I am currently using IB, simply put I am interested to try play with spreads. I know it is safer to close position before expiry, but say I let it roll through expiry, may I know what is the policy for them GIVEN i don't have enough buying power or margin to handle the assignment (basically buying power for the 100 underlying shares) on the in the money position. Will my options expire worthless? Thanks for the help.
I have a decent sized amount in a brokerage account, but only use about half of it at any given time for trading. Is there a good ETF for stock to park that money for conservative gains/capital preservation?
I started playing spreads for the first time ever this week on RH. I've got: GLD 8/7 Calls Long 186.5 / Short 189 and SLV 8/7 Calls Long 23.5 / Short 24.5 All in the money. I'd like to keep this until Friday, close to expiration at least for the max gain. I think I read somewhere that RH will auto buy and flip to the higher contract holder, despite my not having a balance to own the shares. (But I can't find where I might have read that.) Is that correct? What will happen?
I have a post that I explained how in etoro you don’t own the stock what so ever but u just own a cfd contract even if you don’t use margin In this post I’ll explain a little bit about how etoro pays dividends on your stocks even tho you don’t own them and the dangers of trading on this kind of brokers “””””””””””””””””””” As I said in one of my replay , the underlying asset is a cfd contract (cfd contracts are decaying assets ) , a cfd contract doesn’t grant you any ownership over the real stock. Let me explain again . In one of the legit brokers I use , they have this program that if you subscribe in , you give the broker the permission to lend the stocks in your portfolio to other traders who want to short sell the stock , like I have 5 apple stocks in my portfolio, if I’m signed up to the lending programme in this legit broker , then they can take my 5 apple stocks and lend them to someone who wants to short sell them . 1 - by law I’m not paid dividends on those stocks that they borrowed from me , but the borrower is paid the dividend cause he is the owner now as long as he is borrowing my stocks . 2- said broker will pay me 50% of the interest that he charges the short seller 3- the broker will still give me my dividends equivalent but in a form of capital gain ( etoro does pay u dividends equivalent from the commission that he charges on his platform , but not real dividends, ) This might sound complicated but again this is way a broker like etoro can tell their clients that they are buying the asset which in-fact they are not , it is legal but it is a form of word play , the real danger is if etoro goes bankrupt or for any reason doesn’t wna does his part of cfd contract deal then they tottaly can , they don’t do it upfront , but they can halt trading on a certain stock , just an example , a real legit broker will never halt trading on a stock unless the exchange itself halt trading and no one in the world can buy the stock , in etoro you will find that you can’t sell a certain position or open one , while at the same time other traders on other platforms are happily buying the same stock and selling it , this is one form of etoro saying “ I don’t want to keep up to my words that and exercise the cfd contract “ Somethings I said are a bit complicated but etoro banks on the low experience and innocency of their clients . They actually blocked a popular investor called “harshsmith” because he was allegedly scalping stocks , and he have 2k copiers , so every 1000$ he made is 2 million $ that etoro had to pay to all his copiers , they might not allow scalping and that’s their law but keep in mind , if they are a legit broker they would be happily letting him scalp cause he and his 2k copiers are paying commission, and commission is how they make their profit as they say (big lie , they make it from your losses ) , then why block and profitable popular investor with a lot of copiers paying commission? Cause they are paying him his profit from their pocket and not the real market , I don’t mind them having their own non scalping law , but why have it if your legit ?! More scalping is more commission for the broker right ? Unless it is not a legit broker such as etoro Hope this helps
PRPL earnings is tomorrow, 8/13, after hours. Any other date is wrong. Robinhood is wrong (why are you using Robinhood still!?!). I'm going to take you through my earnings projections and reasoning as well the things to look for in the earnings release and the call that could make this moon even further.
I make the assumption that Purple is still selling every mattress it can make (since that is what they said for April and May) and that this continued into June because the website was still delayed 7-14 days across all mattresses at the end of June. May Revenue and April DTC: The numbers in purple were provided by Purple here and here. April Wholesale: My estimate of $2.7M for Wholesale sales in April comes from this statement from the Q1 earnings release: " While wholesale sales were down 42.7% in April year-over-year, weekly wholesale orders have started to increase on a sequential basis. " I divided Q2 2019's wholesale sales evenly between months and then went down 42.7%. June DTC: This is my estimate based upon the fact that another Mattress Max machine went online June 1, thus increasing capacity, and the low end model was discontinued (raising revenue per unit). June Wholesale:Joe Megibow stated at Commerce Next on 7/30 that wholesale had returned to almost flat growth. I'm going to assume he meant for the quarter, so I plugged the number here to finish out the quarter at $39.0M, just under $39.3M from a year ago. Revenue Expectations from Analysts (via Yahoo) https://preview.redd.it/notxd6hhbng51.png?width=384&format=png&auto=webp&s=aa0453414f467aa6c5bf72ce8a8046c0ae6e62a5 My estimate of $244M comes in way over the high, let alone the consensus. PRPL has effectively already disclosed ~$145M for April/May, so these expectations are way off. I'm more right than they are.
I used my estimates for Q3/Q4 2019 to guide margins in April/May as there were some one time events that occurred in Q1 depressing margins. June has higher margin because of the shift away from the low end model (which is priced substantially lower than the high end model). Higher priced models were given manufacturing priority.
Marketing and Sales Joe mentioned in the Commerce Next video that they were able to scale sales at a constant CAC (Customer Acquisition Cost). There's three ways of interpreting this:
Overall customer acquisition cost was constant with previous quarters (assume $36M total, not $93.2M), which means you need to add another $57M to bottom line profit and $1.08 to EPS, or
Customer Acquisition Costs on a unit basis were constant, which means I'm still overstating total marketing expense and understating EPS massively, or
Customer Acquisition Costs on a revenue basis were constant, which is the most conservative approach and the one I took for my estimate.
I straightlined the 2.2 ratio of DTC sales to Marketing costs from Q1. I am undoubtably too high in my expense estimate here as PRPL saw marketing efficiencies and favorable revenue shifts during the quarter. So, $93.2M General and Administrative A Purple HR rep posted on LinkedIn about hiring 330 people in the quarter. I'm going to assume that was relative to the pre-COVID furloughs, so I had June at that proportional amount to previous employees and adjusted April and May for furloughs and returns from furlough. Research and Development I added just a little here and straight lined it.
Interest Expense Straightlined from previous quarters, although they may have tapped ABL lines and so forth, so this could be under. One Time and Other Unpredictable by nature. Warrant Liability Accrual I'm making some assumptions here.
We know that the secondary offering event during Q2 from the Pearce brothers triggered the clause for the loan warrants (NOT the PRPLW warrants) to lower the strike price to $0.
I can't think of a logical reason why the warrant holders wouldn't exercise at this point.
Therefore there is no longer a warrant liability where the company may need to repurchase warrants back.
The liability accrual of $7.989M needs to be reversed out for a gain.
What to Watch For During Earnings (aka Reasons Why This Moons More)
Analysts, Institutionals, and everyone else who uses math for investing is going to be listening for the following:
Warrant Liability Accrual
Capacity Expansion Rate
CACs (Customer Acquisition Costs)
New Product Categories
Cashless Exercise of PRPLW warrants
Margin Growth This factor is HUGE. If PRPL guides to higher margins due to better sales mix and continued DTC shift, then every analyst and investor is going to tweak their models up in a big way. Thus far, management has been relatively cautious about this fortuitous shift to DTC continuing. If web traffic is any indicator, it will, but we need management to tell us that. Warrant Liability Accrual I could be dead wrong on my assumptions above on this one. If it stays, there will be questions about it due to the drop in exercise price. It does impact GAAP earnings (although it shouldn't--stupid accountants). Capacity Expansion Rate This is a BIG one as well. As PRPL has been famously capacity constrained: their rate of manufacturing capacity expansion is their growth rate over the next year. PRPL discontinued expansion at the beginning of COVID and then re-accelerated it to a faster pace than pre-COVID by hurrying the machines in-process out to the floor. They also signed their manufacturing space deal which has nearly doubled manufacturing space a quarter early. The REAL question is when the machines will start rolling out. Previous guidance was end of the year at best. If we get anything sooner than that, we are going to ratchet up. CACs (Customer Acquisition Costs) Since DTC is the new game in town, we are all going to want to understand exactly where marketing expenses were this quarter and, more importantly, where management thinks they are going. The magic words to listen for are "marketing efficiencies". Those words means the stock goes up. This is the next biggest line item on the P&L besides revenue and cost of goods sold. New Product Categories We heard the VP of Brand from Purple give us some touchy-feely vision of where the company is headed and that mattresses was just the revenue generating base to empower this. I'm hoping we hear more about this. This is what differentiated Amazon from Barnes and Noble: Amazon's vision was more than just books. Purple sees itself as more than just mattresses. Hopefully we get some announced action behind that vision. This multiplies the stock. Cashless Exercise of PRPLW Warrants I doubt this will be answered, even if the question is asked. I bet they wait until the 20 out of 30 days is up and they deliver notice. We could be pleasantly surprised. If management informs us that they will opt for cashless exercise of the warrants, this is anti-dilutive to EPS. It will reduce the number of outstanding shares and automatically cause an adjustment up in the stock price (remember kids, some people use math when investing). I'm hopeful, but not expecting it. The amount of the adjustment depends on the current price of the stock. Also, I fully expect PRPL management to use their cashless exercise option at the end of the 20 out of 30 days as they are already spitting cash.
I've made some updates to the model, and produced two different models:
Warrant Liability Accrual Goes to Zero
Warrant Liability Accrual Goes to $47M
I made the following adjustments generally:
I reduced marketing expenses signifanctly based upon comments made by Joe Megibox on 6/29 in this CNBC video to 30% of sales (thanks u/deepredsky).
I reduced June wholesale revenue to 12.6M to be conservative based upon another possible interpretation of Joe's comments in this video here. It is a hard pill to swallow that June wholesale sales would be less than May's. The only reasoning I can think of is if May caused a large restock and then June tapered back off. The previous number of $19.0M was still a retrenchment from the 40-50% YoY growth rate. I'm going to keep the more conservative number (thanks again u/deepredsky).
I modified the number of outstanding shares used for EPS calculations from 53M (last quarters number used on the 10-Q) to almost 73M based upon the fact that all of the warrants and employee stock options are now in the money. Math below. (thanks DS_CPA1 on Stocktwits for pointing this out)
Now that we have established that coliseum still has not exercised the options as of july 7, and that purple needs to record as a liability the fair value of the options as of june 31, we now need to determine what that fair value is. You state that since you believe that there is no logical reason that coliseum won't redeem their warrants "there is no longer a warrant liability where the company may need to repurchase warrants back." While I'm not 100% certain your logic here, I can say for certain that whether or not a person will redeem their warrants does not dictate how prpl accounts for them.
The warrant liability accrual DOES NOT exist because the warrants simply exist. The accrual exists because the warrants give the warrant holder the right to force the company to buy back the warrants for cash in the event of a fundamental transaction for Black Scholes value ($18 at the end of June--June 31st that is...). And accruals are adjusted for the probability of a particular event happening, which I STILL argue is close to zero. A fundamental transaction did occur. The Pearce brothers sold more than 10M shares of stock which is why the exercise price dropped to zero. (Note for DS_CPA1 on Stocktwits: there is some conflicting filings as to what the exercise price can drop to. The originally filed warrant draft says that the warrant exercise price cannot drop to zero, but asubsequently filed S-3, the exercise price is noted as being able to go to zero. I'm going with the S-3.) Now, here is where it gets fun. We know from from the Schedule 13D filed with a July 1, 2020 event date from Coliseum that Coliseum DID NOT force the company to buy back the warrants in the fundamental transaction triggered by the Pearce Brothers (although they undoubtably accepted the $0 exercise price). THIS fundamental transaction was KNOWN to PRPL at the end Q4 and Q1 as secondary filings were made the day after earnings both times. This drastically increased the probability of an event happening. Where is the next fundamental transaction that could cause the redemption for cash? It isn't there. What does exist is a callback option if the stock trades above $24 for 20 out of 30 days, which we are already 8 out of 10 days into. Based upon the low probability of a fundamental transaction triggering a redemption, the accrual will stay very low. Even the CFO disagrees with me and we get a full-blown accrual, I expect a full reversal of the accrual next quarter if the 20 out of 30 day call back is exercised by the company. I still don't understand why Coliseum would not have exercised these. Regardless, the Warrant Liability Accrual is very fake and will go away eventually.
ONE MORE THING...
Seriously, stop PMing me with stupid, simple questions like "What are your thoughts on earnings?", "What are your thoughts on holding through earnings?", and "What are your thoughts on PRPL?". It's here. Above. Read it. I'm not typing it again in PM. I've gotten no less than 30 of these. If you're too lazy to read, I'm too lazy to respond to you individually.
Does anyone here use box spreads to finance their margin account?
The cost of borrowing is usually lower than posted margin rates even at discount brokers like IBKR. However, I see a few issues.
The box must be repaid at a set date. Is it possible to “roll over” a box?
How would financing a margin account with box spreads look like with a portfolio margin account. Specifically, the initial margin requirements on indices are lower in a portfolio margin account than the posted haircuts that are applied to them by most options clearing houses. The same is true for some government bonds. Is this of any concern, or can you over yourself to the same degree as with a portfolio margin account and only be liquidated once the equity in your account can no longer cover your loan?
Speaking of liquidation, do you still have a maintenance margin or is it 0? You theoretically don’t owe your broker any money with this strategy. I’ve seen a post here that stated that there are no liquidations when using box spreads to finance a margin account, yet wouldn’t this introduce wild counterparty risk? No one would long the box in that case. I assume this is just a myth perpetuated on Reddit.
Looking forwards to hearing your experiences with this financing method!
The NBA league office announced that all awards will be officially based on play PRIOR to the bubble. With that, the cases are locked, the campaigns are closed, and the voting will begin. While the media may focus on the MVP award and other prestigious honors, reddit has the distinct honor of awarding the LVP. The LEAST Valuable Player. It's a tradition that dates back to 2016-17, when aging Indiana SG Monta Ellis won the inaugural trophy and then promptly disappeared from the NBA forever. In 2017-18, Minnesota SG Jamal Crawford won the (dis)honor with some incredibly bad defensive numbers. Last season, New Orleans SF Solomon Hill won LVP by helping to sink a drowning team and accelerating Anthony Davis' decision to fly the coop. Before we announce this year's winner, let's review the criteria and caveats: --- Obviously, the worst players in the league are the ones who sit at the end of the bench and don't get any playing time. However, this award focuses on players who log a decent amount of minutes and consequently affected their team's play the most. Simply put: the more you play, the more damage you can do. --- And that actual "damage" is important. If you're on a tanking team, no one cares about your poor play; it may even be a positive. I'm also ignoring young players (under 21) who are still developing and can't be expected to be solid players yet. --- Similarly, we don't want to judge players within the context of their salary any more than the actual MVP does. We also do not weigh in injuries either. For example, the Wizards would have a hard time competing with John Wall on the sidelines (0 games played, $32M in salary), but we want to focus on players' on-court performance instead.
PG Mike Conley, Utah: 28.6 minutes per game, -0.80 RPM We're using Mike Conley to reiterate that the LVP does NOT factor salary into the equation any more than the MVP does. But if it did, Mike Conley and his $33M salary may be in trouble. It was a disastrous start to the season for Conley. Playing in a new role as a second fiddle to another guard, he could never find his groove. His assists plummeted (down to 4.3 per game), his free-throw attempts cut in half (from 5.8 to 2.9), and he only shot 42.9% from two-point range. That said, he still shot pretty well from 3 (37.6%) and played OK defense, keeping him off our official ballot. SF Miles Bridges, Charlotte: 30.7 minutes per game, -2.68 RPM Like Mike Conley, Miles Bridges seems like a great guy whom you'd hate to criticize. Alas, that's our exercise here. Caught in between positions, Bridges hasn't been able to figure out his rhythm on offense in the NBA either. He hasn't shot well (33% from three, 48.6% from two) and doesn't get to the line enough (2.0 FTA) to make up for it. The advanced stats get even worse from there (although to be fair, they get dragged down by playing in a bad starting lineup.) Fortunately for him, Bridges is spared by his youth. At 22, he's technically over our "21 year old" threshold, but it still feels unfair to pick on his growing pains as a sophomore. Perhaps in time, he can find a role that can take advantage of his athleticism and talent. But be warned: the clock is ticking. We're taking the kid gloves off soon. Bridges and fellow analytics-allergic Kevin Knox (-7.7 RPM!) will be entering Year 3 next season and will need to step their games up to avoid LVP discussion. SF Kyle Kuzma, L.A. Lakers: 24.6 minutes per game, -0.74 RPM Kyle Kuzma can score if need be, but his skill set never made him a natural fit to play third banana to superstars like LeBron James and Anthony Davis. He's not a 3+D player -- he's more of a no-3 (30% this year) no-D player. At the same time, the LVP is about negative impact, and it's hard to find much of consequence here. After all, the Lakers still finished with the # 1 record in the West. Kuzma struggling to find his way is like a tree falling in the woods or a person farting in an empty elevator – ultimately it didn't matter. SF Andre Iguodala, Memphis/Miami It feels like ancient history now, but this past offseason, the Memphis Grizzlies acquired Andre Iguodala in a trade (under the presumption he may be dealt again.) According to official reports, Iguodala and the Grizzlies MUTUALLY decided that he wouldn't play for Memphis and wouldn't even report to the team in the meantime. Okay. Fine. We'll go along with that. Still, that situation leaves a sour taste in the LVP headquarters. Memphis turned out to be better than expected, and could have used an extra rotational player. And even if Iguodala wouldn't have helped much on the court, he could have been a valuable mentor for their young kids. That's the least you can expect for a nice $15M in salary.
our official top 5 LVP ballot
(5) PF Anthony Tolliver (POR, SAC, MEM): 15.6 minutes per game, -3.60 RPM I've always had a soft spot for the wise ol' owl, Anthony Tolliver. He's reportedly a great teammate and locker room presence. He also started to develop into an effective stretch four towards the end of this career. But alas, the end of his career may have snuck up on us sooner than we expected. Tolliver disappointed for Minnesota last season, and completely flopped in his return to Portland. At age 34, he doesn't seem to be a viable rotation player anymore. He didn't play quite enough to merit LVP, but he still played more than he should have. There's a chance Tolliver comes back next year to serve as a veteran mentor and pseudo-assistant coach somewhere, but it's more likely that he retires. If he does, he'll have played for 10 different franchises in his not-so-illustrious but very respectable career. (4) SG Bryn Forbes, San Antonio: 25.1 minutes per game, -0.95 RPM The NBA is all about shooting these days, and Bryn Forbes can shoot. He's hit an even 40.0% from three during his NBA career so far, and wasn't too far removed from that this season with 38.8% on 6.0 attempts per game. As a result, his true shooting percentage (57%) was above average. The Spurs lacked spacers, and Forbes fit that bill. So what's the problem...? Turns out, basketball is more than a halfcourt game. And whenever the ball crosses that pesky midcourt line, Bryn Forbes starts to become a liability. At only 6'3", Forbes is undersized to play the SG position, which is where the Spurs played him 74% of the time (according to basketball-reference.) Partly due to those athletic limitations, he only registered 0.5 steals per game, and blocked a grand total of 0 shots in his 1579 minutes of action. The advanced stats get ugly; Forbes ranks near the bottom at his position in DRPM, DBPM, all the alphabet formulas that you can cook up. At the end of the day, LVP is about negative impact, and there's plenty here. Forbes is not a bad player in a vacuum, but he did not help the Spurs this year. In fact, their undersized lineup is a big reason why they're struggling so much on defense (25th in the NBA). As a direct result, they're on track to miss the playoffs for the first time in decades. (3) SF Mario Hezonja, Portland: 16.3 minutes per game, -2.79 RPM During the entire run of the Damian Lillard - C.J. McCollum era, Portland has struggled to figure out their wing rotation. That would be tested even more this season, with familiar faces like Moe Harkless, Al-Farouq Aminu, and Evan Turner slipping out the door. The trials and tribulations kept coming like Damian Lillard was Job, as injuries ravaged the Blazers' new depth chart. The team didn't need a star to emerge at forward -- but they needed somebody. Anybody. In theory, that player should have been Mario Hezonja, a former lottery pick and a live body with good athleticism and size at 6'8". Signed this summer for a modest price ($1.7M), Hezonja had the chance to jumpstart his NBA career with a major opportunity on the team. Instead, he flopped like Marcus Smart taking a phantom elbow. Hezonja's biggest problem is that, at age 25, he still hasn't found his feel on the court. He's not a good shooter (32.8% from three), and doesn't use his athleticism to find his way to the line (1.1 attempts per game.) He was a non-factor (5 PPG, 3 RPG) on a team that desperately needed him to step up. In fact, the Blazers were so desperate for help that they not only signed Carmelo Anthony, but they played him over 32 minutes a game. Again, we see a real "LVP" candidacy here with a direct effect on the standings. The Blazers' getting a big fat nothing from Hezonja was a major part of their struggle to get to .500 this season. (2) C Dewayne Dedmon, SAC/ATL: 17.6 minutes per game, -2.51 RPM We're not supposed to factor in salaries into this equation, but Dewayne Dedmon's situation merits a mention for context. The Sacramento Kings signed the big man to a head-scratching 3-year, $40M deal this summer (seriously.) Clearly, GM Vlade Divac thought his young Kings were only a few veterans away from making the playoffs, bringing in (and over-paying) Dedmon, Cory Joseph, and Trevor Ariza. Among the three, Dedmon turned out to be the most disappointing for several reasons. He didn't play well to start the season, and got usurped in the rotation by underrated Richaun Holmes. Rather than suck it up, take a deep breath, and take a relaxing dive in his new Scrooge McDuck money pool, Dedmon started to whine and complain and push for a trade. For a team that was struggling, Dedmon's headache became the last thing they needed. Ultimately, they ditched him back to where he came from in Atlanta. Now, being difficult and being a prima donna isn't enough to get you LVP honors. You have to stink on the court as well. And sure enough, Dedmon started to check those boxes. Billed as a stretch five after hitting some threes in Atlanta, Dedmon lost his shot in the SMF airport baggage claim. He shot only 19.7% from three for the Kings, registering a 47.3% true shooting percentage on the season. His defense is OK, but it's not good enough make up for his poor offensive play. He's not bad enough to get LVP, but he hurt his team this year. (1) PG Isaiah Thomas, Washington: 23.1 minutes per game, -2.75 RPM We've awarded three LVP trophies in the past, and a familiar pattern is starting to emerge. The most dangerous players aren't necessarily the bad players; they're the players who used to be good. Because of their prior success, they tend to get overplayed by their coaches and drag their teams down with them. It wasn't too long ago that Isaiah Thomas found himself in the MVP conversation for the Boston Celtics, as his incredible shotmaking helped make up for any defensive limitations he may have as a 5'9" player. That said, a small player like Thomas is always going to have a thin margin for error to remain a winning player. He needs to be GREAT offensively to make up for his defense. Unfortunately, his offense has not been great since his infamous injury. He can still make shots (hitting 41.3% of his threes), but he's not getting inside the paint and not getting to the free-throw line (1.9 attempts per game.) As a result, his true-shooting percentage lagged to 53.1%, well below league average. If Isaiah Thomas isn't making scoring efficiently, then what is he doing to help a team win? He's not a great distributor (3.7 assists per game.) He's a very poor rebounder (1.7 per game.) And yes, that defense is still a major problem. According to ESPN's RPM metric, Thomas graded as a -4.2 impact per 100 possessions, the second worst in the league at PG after Trae Young. Basketball-reference lists his "defensive rating" at 121. For comparison's sake, the worst team defense in the league still held teams under 116. (That worst team? The Wizards.) You can make an argument that there's still a place for Thomas in the NBA as a sparkplug scorer off the bench. Alas, that's not how the Wizards had been using him this season. He started 37 of 40 games for the team. Largely as a result of that, the Wizards' starting lineup was atrocious defensively. Fellow starters like Bradley Beal and Rui Hachimura ranked toward the bottom of their position in defensive metrics as well. When your lineup stinks defensively, a good coach may look in the mirror and say: hey, maybe we need a change here. Sadly, quick reactions are not Scottie Brooks' strong suit. He has the type of sloth-like speed that even frustrate workers at the DMV. The Wizards eventually dumped IT, but it took far too long to make that shift. To be fair, the Wizards' options at point guard were limited with John Wall injured. Veteran Ish Smith is mediocre right now, and Shabazz Napier arrived late in the season. Still, the point here is: almost any competent point guard (like a Napier) would have helped the Wizards more than Isaiah Thomas. He had become a negative for them. The cold hard truth is that: it's very difficult to win basketball games with Thomas starting. And given that, he is our official LVP.
Sold a Put, Expired in the Money, was not assigned?
Strange.... Sold a put on MA ($297.50) that expired on Friday but it was not assigned after MA closed at $296.50. I thought it would have been assigned but was definitely not assigned!?? Can anyone offer insight into this?
[OC] Other "Coach of the Year" ballots may have more legitimacy or accuracy, but this is the only one that ranks the candidates from # 1 all the way to # 30
The NBA league office announced that all awards will be officially based on play PRIOR to the bubble. With that, the cases are locked, the campaigns are closed, and the voting will begin. Rather than give a traditional "Coach of the Year" ballot that ranks from 1-3, I thought it may be an interesting (and indulgent) exercise to go all the way from 1-30. Some caveats: --- We're ranking coaches based on their performance THIS SEASON only. Obviously, Billy Donovan isn't as good of a coach as Gregg Popovich. However, if you were only ranking their "Coach of the Year" candidacy for this particular season, Donovan has a better campaign argument. --- Since I don't watch every game for every team, I'm going to have to resort to a bigger picture analysis. If you're a diehard fan of your team who watches every game, you'd have a lot better insight into a coach's game management and situational adjustments. Let us know how you feel about that -- is your coach underrated? Overrated? --- Personally, I'm going to rank coaches that started the year (as opposed to interim replacements.) That’s important to mention off the bat, because it applies right away —
(30) David Fizdale, N.Y. Knicks: 4-18 record David Fizdale became a head coach with so much fanfare and media approval that his fall from grace has been more dramatic than Icarus. This year, he got fired 22 games into his second season on the job. Amazingly, this isn't the first time that's happened to him. Back in Memphis, he also got fired 19 games into his second season on the job. We don't know exactly what goes on behind the scenes, but it can't be good. Do you know how bad things must be going to get fired 20 games into a season? That's like being halfway through sex with someone and saying: ya know, I think I need to leave... Something seriously FUNKY must have going on in there. Raging herpes. Oozing puss. Rotten vagina. I don't want to call David Fizdale the rotten vagina of coaches, but his tenure with the Knicks did smell pretty funky. The team (right or wrong) signed a bunch of veterans with the intention to strive for the 8th seed, but they flopped. Ultimately, the real goal was giving their young prospects an environment to grow, but that didn't happen either. Dennis Smith and Kevin Knox are somehow getting worse and worse. The Knicks did a full house cleaning, but it may be some time before the smell is out of the building. (29) John Beilein, Cleveland: 14-40 record If you think it's difficult to get fired 20 games into a season, imagine getting fired halfway through your first year on the job right after you've signed a lucrative FIVE-YEAR contract. With John Beilein, we know more clearly what went wrong. In hindsight, it was a mistake to think that the 67-year-old Beilein could make the transition to the NBA after a lifetime in college. He simply didn't mesh with the "thugs/slugs" in the NBA, causing the Cavs to pull the plug before a full-out mutiny. Given this disaster, how can we rank Beilein higher than Fizdale? We're splitting hairs, but there are a few more positives. Beilein's Cavs had a better record than Fizdale's Knicks despite lower expectations (based on oveunder.) Beilein also "resigned," meaning the decision to part was at least somewhat mutual. He realized the error of his ways, and handed things over to an experienced assistant in J.B. Bickerstaff. As embarrassing and costly as the Beilein era may have been, it's hard to see much long-term damage for the franchise. (28) Scottie Brooks, Washington: 24-40 record With John Wall injured, the Washington Wizards would have a hard time competing for the playoffs. Still, Scottie Brooks didn't help matters. The team ranked dead last in defensive rating by a good margin, indicating some serious issues with the system and the effort level. Even Bradley Beal looked disengaged on that end, ranking as one of the worst defenders in the league. More than anything, Brooks' crime is a slow adjustment to that problem. Despite their defensive issues, he continued to start league LVP Isaiah Thomas for 37 games. Brooks seems like a likable guy, but his slow trigger has defined and tarnished his coaching career so far. (27) Jim Boylen, Chicago: 22-43 record Even his defenders would say Jim Boylen is about as cuddly as a cactus and charming as an eel. His players' support for him ranges behind tepid indifference and downright annoyance. Still, sometimes it takes a Grinch to get young players locked in on defense. To his credit, Boylen did improve the Bulls on that end. Their defensive rating leapt up from 25th to 14th this season. But at the end of the day, the overall results simply aren't here. Despite offensive-minded youngsters like Zach LaVine and Lauri Markkanen (marginalized this year), the Bulls ranked 27th in offensive rating. Largely as a result, they were on pace to win 27.7 games, well short of their 33.5 oveunder. Being "likable" and being "successful" don't go hand in hand, but NBA coaches need to check 1 of those 2 boxes to survive. So far, Boylen has gone 0 for 2. (26) Lloyd Pierce, Atlanta: 20-47 record The Atlanta Hawks hired Lloyd Pierce on the basis of his defensive reputation, but we've seen little evidence of that on the court so far. In his first year on the job, the Hawks ranked 27th in defensive rating. After a full year of training and development in his system, they climbed all the way up to... 28th. Through it all, franchise player Trae Young looks completely lost, grading as a worse defender than our LVP Isaiah Thomas. There's not much evidence that Pierce is a BAD coach, but there's not much evidence that he's going to be able to cure what ails them either. He'll probably get another season or two on the job from the patient franchise, but he needs to make some improvements eventually. Young is an albatross on defense, sure, but one little guard shouldn't be enough to sink you like this. (For evidence, consider Boston ranked 4th in defense during lil' Isaiah Thomas' near-MVP season.) (25) Kenny Atkinson, Brooklyn: 28-34 record Our third coach who got fired midseason actually ranks higher than others. On the court, it's hard to find much fault in Kenny Atkinson's performance. Despite having two max players on the shelf, he still had his Nets in the playoff race. They weren't any great shakes, but they were competitive. However, we have to acknowledge that the job of an NBA coach goes beyond offensive and defensive ratings. It's also about managing a locker room, and managing egos. The Nets had built a good culture before this, but that culture presumably got rocked by the arrival of their new stars. It's up to Atkinson to bridge that gap, and instead it swallowed him whole. (24) Ryan Saunders, Minnesota: 19-45 record The Minnesota Timberwolves will fall well short of their preseason expectations (35.5 oveunder), and will continue to waste Karl-Anthony Towns' historically good offensive talent. It's still unclear if young pup Ryan Saunders should have been handed this job at such a young age; he hasn't proven that he deserves it yet. If there's any consolation, it's that Saunders appears in lock step with executive Gersson Rosas in terms of preferred playing style. Rosas came over from Houston with a desire to create more of a Morey-Ball approach. Saunders is doing his part, cranking up the gas to keep the team 3rd in pace, 3rd in three-point attempts, 3rd in free-throw attempts. The results don't match up yet, but at least they're on the same page. For now. Time will tell whether a new ownership group will come in and rip up that playbook. (23) Gregg Popovich, San Antonio: 27-36 record I imagine this low ranking will be among the least popular picks on the board. After all, Gregg Popovich is a legend. Even at this age, he's still a top 10 coach overall. That said, legends aren't bullet proof or immune from criticism. Popovich needs to take some blame for an underwhelming year in San Antonio. The unconventional mid-range offense actually works better than you'd expect (11th in rating), but the problems come on the other end. The Spurs have struggled mightily on D this year, ranking all the way down at 25th. The rotations have been an issue there, with too much Bryn Forbes and Marco Bellinelli and probably too little Jakob Poeltl. It still may feel weird to rank Pop in the bottom half for his performance this year, but I'd ask you: if this team was coached by a random dude named "Joe Schmo," where would you put him? (22) Brett Brown, Philadelphia: 39-26 record This hasn't been a banner year for Gregg Popovich, and it hasn't been a banner year for his protege Brett Brown either. The Sixers made some head-scratching decisions this offseason. They grabbed the biggest pieces they could find, and jammed them together without much regard for "fit." Still, there's a lot of talent here. There's enough talent to justify their 54.5 preseason oveunder, and there's enough talent to compete with everyone in the East (outside of Milwaukee, perhaps.) Instead, the Sixers stumbled along on a 49-win pace, on track for the 6th seed. If this was a normal year without the COVID-bubble, then that would be a much bigger problem. The team is starting to make some adjustments and add more shooters like Shake Milton into the lineup, but it may be too little, too late. (21) Dwane Casey, Detroit: 20-46 record It's hard to judge veteran Dwane Casey either way based on the returns this season so far. The Pistons will fall well short of preseason expectations (37.5 oveunder), but there are obvious reasons why. Star Blake Griffin got injured again, and pseudo-star Andre Drummond got traded away. To Dwane Casey's credit, he's tried to make a meal with the leftovers in the cupboard. Derrick Rose continues to be a fan favorite (if not an analytical darling), and PF Christian Wood appears to be a breakout success. Overall, there's no real identity or grand plan in place here, but perhaps that will change if the lottery balls go their way. (20) Terry Stotts, Portland: 29-37 record Terry Stotts and Dwane Casey may have a few beers after the season and commiserate together about their challenges this year. Like Casey, Stotts has been overwhelmed by injuries -- to Jusuf Nurkic -- to Zach Collins -- to Rodney Hood -- to Trevor Ariza -- etc. All this from a team that didn't have much depth to start. Stotts and the Blazers drew a stroke of good luck with this bubble format. They'll be in the 9th spot right now, and well within range to sneak into the playoffs. If it wasn't for that, Stotts may be drawing more fire. The team's defense has slipped to 27th overall, which is hard to excuse no matter what roster problems you have. Stotts is a good and respected coach in general, but there's a chance his message may have run stale here. If they bomb out in the bubble, I wouldn't be surprised if they look for a fresh voice like assistant Nate Tibbetts for next year. (19) Luke Walton, Sacramento: 28-36 record Luke Walton and the Kings got off to a disastrous start given their expectations. It's never a good sign when your fanbase grumbles, he's no Dave Joerger. But after weathering the storm, there are some signs of hope on the horizon. A bold decision to bring Buddy Hield off the bench has worked out, with the team rattling off a 13-7 stretch before the shutdown. They had a slim chance to rally and make the playoffs if we played a full schedule, and they'll have some chance to do the same in the bubble. Overall, a disappointing start for Walton, but not a complete disaster. (18) James Borrego, Charlotte: 23-42 record It's very difficult to judge James Borrego, because it's difficult to judge exactly what was going on in the twisted minds of the Charlotte front office. On paper, Borrego did an admirable job to take a bad roster and lead them to a decent mark of 23 wins. In fact, their oveunder coming into this year was only 23.5 over a full 82 games (lowest in the NBA). P.J. Washington's had a nice rookie year, and PG Devonte' Graham has been better than expected (although he's cooled off.) At the same time, is this what the Hornets wanted? A "not THAT bad" team? As a result, they'll end up in the 8th slot prior to the NBA Draft lottery, in that dreaded middle ground. In a sense, Borrego did too good of a job squeezing out a few extra wins. I'm inclined to give him props for that because the franchise must have given him a mandate to compete (why else sign Terry Rozier to a big contract?). As a franchise, the team gets poor grades, but as a coach, it's hard to fault him here. (17) Alvin Gentry, New Orleans: 28-36 record James Borrego hasn't had much talent to work with in Charlotte. Down in Nawlins, Alvin Gentry may have too much. Earlier in the season, he appeared overwhelmed by all the pieces on the roster and struggled to develop a consistent rotation for the team. If it wasn't for Brandon Ingram's breakout, the Pelicans could have been in too deep of a whole to dig their way out. Of course, some stocky rookie waddled in, and looked pretty darn good. Zion Williamson gives this team an entirely new ceiling, and has been worked into the lineup in a smart, prudent fashion. For that, Gentry deserves credit. He also deserves credit for having a consistent philosophy. His team is going to run, run, run like Forrest Gump. They've finished in the top 3 in pace each season for the past three years. It hasn't worked like a charm overall, as Gentry will be on track to finish with a losing record for the 4th time in his 5 years, but perhaps they'll finally hit their stride in the bubble. (16) Steve Clifford, Orlando: 30-35 record By this point, what you see is what you get with coach Steve Clifford. We've come to expect a top 10 defense (# 9 this year), but a record around the .500 mark. In his defense, the offensive talent is limited, and Jon Isaac (arguably their best overall player) missed significant time. Still, for Clifford to jump in these yearly rankings, we need to see more of an offensive system in place. (15) Steve Kerr, Golden State: 15-50 record WTF? Why is the coach with the worst record in the league doing all the way up here? Allow me to explain. Being a head coach is like being a jockey. You need to know when to trot, when to stay with the pack, and when to crack the whip and turn up the gas down the stretch. And, sadly, you need to know when your horse is lame and needs to be shot and put out of its misery. Steve Kerr and the Golden State Warriors realized they had a wobbly, broken-down horse early on, and put the breaks on sooner than later. As a result, they'll be locked into the # 1 spot among their NBA lottery odds. In theory that doesn't matter much because the top three teams (GS, CLE, MIN) all have the same odds at # 1 overall. However, if they slide down, Golden State will remain ahead of the others; the worst pick they can get is # 5. That type of patience is rare and admirable for a veteran coach like Kerr; after years of being in "win now" mode, he's showing a long-term vision as well. (14) Nate McMillan, Indiana: 39-26 record The Indiana Pacers continued to chug along with another playoff appearance despite Victor Oladipo missing more time. Coach Nate McMillan (and assistant Dan Burke) deserve a lot of credit for their strength defensively; they finished in the top 10 in defense for the second season in a row. Their scheme works well, and covers for some limited players along the way. If there's any criticism of McMillan, it'd be on the offensive end. The Pacers found a little something with Domatas Sabonis as a playmaker (5.0 assists per game), but it's still not enough to make the team formidable offensively. Their "MoreyBall" rating is the worst in the league -- they finished last in both free-throw attempts and three-point attempts. Some teams can overcome that playing style, but the Pacers haven't been one of them; their offensive rating is # 18 for the second straight year. Given that need, I'd be curious to see if the team could develop Doug McDermott into a Bojan Bogdanovic - type player for them -- he hit 44.5% of his threes, but got only 20.0 minutes a game. (13) Monty Williams, Phoenix: 26-39 record This ranking may seem too high for the coach of a 26-39 team, but we need to consider some context here. The Phoenix Suns had finished with an average record of 20-62 over the last two seasons, so this 33-win pace is a marked step up for them. They've also gotten into the top 20 in offensive and defensive rating. That may sound like mediocrity to you, but again it's a big jump up from the previous year (28th offensive, 29th defense.) Better still, we're seeing some strong player development from this club. Deandre Ayton still looked strong post PED suspension, and Mikal Bridges played well in the second half of the year. After all the mess and goat stink in Phoenix, there are actual good vibes here, and Monty Williams deserves credit for that. (12) Quin Snyder, Utah: 41-23 record Quin Snyder is an awesome coach, only penalized here by his own lofty expectations. Coming into the season, a few pundits though the Jazz may have what it took to be the top seed in the West, but they're going to fall short of that and even fall short of their preseason oveunder (of 53.5 wins). Of course, it didn't help that Mike Conley forgot how to shoot for the few month or two of the season. Still, Snyder's bunch continues to be well coached on both ends, with ball movement on offense and discipline on defense. They'd have been an interesting playoff darkhorse if not for the bad corona-vibes and the unfortunate Bojan Bogdanovic injury. (11) Mike Malone, Denver: 43-22 record Denver's Mike Malone is in the same boat as Quin Snyder; he did a good job, but he's expected to do a good job. I'm going to rank him slightly higher because the Nuggets were slightly ahead, and were also set to slightly exceed their preseason win total (on track to win 54, 1 game better than their 53.0 estimate.) Going forward, it'll be interesting to see if Malone can take his offense up a notch. They play at a very slow pace (29th) and don't shoot many threes (26th). To actually win the title, their shooters will need to step it up. If Gary Harris won't break out of his prolonged slump, then it's imperative that Michael Porter Jr. fulfills his potential and provides that third scoring punch. (10) Doc Rivers, L.A. Clippers: 44-20 record Stars and shooting aren't a problem for the Los Angeles Clippers. It's fair to say they're the most talented roster in the entire NBA. Given that, is their 44-20 record a disappointment? Eh. Maybe. But I'd counter that it doesn't really matter. Doc Rivers' primary mission this regular season was to make it to the playoffs healthy, and the team appears on track to do just that. If there's any criticism here (of a team with a top 5 offense and defense) it's that their best players may not have gotten enough reps together. Do the new kids on the block Kawhi Leonard and Paul George fit with the old guard in Lou Williams and Montrezl Harrell? What's the best starting lineup? Best closing lineup? There are still some unanswered questions here that need to be addressed in a hurry if they're going to fulfill their title aspirations in the bubble. (9) Taylor Jenkins, Memphis: 32-33 record Personally, I expected the Memphis Grizzlies to have the worst in the Western Conference, so it's downright shocking that they're in the 8th spot at the moment. The NBA may be trying to steal that playoff berth away from them, but that won't change the great job that rookie coach Taylor Jenkins has done this year. Are the Grizzlies actually this good? Probably not. Their advanced stats are worse than their record, and Jaren Jackson Jr. hasn't taken the expected leap on defense yet. Still, wins are wins, and a coach shouldn't be penalized for collecting more than he should. (8) Mike D'Antoni, Houston: 40-24 record Based on the simple matter of wins versus preseason expectations (and an oveunder of 54.0), the Houston Rockets have been slightly underwhelming this year. Still, veteran Mike D'Antoni deserves a lot of credit for remaking the team on the fly. Changing from Chris Paul to Russell Westbrook may not be a huge difference in quality, but it's a huge difference in playing style. As a result, the Rockets leapt up from the 26th fastest pace last year all the way up to 4th this season. They'll looking like a proper D'Antoni and Morey team right now. In fact, they've taken that bold experiment up another notch this year by ditching Clint Capela and emulating Rick Moranis. So far, so good. These Smallball Rockets still have some lingering question marks about their defense and their rebounding, but they're extremely dangerous right now nonetheless. It's hard to imagine too many older coaches understanding and embracing this like D'Antoni has. (7) Brad Stevens, Boston: 43-21 record Brad Stevens has always been a media darling, and he's justifying that reputation this year. The Celtics lost Kyrie Irving and Al Horford, but are still top 5 in offense and top 5 in defense. Life without Kyrie has gone swimmingly, opening up some air for young stars Jayson Tatum and Jaylen Brown to breathe; they're both in the running for Most Improved Player. As with Mike D'Antoni, Stevens also deserves credit for working with a limited hand at center. But rather than force the issue and overplay some stiffs, he's understood that the team just may be better off with 6'8" Daniel Theis manning the fort instead. (6) Frank Vogel, L.A. Lakers: 49-14 record It's never a good sign when you sign a new contract with a team, and are immediately placed among the favorites for "First Coach Fired" in Vegas. Frank Vogel walked that tightrope this season, with plenty of spectators expecting him to fail and fall to his demise. Instead, Vogel has kept his head down, and kept his focus, and helped this Lakers team grab the # 1 seed out West. Obviously it's an easier task when you have LeBron James and Anthony Davis, but this isn't a loaded roster otherwise. Moreover, there are a lot of moving parts and new pieces to work in. The fact that Vogel has this largely-old team ranked # 3 in defensive rating is a true testament to his success this year. (5) Mike Budenholzer, Milwaukee: 53-12 record Milwaukee's Giannis Antetokounmpo is on track to win his second consecutive MVP award. While we tend to think the media likes new "narratives," but we've seen repeat winners before. Since 2000, Tim Duncan repeated as MVP, Steve Nash repeated as MVP, LeBron James repeated as MVP (on two separate occasions), and Steph Curry repeated as MVP as well. Coaches don't get the same luxury. In fact, since the award was created in 1962, the Coach of the Year winner has NEVER repeated the following season. You win once, you get to the back of the line. That tendency has really hurt Mike Budenholzer's candidacy this year. On paper, he should absolutely be in the running. The Bucks are once again # 1 in defense, # 1 in overall rating, # 1 in W-L record. They're on a better pace than last year's team, despite losing Malcolm Brogdon over the summer. If Giannis can repeat for the same feat twice, why shouldn't Budenholzer be allowed to do the same? (4) Rick Carlisle, Dallas: 40-27 record Everyone expected the Milwaukee Bucks to be dominant, but no one expected the Dallas Mavericks to be this good, this early. They've jumped the line and arrived in the playoffs earlier than schedule. They're only 1 win away from beating their preseason oveunder of 40.5 despite all the missed games. Like Mike Budenholzer, Rick Carlisle has benefited in that endeavor from a transcendent player in Luka Doncic. At the same time, this Mavs' machine has been rolling with and without Doncic. They rank # 1 in offensive efficiency this year, and depending on whether you want to factor in pace and league trends or not, they may have one of the best offenses we've ever seen from a statistical standpoint. It's quite an achievement from a coach who cut his stripes as a defensive specialist, and indicates the type of attitude that coaches need to adapt and evolve over time. (3) Erik Spoelstra, Miami: 41-24 record The Miami Heat pulled a free agency coup by signing Jimmy Butler away from Philadelphia. Still, it's not like people expected that to vault them to the top of the East. Butler was a good player, but a difficult one to manage. He blended into the crowd as well as a skinhead at a Bar Mitzvah. Overall, adding Butler only boosted the team's preseason oveunder win total to a modest 43.5. Turns out, Butler fit in better with the Heat than anyone expected, on and off the court. Butler hasn't shot well from the field, but his attacking and playmaking helped open up the offense (6th in the league) and propelled the team to a 51.7-win pace. He's fit in like a glove in terms of their tough-dude culture as well. Erik Spoelstra should get huge props for developing that culture and that system. But more than anything, he deserves credit for their player development system. Sure, Jimmy Butler is a star, and Bam Adebayo had star talent. At the same time, no one had ever heard of players like Kendrick Nunn and Duncan Robinson at this time last year. These are complete randos who will make a combined $3M this season -- just half of Cristiano Felicio's salary. Having a coach who can grow talent like that in his backyard is a huge advantage for any franchise. (2) Billy Donovan, Oklahoma City: 41-24 record After Oklahoma City blew it up this summer by trading Russell Westbrook and Paul George, coach Billy Donovan felt like a dead man walking. Instead, Donovan and those fireproof zombie hordes in OKC sieged to a 41-24 record. How good is that? Hell, it's an even better winning percentage than the team had last year with Westbrook and George (in a career year.) Given all this surprising success, Donovan would be a fair winner of this award. He's managed to take in a bunch of new bodies and form a cohesive team. He's even had success playing three point guards together (CP3, Shai Gilgeous-Alexander, and Dennis Schroder.) If you want to nitpick his candidacy, you could point out that the hodgepodge roster has a lot of talent scattered throughout. Chris Paul had become underrated, and Danilo Gallinari has always been underrated as well. The team's low preseason oveunder total (32.5) was largely based on the uncertainty about further trades. Everyone knew that this team had the talent to be competitive if they stayed together. Still, no one expected them to be this good. (1) Nick Nurse, Toronto: 46-18 record Last season, Nick Nurse finally got his first chance as an NBA head coach. He ended up having as good of a rookie year as anyone since Henry Rowengartner. Nurse coached circles around some of the best in the business en route to a championship season. Amazingly, he may have been even more impressive this year. Without Kawhi Leonard and Danny Green, the Toronto Raptors held steady and didn't miss much of a beat. In fact, they're on pace to win 58.9 games, over a dozen more than their preseason oveunder of 46.5. Technically, Nurse still has limited experience as an NBA head coach, but he's already proven to be one of the masters. If we were to judge based on the results of this (semi-)season only, he'd be my personal "Coach of the Year."
You may have heard about off-shore tax havens of questionable legality where wealthy people invest their money in legal "grey zones" and don't pay any tax, as featured for example, in Netflix's drama, The Laundromat. The reality is that the Government of Canada offers 100% tax-free investing throughout your life, with unlimited withdrawals of your contributions and profits, and no limits on how much you can make tax-free. There is also nothing to report to the Canada Revenue Agency. Although Britain has a comparable program, Canada is the only country in the world that offers tax-free investing with this level of power and flexibility. Thank you fellow Redditors for the wonderful Gold Award and Today I Learned Award! (Unrelated but Important Note: I put a link at the bottom for my margin account explainer. Many people are interested in margin trading but don't understand the math behind margin accounts and cannot find an explanation. If you want to do margin, but don't know how, click on the link.) As a Gen-Xer, I wrote this post with Millennials in mind, many of whom are getting interested in investing in ETFs, individual stocks, and also my personal favourite, options. Your generation is uniquely positioned to take advantage of this extremely powerful program at a relatively young age. But whether you're in your 20's or your 90's, read on! Are TFSAs important? In 2020 Canadians have almost 1 trillion dollars saved up in their TFSAs, so if that doesn't prove that pennies add up to dollars, I don't know what does. The TFSA truly is the Great Canadian Tax Shelter. I will periodically be checking this and adding issues as they arise, to this post. I really appreciate that people are finding this useful. As this post is now fairly complete from a basic mechanics point of view, and some questions are already answered in this post, please be advised that at this stage I cannot respond to questions that are already covered here. If I do not respond to your post, check this post as I may have added the answer to the FAQs at the bottom.
How to Invest in Stocks
A lot of people get really excited - for good reason - when they discover that the TFSA allows you to invest in stocks, tax free. I get questions about which stocks to buy. I have made some comments about that throughout this post, however; I can't comprehensively answer that question. Having said that, though, if you're interested in picking your own stocks and want to learn how, I recommmend starting with the following videos: The first is by Peter Lynch, a famous American investor in the 80's who wrote some well-respected books for the general public, like "One Up on Wall Street." The advice he gives is always valid, always works, and that never changes, even with 2020's technology, companies and AI: https://www.youtube.com/watch?v=cRMpgaBv-U4&t=2256s The second is a recording of a university lecture given by investment legend Warren Buffett, who expounds on the same principles: https://www.youtube.com/watch?v=2MHIcabnjrA Please note that I have no connection to whomever posted the videos.
TFSAs were introduced in 2009 by Stephen Harper's government, to encourage Canadians to save. The effect of the TFSA is that ordinary Canadians don't pay any income or capital gains tax on their securities investments. Initial uptake was slow as the contribution rules take some getting used to, but over time the program became a smash hit with Canadians. There are about 20 million Canadians with TFSAs, so the uptake is about 70%- 80% (as you have to be the age of majority in your province/territory to open a TFSA).
Eligibility to Open a TFSA
You must be a Canadian resident with a valid Social Insurance Number to open a TFSA. You must be at the voting age in the province in which you reside in order to open a TFSA, however contribution room begins to accumulate from the year in which you turned 18. You do not have to file a tax return to open a TFSA. You do not need to be a Canadian citizen to open and contribute to a TFSA. No minimum balance is required to open a TFSA.
Where you Can Open a TFSA
There are hundreds of financial institutions in Canada that offer the TFSA. There is only one kind of TFSA; however, different institutions offer a different range of financial products. Here are some examples:
The Canadian big 5 bank branches and most other financial institutions offer a TFSA that allows you to buy mutual funds, hold cash, GICs, term deposits, and possibly ETFs. This is a good choice if you want guaranteed returns or diversified investing.
There are a number of on-line banks such as Tangerine, Simplii Financial, Oaken Financial, and many more that offer the TFSA.
The discount DIY brokerage arms of the big 5 banks give you more choices, including stocks, warrants, bonds and options. There are also standalone brokers like IBKR Canada, Questrade, Qtrade, and Virtual Brokers, among others, that offer this.
Some brokerages and financial advisors also offer TFSAs that give you these investment choices, in different formats such as:
Traditional brokerage, where a stockbroker invests your money (BMO Nesbitt Burns, RBC Dominion Securities and others)
Financial advisor who will invest your money according to a plan you put together with the advisor (TSI Network and many others)
"Robo" advisors such as Wealthsimple, RBC InvestEase, BMO SmartFolio, or Wealthbar
BMO's AdviceDirect, which is a semi-directed hybrid between standalone DIY investing and fully-advised investing, where you operate on a DIY basis but have access to a registered investment advisor (a live person) who can give you suggetions and advice.
Your TFSA may be covered by either CIFP or CDIC insuranceor both. Ask your bank or broker for details.
What You Can Trade and Invest In
You can trade the following:
GICS, mutual funds, term deposits
individual common and preferred stocks listed on an "approved exchange" which is the TSX, TSX-V, NASDAQ, NYSE, and about 20 other exchanges worldwide, but not the US OTC pink sheets. Many examples, such as Suncor, Linamar, Apple, any of the big banks, and many thousands of others, when you want to buy into an individual company
stock-like securities like REITS, ETFs and ETNs, including 2x and 3x leveraged
gold and silver certificates
cash of many countries (CAD/USD/EUGBP/AUD/NZD/JPY/CHF and many others)
government bills and bonds of most countries, subsovereigns like Canadian provincial bills and bonds, and most corporations
options that trade on the Montreal Exchange or various options exchanges in the USA and the rest of the word (see FAQ for details)
gold, silver bullion certificates
shares in certain private companies -- but consult your tax advisor on this
What You Cannot Trade
You cannot trade:
commodity futures contracts
option spread positions (see FAQ for details)
anything that requires a margin account, meaning, a special kind of account that allows you to borrow money directly from the broker against the assets you have in your account and the assets you intend to buy.
crypto (although there exist crypto ETNs that you can buy)
Again, if it requires a margin account, it's out. You cannot buy on margin in a TFSA. Nothing stopping you from borrowing money from other sources as long as you stay within your contribution limits, but you can't trade on margin in a TFSA. You can of course trade long puts and calls which give you leverage.
Rules for Contribution Room
Starting at 18 you get a certain amount of contribution room. According to the CRA: You will accumulate TFSA contribution room for each year even if you do not file an Income Tax and Benefit Return or open a TFSA. The annual TFSA dollar limit for the years 2009 to2012 was $5,000. The annual TFSA dollar limit for the years 2013 and 2014 was $5,500. The annual TFSA dollar limit for the year 2015 was $10,000. The annual TFSA dollar limit for the years 2016 to 2018 was $5,500. The annual TFSA dollar limit for the year 2019 is $6,000. The TFSA annual room limit will be indexed to inflation and rounded to the nearest $500. Investment income earned by, and changes in the value of TFSA investments will not affect your TFSA contribution room for the current or future years. https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/tax-free-savings-account/contributions.html If you don't use the room, it accumulates indefinitely. Trades you make in a TFSA are truly tax free. But you cannot claim the dividend tax credit and you cannot claim losses in a TFSA against capital gains whether inside or outside of the TFSA. So do make money and don't lose money in a TFSA. You are stuck with the 15% withholding tax on U.S. dividend distributions unlike the RRSP, due to U.S. tax rules, but you do not pay any capital gains on sale of U.S. shares. You can withdraw *both* contributions *and* capital gains, no matter how much, at any time, without penalty. The amount of the withdrawal (contributions+gains) converts into contribution room in the *next* calendar year. So if you put the withdrawn funds back in the same calendar year you take them out, that burns up your total accumulated contribution room to the extent of the amount that you re-contribute in the same calendar year.
E.g. Say you turned 18 in 2016 in Alberta where the age of majority is 18. It is now sometime in 2020. You have never contributed to a TFSA. You now have $5,500+$5,500+$5,500+$6,000+$6,000 = $28,500 of room in 2020. In 2020 you manage to put $20,000 in to your TFSA and you buy Canadian Megacorp common shares. You now have $8,500 of room remaining in 2020. Sometime in 2021 - it doesn't matter when in 2021 - your shares go to $100K due to the success of the Canadian Megacorp. You also have $6,000 worth of room for 2021 as set by the government. You therefore have $8,500 carried over from 2020+$6,000 = $14,500 of room in 2021. In 2021 you sell the shares and pull out the $100K. This amount is tax-free and does not even have to be reported. You can do whatever you want with it. But: if you put it back in 2021 you will over-contribute by $100,000 - $14,500 = $85,500 and incur a penalty. But if you wait until 2022 you will have $14,500 unused contribution room carried forward from 2021, another $6,000 for 2022, and $100,000 carried forward from the withdrawal 2021, so in 2022 you will have $14,500+$6,000+$100,000 = $120,500 of contribution room. This means that if you choose, you can put the $100,000 back in in 2022 tax-free and still have $20,500 left over. If you do not put the money back in 2021, then in 2022 you will have $120,500+$6,000 = $126,500 of contribution room. There is no age limit on how old you can be to contribute, no limit on how much money you can make in the TFSA, and if you do not use the room it keeps carrying forward forever. Just remember the following formula: This year's contribution room = (A) unused contribution room carried forward from last year + (B) contribution room provided by the government for this year + (C) total withdrawals from last year. EXAMPLE 1: Say in 2020 you never contributed to a TFSA but you were 18 in 2009. You have $69,500 of unused room (see above) in 2020 which accumulated from 2009-2020. In 2020 you contribute $50,000, leaving $19,500 contribution room unused for 2020. You buy $50,000 worth of stock. The next day, also in 2020, the stock doubles and it's worth $100,000. Also in 2020 you sell the stock and withdraw $100,000, tax-free. You continue to trade stocks within your TFSA, and hopefully grow your TFSA in 2020, but you make no further contributions or withdrawals in 2020. The question is, How much room will you have in 2021? Answer: In the year 2021, the following applies: (A) Unused contribution room carried forward from last year, 2020: $19,500 (B) Contribution room provided by government for this year, 2021: $6,000 (C) Total withdrawals from last year, 2020: $100,000 Total contribution room for 2021 = $19,500+6,000+100,000 = $125,500. EXAMPLE 2: Say between 2020 and 2021 you decided to buy a tax-free car (well you're still stuck with the GST/PST/HST/QST but you get the picture) so you went to the dealer and spent $25,000 of the $100,000 you withdrew in 2020. You now have a car and $75,000 still burning a hole in your pocket. Say in early 2021 you re-contribute the $75,000 you still have left over, to your TFSA. However, in mid-2021 you suddenly need $75,000 because of an emergency so you pull the $75,000 back out. But then a few weeks later, it turns out that for whatever reason you don't need it after all so you decide to put the $75,000 back into the TFSA, also in 2021. You continue to trade inside your TFSA but make no further withdrawals or contributions. How much room will you have in 2022? Answer: In the year 2022, the following applies: (A) Unused contribution room carried forward from last year, 2021: $125,500 - $75,000 - $75,000 = -$24,500. Already you have a problem. You have over-contributed in 2021. You will be assessed a penalty on the over-contribution! (penalty = 1% a month). But if you waited until 2022 to re-contribute the $75,000 you pulled out for the emergency..... In the year 2022, the following would apply: (A) Unused contribution room carried forward from last year, 2021: $125,500 -$75,000 =$50,500. (B) Contribution room provided by government for this year, 2022: $6,000 (C) Total withdrawals from last year, 2020: $75,000 Total contribution room for 2022 = $50,500 + $6,000 + $75,000 = $131,500. ...And...re-contributing that $75,000 that was left over from your 2021 emergency that didn't materialize, you still have $131,500-$75,000 = $56,500 of contribution room left in 2022. For a more comprehensive discussion, please see the CRA info link below.
FAQs That Have Arisen in the Discussion and Other Potential Questions:
Equity and ETF/ETN Options in a TFSA: can I get leverage? Yes. You can buy puts and calls in your TFSA and you only need to have the cash to pay the premium and broker commissions. Example: if XYZ is trading at $70, and you want to buy the $90 call with 6 months to expiration, and the call is trading at $2.50, you only need to have $250 in your account, per option contract, and if you are dealing with BMO IL for example you need $9.95 + $1.25/contract which is what they charge in commission. Of course, any profits on closing your position are tax-free. You only need the full value of the strike in your account if you want to exercise your option instead of selling it. Please note: this is not meant to be an options tutorial; see the Montreal Exchange's Equity Options Reference Manual if you have questions on how options work.
Equity and ETF/ETN Options in a TFSA: what is ok and not ok? Long puts and calls are allowed. Covered calls are allowed, but cash-secured puts are not allowed. All other option trades are also not allowed. Basically the rule is, if the trade is not a covered call and it either requires being short an option or short the stock, you can't do it in a TFSA.
Live in a province where the voting age is 19 so I can't open a TFSA until I'm 19, when does my contribution room begin? Your contribution room begins to accumulate at 18, so if you live in province where the age of majority is 19, you'll get the room carried forward from the year you turned 18.
If I turn 18 on December 31, do I get the contribution room just for that day or for the whole year? The whole year.
Do commissions paid on share transactions count as withdrawals? Unfortunately, no. If you contribute $2,000 cash and you buy $1,975 worth of stock and pay $25 in commission, the $25 does not count as a withdrawal. It is the same as if you lost money in the TFSA.
How much room do I have? If your broker records are complete, you can do a spreadsheet. The other thing you can do is call the CRA and they will tell you.
TFSATFSA direct transfer from one institution to another: this has no impact on your contributions or withdrawals as it counts as neither.
More than 1 TFSA: you can have as many as you want but your total contribution room does not increase or decrease depending on how many accounts you have.
Withdrawals that convert into contribution room in the next year. Do they carry forward indefinitely if not used in the next year? Answer :yes.
Do I have to declare my profits, withdrawals and contributions? No. Your bank or broker interfaces directly with the CRA on this. There are no declarations to make.
Risky investments - smart? In a TFSA you want always to make money, because you pay no tax, and you want never to lose money, because you cannot claim the loss against your income from your job. If in year X you have $5,000 of contribution room and put it into a TFSA and buy Canadian Speculative Corp. and due to the failure of the Canadian Speculative Corp. it goes to zero, two things happen. One, you burn up that contribution room and you have to wait until next year for the government to give you more room. Two, you can't claim the $5,000 loss against your employment income or investment income or capital gains like you could in a non-registered account. So remember Buffett's rule #1: Do not lose money. Rule #2 being don't forget the first rule. TFSA's are absolutely tailor-made for Graham-Buffett value investing or for diversified ETF or mutual fund investing, but you don't want to buy a lot of small specs because you don't get the tax loss.
Moving to/from Canada/residency. You must be a resident of Canada and 18 years old with a valid SIN to open a TFSA. Consult your tax advisor on whether your circumstances make you a resident for tax purposes. Since 2009, your TFSA contribution room accumulates every year, if at any time in the calendar year you are 18 years of age or older and a resident of Canada. Note: If you move to another country, you can STILL trade your TFSA online from your other country and keep making money within the account tax-free. You can withdraw money and Canada will not tax you. But you have to get tax advice in your country as to what they do. There restrictions on contributions for non-residents. See "non residents of Canada:" https://www.canada.ca/content/dam/cra-arc/formspubs/pub/rc4466/rc4466-19e.pdf
The U.S. withholding tax. Dividends paid by U.S.-domiciled companies are subject to a 15% U.S. withholding tax. Your broker does this automatically at the time of the dividend payment. So if your stock pays a $100 USD dividend, you only get $85 USD in your broker account and in your statement the broker will have a note saying 15% U.S. withholding tax. I do not know under what circumstances if any it is possible to get the withheld amount. Normally it is not, but consult a tax professional.
The U.S. withholding tax does not apply to capital gains. So if you buy $5,000 USD worth of Apple and sell it for $7,000 USD, you get the full $2,000 USD gain automatically.
Tax-Free Leverage. Leverage in the TFSA is effectively equal to your tax rate * the capital gains inclusion rate because you're not paying tax. So if you're paying 25% on average in income tax, and the capital gains contribution rate is 50%, the TFSA is like having 12.5%, no margin call leverage costing you 0% and that also doesn't magnify your losses.
Margin accounts. These accounts allow you to borrow money from your broker to buy stocks. TFSAs are not margin accounts. Nothing stopping you from borrowing from other sources (such as borrowing cash against your stocks in an actual margin account, or borrowing cash against your house in a HELOC or borrowing cash against your promise to pay it back as in a personal LOC) to fund a TFSA if that is your decision, bearing in mind the risks, but a TFSA is not a margin account. Consider options if you want leverage that you can use in a TFSA, without borrowing money.
Dividend Tax Credit on Canadian Companies. Remember, dividends paid into the TFSA are not eligible to be claimed for the credit, on the rationale that you already got a tax break.
FX risk. The CRA allows you to contribute and withdraw foreign currency from the TFSA but the contribution/withdrawal accounting is done in CAD. So if you contribute $10,000 USD into your TFSA and withdraw $15,000 USD, and the CAD is trading at 70 cents USD when you contribute and $80 cents USD when you withdraw, the CRA will treat it as if you contributed $14,285.71 CAD and withdrew $18,75.00 CAD.
OTC (over-the-counter stocks). You can only buy stocks if they are listed on an approved exchange ("approved exchange" = TSX, TSX-V, NYSE, NASDAQ and about 25 or so others). The U.S. pink sheets "over-the-counter" market is an example of a place where you can buy stocks, that is not an approved exchange, therefore you can't buy these penny stocks. I have however read that the CRA make an exception for a stock traded over the counter if it has a dual listing on an approved exchange. You should check that with a tax lawyer or accountant though.
The RRSP. This is another great tax shelter. Tax shelters in Canada are either deferrals or in a few cases - such as the TFSA - outright tax breaks, The RRSP is an example of a deferral. The RRSP allows you to deduct your contributions from your income, which the TFSA does not allow. This deduction is a huge advantage if you earn a lot of money. The RRSP has tax consequences for withdrawing money whereas the TFSA does not. Withdrawals from the RRSP are taxable whereas they are obviously not in a TFSA. You probably want to start out with a TFSA and maintain and grow that all your life. It is a good idea to start contributing to an RRSP when you start working because you get the tax deduction, and then you can use the amount of the deduction to contribute to your TFSA. There are certain rules that claw back your annual contribution room into an RRSP if you contribute to a pension. See your tax advisor.
Pensions. If I contribute to a pension does that claw back my TFSA contribution room or otherwise affect my TFSA in any way? Answer: No.
The $10K contribution limit for 2015. This was PM Harper's pledge. In 2015 the Conservative government changed the rules to make the annual government allowance $10,000 per year forever. Note: withdrawals still converted into contribution room in the following year - that did not change. When the Liberals came into power they switched the program back for 2016 to the original Harper rules and have kept the original Harper rules since then. That is why there is the $10,000 anomaly of 2015. The original Harper rules (which, again, are in effect now) called for $500 increments to the annual government allowance as and when required to keep up with inflation, based on the BofC's Consumer Price Index (CPI). Under the new Harper rules, it would have been $10,000 flat forever. Which you prefer depends on your politics but the TFSA program is massively popular with Canadians. Assuming 1.6% annual CPI inflation then the annual contribution room will hit $10,000 in 2052 under the present rules. Note: the Bank of Canada does an excellent and informative job of explaining inflation and the CPI at their website.
Losses in a TFSA - you cannot claim a loss in a TFSA against income. So in a TFSA you always want to make money and never want to lose money. A few ppl here have asked if you are losing money on your position in a TFSA can you transfer it in-kind to a cash account and claim the loss. I would expect no as I cannot see how in view of the fact that TFSA losses can't be claimed, that the adjusted cost base would somehow be the cost paid in the TFSA. But I'm not a tax lawyeaccountant. You should consult a tax professional.
Transfers in-kind to the TFSA and the the superficial loss rule. You can transfer securities (shares etc.) "in-kind," meaning, directly, from an unregistered account to the TFSA. If you do that, the CRA considers that you "disposed" of, meaning, equivalent to having sold, the shares in the unregistered account and then re-purchased them at the same price in the TFSA. The CRA considers that you did this even though the broker transfers the shares directly in the the TFSA. The superficial loss rule, which means that you cannot claim a loss for a security re-purchased within 30 days of sale, applies. So if you buy something for $20 in your unregistered account, and it's trading for $25 when you transfer it in-kind into the TFSA, then you have a deemed disposition with a capital gain of $5. But it doesn't work the other way around due to the superficial loss rule. If you buy it for $20 in the unregistered account, and it's trading at $15 when you transfer it in-kind into the TFSA, the superficial loss rule prevents you from claiming the loss because it is treated as having been sold in the unregistered account and immediately bought back in the TFSA.
Day trading/swing trading. It is possible for the CRA to try to tax your TFSA on the basis of "advantage." The one reported decision I'm aware of (emphasis on I'm aware of) is from B.C. where a woman was doing "swap transactions" in her TFSA which were not explicitly disallowed but the court rules that they were an "advantage" in certain years and liable to taxation. Swaps were subsequently banned. I'm not sure what a swap is exactly but it's not that someone who is simply making contributions according to the above rules would run afoul of. The CRA from what I understand doesn't care how much money you make in the TFSA, they care how you made it. So if you're logged on to your broker 40 hours a week and trading all day every day they might take the position that you found a way to work a job 40 hours a week and not pay any tax on the money you make, which they would argue is an "advantage," although there are arguments against that. This is not legal advice, just information.
The U.S. Roth IRA. This is a U.S. retirement savings tax shelter that is superficially similar to the TFSA but it has a number of limitations, including lack of cumulative contribution room, no ability for withdrawals to convert into contribution room in the following year, complex rules on who is eligible to contribute, limits on how much you can invest based on your income, income cutoffs on whether you can even use the Roth IRA at all, age limits that govern when and to what extent you can use it, and strict restrictions on reasons to withdraw funds prior to retirement (withdrawals prior to retirement can only be used to pay for private medical insurance, unpaid medical bills, adoption/childbirth expenses, certain educational expenses). The TFSA is totally unlike the Roth IRA in that it has none of these restrictions, therefore, the Roth IRA is not in any reasonable sense a valid comparison. The TFSA was modeled after the U.K. Investment Savings Account, which is the only comparable program to the TFSA.
The UK Investment Savings Account. This is what the TFSA was based off of. Main difference is that the UK uses a 20,000 pound annual contribution allowance, use-it-or-lose-it. There are several different flavours of ISA, and some do have a limited recontribution feature but not to the extent of the TFSA.
Is it smart to overcontribute to buy a really hot stock and just pay the 1% a month overcontribution penalty? If the CRA believes you made the overcontribution deliberately the penalty is 100% of the gains on the overcontribution, meaning, you can keep the overcontribution, or the loss, but the CRA takes the profit.
Speculative stocks-- are they ok? There is no such thing as a "speculative stock." That term is not used by the CRA. Either the stock trades on an approved exchange or it doesn't. So if a really blue chip stock, the most stable company in the world, trades on an exchange that is not approved, you can't buy it in a TFSA. If a really speculative gold mining stock in Busang, Indonesia that has gone through the roof due to reports of enormous amounts of gold, but their geologist somehow just mysteriously fell out of a helicopter into the jungle and maybe there's no gold there at all, but it trades on an approved exchange, it is fine to buy it in a TFSA. Of course the risk of whether it turns out to be a good investment or not, is on you.
Remember, you're working for your money anyway, so if you can get free money from the government -- you should take it! Follow the rules because Canadians have ended up with a tax bill for not understanding the TFSA rules. Appreciate the feedback everyone. Glad this basic post has been useful for many. The CRA does a good job of explaining TFSAs in detail at https://www.canada.ca/content/dam/cra-arc/formspubs/pub/rc4466/rc4466-19e.pdf
Unrelated but of Interest: The Margin Account
Note: if you are interested in how margin accounts work, I refer you to my post on margin accounts, where I use a straightforward explanation of the math behind margin accounts to try and give readers the confidence that they understand this powerful leveraging tool.
Assigned early on your short put spread? Send a thank you note...
"I was assigned early, what do I do?" is a common question - first, don't panic. Second, read the below. Third, don't panic. Fourth, ask questions. When selling options, there is always a chance that the option owner can exercise early, leaving the option seller with stock that they weren't anticipating - either 100 long shares if they sold a put, or 100 short shares if they sold a call. This can cause confusion, particularly if one doesn't have the buying power to pay for the shares. In one tragic instance earlier this year, Alexander Kerns took his own life due to the buying power shown on his (misleading) screen after selling spreads. Let's cover what happens if the short leg of a put spread is assigned before expiration and show that it is actually Good news for the option seller. Traditional put spread:
Sell 1 18 Sept AAPL 485 put for 17.35
Buy 1 18 Sept AAPL 480 put for 15.30
Total credit of 2.05
If held to expiration, what can happen?
AAPL finishes > 485, we keep 2.05 for a $205 win.
AAPL finishes <480, we lose 2.95 ($5 is the width of the strikes, minus the $2.05 collected) for a $295 loss
AAPL finishes between 480 and 485 and we are assigned 100 shares of stock at $485.
In scenario 3, we'll have $48,500 debited from our account and have 100 shares of AAPL. We'll still have the 2.05 credit from selling the spread, so our Effective entry price is $482.95 (485-2.05). If AAPL expires >= $482.95, we'll be profitable on our stock position, below $482.95 and we'll be unprofitable on our 100 shares. We will now have an increased potential for loss on Monday, as our long put has expired worthless. Unless one wants to take the 100 shares, it is recommended to close the position before the market closes on expiration to avoid dealing with the stock. Early Assignment While it is somewhat rare, there are times when an option holder may choose to exercise their option early. If a stock is hard to borrow (usually calls), if the remaining extrinsic value is incredibly low, for a dividend (calls) or simply because the put or call holder is inexperienced, we may find that we're holding shares that we weren't expecting prior to expiration. Don't panic Continuing with our example, let's say that AAPL is trading at 460 on September 11th and we find that our short put has been assigned, changing our position to:
Long 480 put
Long 100 shares of AAPL at an entry price of $485
If held to expiration, what can happen?
AAPL finishes at 485, our 480 put expires worthless, we sell the stock at close for break even, and keep the 2.05 credit for the initial spread - a $205 win.
AAPL finishes <480, our 480 put expires in the money and we sell our shares at 480. We lose 2.95 - We bought the stock at $485, sold for $480, but received $2.05 in an initial credit. Total loss is $295.
AAPL finishes between 480 and 485. We sell the stock at close, our 480 put expires worthless and we make money if the stock ends above $482.95, lose if it ends below $482.95.
Note that these three scenarios are Very similar to the initial put spread, with one important difference. This time, the first scenario only discusses if AAPL ends at $485. Look what happens if AAPL ends Higher than $485, for example:
AAPL finishes at $490. Our 480 put expires worthless, we sell the stock at close and take in an extra profit of $5/share, for a total win of $705 ($500 on the stock + $205 on the put spread).
Early assignment of puts in short put spreads Helps the option seller Between when we are assigned on the short put and expiration, we have a "free shot" at upside in the underlying name. Our risk hasn't changed. This is too good to be true There are some downsides, namely, you need the capital for the 100 shares. In this case, we've gone from a small margin requirement of less than $500 to needing $48,500 for the shares (for a cash account). If you don't have the cash, you can simply close the position. If you receive a margin call, you will normally have two to five days to fulfill it, giving you a bit of time to see if you get 'lucky' and there is a big recovery on the underlying. You should still proactively close the position, though, as your broker may decide to close other positions to fulfill the margin call. How about calls? The process is the same for a short call spread, but there are a couple of significant differences:
You will pay interest on the short shares. This can be quite expensive if the underlying is volatile and/or hard to borrow.
You will be responsible for dividends. You will have to pay any dividends that occur while you hold the short stock. This is the most common reason you'll be assigned on a short call and you'll need to be aware when selling calls or call spreads anytime there is a dividend prior to expiration.
For both of these reasons, it is generally easier to simply close the position if assigned early. Don't Panic (Yes, I'm reusing this title) When you sell options, you will occasionally be assigned. Once you have a good understanding of how options work, you'll see that there is a Benefit to being assigned early on short puts when they are part of a spread. You will also learn to close calls before they are likely to be assigned or, if assigned, know how to handle it. [Edit: Clarified when options may be assigned early for calls and puts]
Feeling really dumb and depressed this morning as I was margin called for 380k. Hoping for some advice. Here’s the story: 1) Sold 10x AAPL 375c 21Aug20 2) Bought 10x AAPL 380c 21Aug20 The credit spread was about $3,000 at the time (mid-July), and max loss therefore should have been $2,000. I believe the short position was ITM, and long was ATM at the time, although this is irrelevant. This morning I received an email saying my short position was exercised (fuck me, I didn’t realize ex-div for AAPL was today). I’m assuming they exercised it yesterday to qualify for the upcoming dividend. My broker (Questrade in Canada) did nothing with my long position, so I’ve gone from a max loss of $2,000 to a much steeper one. I don’t know what to do.. Questrade rep convinced me to exercise my long position and sell the shares upon receipt. However, the share price has dropped $10 already today, so my loss has likely gone from $2,000 to $12,000 and could get worse if this drop continues. I submitted the request to exercise the calls and I’m waiting for the shares. I entered this trade assuming my max loss would be $2,000. I thought questrade would require direction for the long position, cause I don’t have 380k to cover in my account. TLDR; entered what I thought was a covered credit position, to later be naked and forced into to a $380,000 long position.
How to not get ruined with Options - Part 3a of 4 - Simple Strategies
Post 1: Basics: CALL, PUT, exercise, ITM, ATM, OTM Post 2: Basics: Buying and Selling, the Greeks Post 3a: Simple Strategies Post 3b: Advanced Strategies Post 4a: Example of trades (short puts, covered calls, and verticals) Post 4b: Example of trades (calendars and hedges) --- Ok. So I lied. This post was getting way too long, so I had to split in two (3a and 3b) In the previous posts 1 and 2, I explained how to buy and sell options, and how their price is calculated and evolves over time depending on the share price, volatility, and days to expiration. In this post 3a (and the next 3b), I am going to explain in more detail how and when you can use multiple contracts together to create more profitable trades in various market conditions. Just a reminder of the building blocks: You expect that, by expiration, the stock price will … ... go up more than the premium you paid → Buy a call … go down more than the premium you paid → Buy a put ... not go up more than the premium you got paid → Sell a call ... not go down more than the premium you got paid → Sell a put Buying Straight Calls: But why would you buy calls to begin with? Why not just buy the underlying shares? Conversely, why would you buy puts? Why not just short the underlying shares? Let’s take long shares and long calls as an example, but this applies with puts as well. If you were to buy 100 shares of the company ABC currently trading at $20. You would have to spend $2000. Now imagine that the share price goes up to $25, you would now have $2500 worth of shares. Or a 25% profit. If you were convinced that the price would go up, you could instead buy call options ATM or OTM. For example, an ATM call with a strike of $20 might be worth $2 per share, so $200 per contract. You buy 10 contracts for $2000, so the same cost as buying 100 shares. Except that this time, if the share price hits $25 at expiration, each contract is now worth $500, and you now have $5000, for a $3000 gain, or a 150% profit. You could even have bought an OTM call with a strike of $22.50 for a lower premium and an even higher profit. But it is fairly obvious that this method of buying calls is a good way to lose money quickly. When you own shares, the price goes up and down, but as long as the company does not get bankrupt or never recovers, you will always have your shares. Sometimes you just have to be very patient for the shares to come back (buying an index ETF increases your chances there). But by buying $2000 worth of calls, if you are wrong on the direction, the amplitude, or the time, those options become worthless, and it’s a 100% loss, which rarely happens when you buy shares. Now, you could buy only one contract for $200. Except for the premium that you paid, you would have a similar profit curve as buying the shares outright. You have the advantage though that if the stock price dropped to $15, instead of losing $500 by owning the shares, you would only lose the $200 you paid for the premium. However, if you lose these $200 the first month, what about the next month? Are you going to bet $200 again, and again… You can see that buying calls outright is not scalable long term. You need a very strong conviction over a specific period of time. How to buy cheaper shares? Sell Cash Covered Put. Let’s continue on the example above with the company ABC trading at $20. You may think that it is a bit expensive, and you consider that $18 is a more acceptable price for you to own that company. You could sell a put ATM with a $20 strike, for $2. Your break-even point would be $18, i.e. you would start losing money if the share price dropped below $18. But also remember that if you did buy the shares outright, you would have lost more money in case of a price drop, because you did not get a premium to offset that loss. If the price stays above $20, your return for the month will be 11% ($200 / $1800). Note that in this example, we picked the ATM strike of $20, but you could have picked a lower strike for your short put, like an OTM strike of $17.50. Sure, the premium would be lower, maybe $1 per share, but your break-even point would drop from $18 to $16.50 (only 6% return then per month, not too shabby). The option trade will usually be written like this: SELL -1 ABC 100 17 JUL 20 17.5 PUT @ 1.00 This means we sold 1 PUT on ABC, 100 shares per contract, the expiration date is July 17, 2020, and the strike is $17.5, and we sold it for $1 per share (so $100 credit minus fees). With your $20 short put, you will get assigned the shares if the price drops below $20 and you keep it until expiration, however, you will have paid them the equivalent of $18 each (we’ll actually talk more about the assignment later). If your short put expires worthless, you keep the premium, and you may decide to redo the same trade again. The share price may have gone up so much that the new ATM strike does not make you comfortable, and that’s fine as you were not willing to spend more than $18 per share, to begin with, anyway. You will have to wait for some better conditions. This strategy is called a cash covered put. In a taxable account, depending on your broker, you can have it on margin with no cash needed (you will need to have some other positions to provide the buying power). Beware that if you don’t have the cash to cover the shares, it is adding some leverage to your overall position. Make sure you account for all your potential risks at all times. The nice thing about this position is that as long as you are not assigned, you don’t actually need to borrow some money, it won’t cost you anything. In an IRA account, you will need to have the cash available for the assignment (remember in this example, you only need $1800, plus trading fees). Let’s roll! Now one month later, the share price is between $18 and $22, there are few days of expiration left, and you don’t want to be assigned, but you want to continue the same process for next month. You could close the current position, and reopen a new short put, or you could in one single transaction buy back your current short put, and sell another put for next month. Doing one trade instead of two is usually cheaper because you reduce the slippage cost. The closing of the old position and re-opening of a new short position for the next expiration is called rolling the short option (from month to month, but you can also do this with weekly options). The croll can be done a week or even a few days before expiration. Remember to avoid expiration days, and be careful being short an option on ex-dividend dates. When you roll month to month with the same strike, for most cases, you will get some money out of it. However, the farther your strike is from the current share price, the less additional premium you will get (due to the lower extrinsic value on the new option), and it can end up being close to $0. At that point, given the risk incurred, you may prefer to close the trade altogether or just be assigned. During the roll, depending on if the share price moved a bit, you can adjust the roll up or down. For example, you buy back your short put at $18, and you sell a new short put at $17 or $19, or whatever value makes the most sense. Assignment Now, let’s say that the share price finally dropped below $20, and you decided not to roll, or it dropped so much that the roll would not make sense. You ended up getting your shares assigned at a strike price of $18 per share. Note that the assigned share may have a current price much lower than $18 though. If that’s the case, remember that you earned more money than if you bought the shares outright at $20 (at least, you got to keep the $2 premium). And if you rolled multiple times, every premium that you got is additional money in your account. Want to sell at a premium? Sell Covered Calls. You could decide to hold onto the shares that you got at a discount, or you may decide that the stock price is going to go sideways, and you are fine collecting more theta. For example, you could sell a call at a strike of $20, for example for $1 (as it is OTM now given the stock price dropped). SELL -1 ABC 100 17 JUL 20 20 CALL @ 1.00 When close to the expiration time, you can either roll your calls again, the same way that you rolled your puts, as much as you can, or just get assigned if the share price went up. As you get assigned, your shares are called away, and you receive $2000 from the 100 shares at $20 each. Except that you accumulated more money due to all the premiums you got along the way. This sequence of the short put, roll, roll, roll, assignment, the short call, roll, roll, roll, is called the wheel. It is a great strategy to use when the market is trading sideways and volatility is high (like currently). It is a low-risk trade provided that the share you pick is not a risky one (pick a market ETF to start) perfect to get create some income with options. There are two drawbacks though:
If the share dropped too much, you are stuck with it.
You will have to be patient for the share to go back up, but often you can end up with many shares at a loss if the market has been tanking. As a rule of thumb, if I get assigned, I never ever sell a call below my assignment strike minus the premium. In case the market jumps back up, I can get back to my original position, with an additional premium on the way. Market and shares can drop like a stone and bounce back up very quickly (you remember this March and April?), and you really don’t want to lock a loss. Here is a very quick example of something to not do: Assigned at $18, current price is $15, sell a call at $16 for $1, share goes back up to $22. I get assigned at $16. In summary, I bought a share at $18, and sold it at $17 ($16 + $1 premium), I lost $1 between the two assignments. That’s bad.
If the share goes up too fast, you missed some opportunity for gain, potentially big gains.
You will have to find some other companies to do the wheel on. If it softens the blow a bit, your retirement account may be purely long, so you’ll not have totally missed the upside anyway. A short put is a bullish position. A short call is a bearish position. Alternating between the two gives you a strategy looking for a reversion to the mean. Both of these positions are positive theta, and negative vega (see part 2). Now that I explained the advantage of the long calls and puts, and how to use short calls and puts, we can explore a combination of both. Verticals Most option beginners are going to use long calls (or even puts). They are going to gain some money here and there, but for most parts, they will lose money. It is worse if they profited a bit at the beginning, they became confident, bet a bigger amount, and ended up losing a lot. They either buy too much (50% of my account on this call trade that can’t fail), too high of a volatility (got to buy those NKLA calls or puts), or too short / too long of an expiration (I don’t want to lose theta, or I overspent on theta). As we discussed earlier, a straight long call or put is one of the worst positions to be in. You are significantly negative theta and positive vega. But if you take a step back, you will realize that not accounting for the premium, buying a call gives you the upside of stock up to the infinity (and buying a put gives you the upside of the stock going to $0). But in reality, you rarely are betting that the stock will go to infinity (or to $0). You are often just betting that the stock will go up (or down) by X%. Although the stock could go up (or down) by more than X%, you intuitively understand that there is a smaller chance for this to happen. Options are giving you leverage already, you don’t need to target even more gain. More importantly, you probably should not pay for a profit/risk profile that you don’t think is going to happen. Enter verticals. It is a combination of long and short calls (or puts). Say, the company ABC trades at $20, you want to take a bullish position, and the ATM call is $2. You probably would be happy if the stock reaches $25, and you don’t think that it will go much higher than that. You can buy a $20 call for $2, and sell a $25 call for $0.65. You will get the upside from $20 to $25, and you let someone else take the $25 to infinity range (highly improbable). The cost is $1.35 per share ($2.00 - $0.65). BUY +1 VERTICAL ABC 100 17 JUL 20 20/25 CALL @ 1.35 This position is interesting for multiple reasons. First, you still get the most probable range for profitability ($20 to $25). Your cost is $1.35 so 33% cheaper than the long call, and your max profit is $5 - $1.35 = $3.65. So your max gain is 270% of the risked amount, and this is for only a 25% increase in the stock price. This is really good already. You reduced your dependency on theta and vega, because the short side of the vertical is reducing your long side’s. You let someone else pay for it. Another advantage is that it limits your max profit, and it is not a bad thing. Why is it a good thing? Because it is too easy to be greedy and always wanting and hoping for more profit. The share reached $25. What about $30? It reached $30, what about $35? Dang it dropped back to $20, I should have sold everything at the top, now my call expires worthless. But with a vertical, you know the max gain, and you paid a premium for an exact profit/risk profile. As soon as you enter the vertical, you could enter a close order at 90% of the max value (buy at $1.35, sell at $4.50), good till to cancel, and you hope that the trade will eventually be executed. It can only hit 100% profit at expiration, so you have to target a bit less to get out as soon as you can once you have a good enough profit. This way you lock your profit, and you have no risk anymore in case the market drops afterwards. These verticals (also called spreads) can be bullish or bearish and constructed as debit (you pay some money) or credit (you get paid some money). The debit or credit versions are equivalent, the credit version has a bit of a higher chance to get assigned sooner, but as long as you check the extrinsic value, ex-dividend date, and are not too deep ITM you will be fine. I personally prefer getting paid some money, I like having a bigger balance and never have to pay for margin. :) Here are the 4 trades for a $20 share price: CALL BUY 20 ATM / SELL 25 OTM - Bullish spread - Debit CALL BUY 25 OTM / SELL 20 ATM - Bearish spread - Credit PUT BUY 20 ATM / SELL 25 ITM - Bullish spread - Credit PUT BUY 25 ITM / SELL 20 ATM - Bearish spread - Debit Because both bullish trades are equivalent, you will notice that they both have the same profit/risk profile (despite having different debit and credit prices due to the OTM/ITM differences). Same for the bearish trades. Remember that the cost of an ITM option is greater than ATM, which in turn is greater than an OTM. And that relationship is what makes a vertical a credit or a debit. I understand that it can be a lot to take in. Let’s take a step back here. I picked a $20/$25 vertical, but with the share price at $20, I could have a similar $5 spread with $15/$20 (with the same 4 constructs). Or instead of 1 vertical $20/$25, I could have bought 5 verticals $20/$21. This is a $5 range as well, except that it has a higher probability for the share to be above $21. However, it also means that the spread will be more expensive (you’ll have to play with your broker tool to understand this better), and it also increases the trading fees and potentially overall slippage, as you have 5 times more contracts. Or you could even decide to pick OTM $25/$30, which would be even cheaper. In this case, you don’t need the share to reach $30 to get a lot of profit. The contracts will be much cheaper (for example, like $0.40 per share), and if the share price goes up to $25 quickly long before expiration, the vertical could be worth $1.00, and you would have 150% of profit without the share having to reach $30. If you decide to trade these verticals the first few times, look a lot at the numbers before you trade to make sure you are not making a mistake. With a debit vertical, the most you can lose per contract is the premium you paid. With a credit vertical, the most you can lose is the difference between your strikes, minus the premium you received. One last but important note about verticals: If your short side is too deep ITM, you may be assigned. It happens. If you bought some vertical with a high strike value, for example: SELL +20 VERTICAL SPY 100 17 JUL 20 350/351 PUT @ 0.95 Here, not accounting for trading fees and slippage, you paid $0.95 per share for 20 contracts that will be worth $1 per share if SPY is less than $350 by mid-July, which is pretty certain. That’s a 5% return in 4 weeks (in reality, the trading fees are going to reduce most of that). Your actual risk on this trade is $1900 (20 contracts * 100 shares * $0.95) plus trading fees. That’s a small trade, however the underlying instrument you are controlling is much more than that. Let’s see this in more detail: You enter the trade with a $1900 potential max loss, and you get assigned on the short put side (strike of $350) after a few weeks. Someone paid expensive puts and exercised 20 puts with a strike of $350 on their existing SPY shares (2000 of them, 20 contracts * 100 shares). You will suddenly receive 2000 shares on your account, that you paid $350 each. Thus your balance is going to show -$700,000 (you have 2000 shares to balance that). If that happens to you: DON’T PANIC. BREATHE. YOU ARE FINE. You owe $700k to your broker, but you have roughly the same amount in shares anyway. You are STILL protected by your long $351 puts. If the share price goes up by $1, you gain $2000 from the shares, but your long $351 put will lose $2000. Nothing changed. If the share price goes down by $1, you lose $2000 from the shares, but your long $350 put will gain $2000. Nothing changed. Just close your position nicely by selling your shares first, and just after selling your puts. Some brokers can do that in one single trade (put based covered stock). Don’t let the panic set in. Remember that you are hedged. Don’t forget about the slippage, don’t let the market makers take advantage of your panic. Worst case scenario, if you use a quality broker with good customer service, call them, and they will close your position for you, especially if this happens in an IRA. The reason I am insisting so much on this is because of last week’s event. Yes, the RH platform may have shown incorrect numbers for a while, but before you trade options you need to understand the various edge cases. Again if this happens to you, don’t panic, breathe, and please be safe. This concludes my post 3a. We talked about the trade-offs between buying shares, buying calls instead, selling puts to get some premium to buy some shares at a cheaper price, rolling your short puts, getting your puts assigned, selling calls to get some additional money in sideways markets, rolling your short calls, having your calls assigned too. We talked about the wheel, being this whole sequence spanning multiple months. After that, we discussed the concept of verticals, with bullish and bearish spreads that can be either built as a debit or a credit. And if there is one thing you need to learn from this, avoid buying straight calls or puts but use verticals instead, especially if the volatility is very high. And do not ever sell naked calls, again use verticals. The next post will explain more advanced and interesting option strategies. --- Post 1: Basics: CALL, PUT, exercise, ITM, ATM, OTM Post 2: Basics: Buying and Selling, the greeks Post 3a: Simple Strategies Post 3b: Advanced Strategies Post 4a: Example of trades (short puts, covered calls, and verticals) Post 4b: Example of trades (calendars and hedges)
Edit: Thank you for all the comments and chat messages! I'm trying to go through each one. Writing thoughtful comments in the midst of having a full-time job is HARD WORK. I think I've missed a few questions, drop me a message if you're interested in continuing a discussion, I'm open to listening! There has been a lot of good comments, a few with great perspectives, and now I have a whole lot of things to read up on. --- Now that the 2020 General Election is firmly in our rear-view mirror, there is something that I have been meaning to write about: institutionalized racism affecting the minorities, especially the Malays, in Singapore. If you are groaning at this thinking you have been misled by this post’s title, I assure you that by the end of this post you will understand the caveat behind the above-mentioned title. I plead for a little of your time and patience. We have seen many discussions online about majority privilege and systemic racism impacting the minorities. Many of you may have even participated in some of these discussions. I will not try to explain those terms for they have already been repeatedly debated to death. What this post aims to achieve is to bring to light Singapore’s history and government policies that have either benefited the majority race or kneecapped the minority race. Or both. Why am I doing this? It is frustrating to see some Singaporeans fully buying into the narrative that Singapore is a truly meritocratic society; that the government’s policies do not discriminate against minorities, or if a Singaporean worked hard enough he or she will succeed (whatever the definition of success is), or that we have anti-discriminatory laws that protect the minorities. Some even claim that the Malays enjoy special privileges due to Section 152 of the Constitution describing the special position of Malays, and that the Malays are blessed with free education in Singapore. Section 152, “Special Position”, free education for all Malays?
Minorities and special position of Malays 152.—(1) It shall be the responsibility of the Government constantly to care for the interests of the racial and religious minorities in Singapore. (2) The Government shall exercise its functions in such manner as to recognise the special position of the Malays, who are the indigenous people of Singapore, and accordingly it shall be the responsibility of the Government to protect, safeguard, support, foster and promote their political, educational, religious, economic, social and cultural interests and the Malay language.
"The aim of the government is not to turn out a few well-educated youths, nor a number of less well-educated boys; rather it is to improve the bulk of the people, and to make the son of a fisherman or a peasant a more intelligent fisherman or peasant than his father had been, and a man whose education will enable him to understand how his lot in life fits in with the scheme of life around him".
"The great object of education is to train a man to make a living.... you can teach Malays so that they do not lose their skill and craft in fishing and jungle work. Teach them the dignity of manual labour, so that they do not all become krannies (clerks) and I am sure you will not have the trouble which has arisen in India through over education"
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