <- data.frame()puts <- data.frame()for(i in 1:length(myList)) { callTemp <- myList[[i]]$calls putsTemp <- myList[[i]]$puts calls <- rbind(calls, callTemp) puts <- rbind(puts, putsTemp)}
After that, you can filter the “Ask” prices of either the calls and puts to whatever you’d like.All that’s left is to examine the list of options, expiration dates, and historical data to see which ones may be the best deal/least risky for you!
Here you can find my entire R script, which I have automated to run daily thanks to cron jobs in Linux — my approach was to loop through all stocks and get their historical prices, and see which stocks either jumped or dropped 10% in a day, 15% in a week, or 25% in a month. From there, I looped through to collect all options they had where the Ask and Last prices were under $0.50, and pushed everything into a master dataframe. I added the option in my personal code to export the data to an excel doc and email it to myself and a friend everyday at 6am.
Whatever you do, decide on a strategy that you’d like to play with. Be wise with your money, and I wish you luck in your investing endeavors!
