Safe way to "bet" against LYFT?

[gmaynardkrebs]

Suppose I believe that LYFT stock is eventually going to crash, no pun intended. Shorting is too risky for me, because the potential loss on a naked short is unlimited. Buying far out of the money puts seems safe, but they last only 30 days or so (I think), which means you have to keep renewing them. Is there a better way to bet against Lyft (or other stocks), in which the maximum loss is what I pay for the options/whatever?

[vineviz]

Suppose I believe that LYFT stock is eventually going to crash, no pun intended. Shorting is too risky for me, because the potential loss on a naked short is unlimited. Buying far out of the money puts seems safe, but they last only 30 days or so (I think), which means you have to keep renewing them. Is there a better way to bet against Lyft (or other stocks), in which the maximum loss is what I pay for the options/whatever?

If by "safe" you mean "I'll almost certainly lose all the money I place on this bet but not more than that" then selling a put option is probably the only way to do this.

[jhfenton]

A traditional way to hedge a short is to buy a call. With the call, you set your maximum loss up front.

You do have to worry about the expiration of the call, but you can buy options with maturities much longer than 30 days. Of course, the longer the maturity, the higher the option premium, so the more expensive your insurance.

[gmaynardkrebs]

If by "safe" you mean "I'll almost certainly lose all the money I place on this bet but not more than that"

Correct.

[Boglegrappler]

If by "safe" you mean "I'll almost certainly lose all the money I place on this bet but not more than that" then selling a put option is probably the only way to do this.

I think this should say "buying a put option".

When you "sell" or "write" a put option, you are standing by to purchase the stock if it is "put" to you, at the put price. Obviously this only happens if the stock is selling below the put strike price. Selling puts is viewed as way to collect easy money in a rising market, but has stark consequences if the stock hits an air pocket of bad news or bad market action.

Buying a put is the way to profit if the stock collapses below the strike price during the term of the option.

[vineviz]

If by "safe" you mean "I'll almost certainly lose all the money I place on this bet but not more than that" then selling a put option is probably the only way to do this.

I think this should say "buying a put option".

You are right. My fingers were faster than my brain.

[whodidntante]

The seller of the put is fully aware that this may not end well, so I would expect that to be a costly contract. But yes, buying a put is "safe" in the sense that you can't lose more than the cost of the contract +commissions.

[KyleAAA]

I think $70ish is about right for Lyft, so I wouldn’t bet against it. The secular trend behind ride sharing isn’t disappearing and there is more than enough market opportunity for both lyft and Uber to thrive. But for what you want, either shorting coupled with a long term call to hedge or buy puts.

[gmaynardkrebs]

I think $70ish is about right for Lyft, so I wouldn’t bet against it. The secular trend behind ride sharing isn’t disappearing and there is more than enough market opportunity for both lyft and Uber to thrive. But for what you want, either shorting coupled with a long term call to hedge or buy puts.

My thinking is this: LYFT' and Uber can't make money without self-driving cars. I willing to bet such cars ain't gonna' happen for decades, if ever. The problem is that I have to be buying out of the money puts for a long time to for this to pan out for me. You know what Keynes said about how long the market can stay irrational.

[KyleAAA]

I think $70ish is about right for Lyft, so I wouldn’t bet against it. The secular trend behind ride sharing isn’t disappearing and there is more than enough market opportunity for both lyft and Uber to thrive. But for what you want, either shorting coupled with a long term call to hedge or buy puts.

My thinking is this: LYFT' and Uber can't make money without self-driving cars. I willing to bet such cars ain't gonna' happen for decades, if ever. The problem is that I have to be buying out of the money puts for a long time to for this to pan out for me. You know what Keynes said about how long the market can stay irrational.

I disagree with both of those assumptions. It will be fun to revisit this thread in 5 years and see how it all played out. I am not confident enough in my opinion to risk any actual money, though.

[sometimesinvestor]

You can buy a put that will expire ina few days or one that will not expire fora year. You should decide what you think will happen and decide what bet you want to take.My understanding of expert consensus is that LYFT will go up fora while and then down fora while but the time period and magnitude of the move is uncertain Once you decide what will happen an option expert (certainlya stock broker who specializes in such things can tell you what purchase to make (For example a put spread, a calendar spread or a straight put) I agree shorting the stock directly is probably wrong.

[NJ-Irish]

There are a lot of option strategies which you can tailor your risk and reward to exactly what you are looking for.

But you will probably lose all your money.

https://en.m.wikipedia.org/wiki/Options_strategy

[HEDGEFUNDIE]

I think $70ish is about right for Lyft, so I wouldn’t bet against it. The secular trend behind ride sharing isn’t disappearing and there is more than enough market opportunity for both lyft and Uber to thrive. But for what you want, either shorting coupled with a long term call to hedge or buy puts.

My thinking is this: LYFT' and Uber can't make money without self-driving cars. I willing to bet such cars ain't gonna' happen for decades, if ever. The problem is that I have to be buying out of the money puts for a long time to for this to pan out for me. You know what Keynes said about how long the market can stay irrational.

Uber already has positive unit economics:
https://stratechery.com/2018/ubers-bundles/

[gmaynardkrebs]

Uber already has positive unit economics:
https://stratechery.com/2018/ubers-bundles/

The story you posted is largely un-sourced. This, from the Washington Post today (3/30/2019), takes a different view:

Some people characterize the driver business model as being nothing more than venture capitalists subsidizing people’s taxi rides around the world,” said Jason Schloetzer, a professor at Georgetown’s McDonough School of Business who specializes in artificial intelligence use cases. “And that kind of business model can only survive so long.”
Drivers represent more than cost concerns for Uber and Lyft. As driver demonstrations in California illustrated this week, they are fighting back against the dwindling cut of the fare they get — as little as 60 cents a mile in Southern California, only two cents more than the IRS reimbursement rate. And court rulings or legislation could force the companies to consider drivers as employees rather than contractors, driving up their costs by requiring them to offer benefits.
“Lyft and Uber together will be able to pull this off for several quarters but they are going to have to show profitability and they’re not close," said University of Maryland strategy and entrepreneurship professor Brent Goldfarb, co-author of “Bubbles and Crashes: The Boom and Bust of Technological innovation. https://www.washingtonpost.com/technolo ... cae9d89244

[goodenyou]

Listen to Damodaran on ride share valuation. He is arguably the leading expert in corporate valuation. He is an outstanding lecturer.

Betting on stocks without some understanding of valuation is foolhardy, in my opinion.


I have personally asked him to participate in this forum (Bogleheads).


http://aswathdamodaran.blogspot.com/201 ... g-ipo.html


https://youtu.be/hA3Dgx4ovGM (on Uber)

[long_gamma]

I have personally asked him to participate in this forum (Bogleheads).

He is the leading expert in Valuation. He will be run out of here with highly intelligent comments like "Nobody knows nuthin" & "Market timer"

[adamthesmythe]

I think $70ish is about right for Lyft, so I wouldn’t bet against it. The secular trend behind ride sharing isn’t disappearing and there is more than enough market opportunity for both lyft and Uber to thrive. But for what you want, either shorting coupled with a long term call to hedge or buy puts.

My thinking is this: LYFT' and Uber can't make money without self-driving cars. I willing to bet such cars ain't gonna' happen for decades, if ever. The problem is that I have to be buying out of the money puts for a long time to for this to pan out for me. You know what Keynes said about how long the market can stay irrational.

I would make a bet against that thinking. Betting against a technological innovation that (1) is mostly software and (2) doesn't require violations of physical laws is unlikely to be a good idea.

[gmaynardkrebs]

I think $70ish is about right for Lyft, so I wouldn’t bet against it. The secular trend behind ride sharing isn’t disappearing and there is more than enough market opportunity for both lyft and Uber to thrive. But for what you want, either shorting coupled with a long term call to hedge or buy puts.

My thinking is this: LYFT' and Uber can't make money without self-driving cars. I willing to bet such cars ain't gonna' happen for decades, if ever. The problem is that I have to be buying out of the money puts for a long time to for this to pan out for me. You know what Keynes said about how long the market can stay irrational.

I would make a bet against that thinking. Betting against a technological innovation that (1) is mostly software and (2) doesn't require violations of physical laws is unlikely to be a good idea.

You mean like controlled nuclear fusion (GE, in the 1960s), Strategic Missile Defense aka Reagan's Star Wars? You only hear about the ones that succeeded. You rarely hear about the far greater number of seemingly promising technologies that failed. Outside of a few airports and amusement parks, we don't even have self driving trains, and they run a on tracks. Where such cars might work is in big cities, but that will require a large investment in physical infrastructure (ie roadway sensors etc) or highly limited access highways. No such expenditures are on the business plan of LYFT or Uber.

[guwop]

Options begin trading this Thursday, April 4th - https://seekingalpha.com/news/3447353-c ... ng-april-4

[ohai]

Chances are you won't be able to do anything for the next 6 months or more. Stock borrow rates will be too high for any shorting or buying put options to be appealing*. When FB was first listed, I remember that borrow rates were like 40%.

*High borrow rates are reflected in option prices through lower forward prices (expensive puts, cheaper calls).

[Thegame14]

I also remember facebook IPO'ing at I believe $25 a share and thinking who would buy this, facebook cant make money because as soon as they charge for an account, everyone will just leave and go to the next platform and facebook will be as valuable as Myspace.....

I also remember amazon not making any more for years and thinking it was overpriced because they kept doing stupid things like trying to get into the cell phone business and wasting money on too many non core things....

Same with Baidu, alibaba, how can they get away with literally ripping off an entire US Company stealing technology and just change the name.....

[KyleAAA]

I think $70ish is about right for Lyft, so I wouldn’t bet against it. The secular trend behind ride sharing isn’t disappearing and there is more than enough market opportunity for both lyft and Uber to thrive. But for what you want, either shorting coupled with a long term call to hedge or buy puts.

My thinking is this: LYFT' and Uber can't make money without self-driving cars. I willing to bet such cars ain't gonna' happen for decades, if ever. The problem is that I have to be buying out of the money puts for a long time to for this to pan out for me. You know what Keynes said about how long the market can stay irrational.

I would make a bet against that thinking. Betting against a technological innovation that (1) is mostly software and (2) doesn't require violations of physical laws is unlikely to be a good idea.

You mean like controlled nuclear fusion (GE, in the 1960s), Strategic Missile Defense aka Reagan's Star Wars? You only hear about the ones that succeeded. You rarely hear about the far greater number of seemingly promising technologies that failed. Outside of a few airports and amusement parks, we don't even have self driving trains, and they run a on tracks. Where such cars might work is in big cities, but that will require a large investment in physical infrastructure (ie roadway sensors etc) or highly limited access highways. No such expenditures are on the business plan of LYFT or Uber.

Why would self-driving cards need heavy investment in roadway sensors? That isn't how the problem is being approached based on what I gather.

[gmaynardkrebs]

I think $70ish is about right for Lyft, so I wouldn’t bet against it. The secular trend behind ride sharing isn’t disappearing and there is more than enough market opportunity for both lyft and Uber to thrive. But for what you want, either shorting coupled with a long term call to hedge or buy puts.

My thinking is this: LYFT' and Uber can't make money without self-driving cars. I willing to bet such cars ain't gonna' happen for decades, if ever. The problem is that I have to be buying out of the money puts for a long time to for this to pan out for me. You know what Keynes said about how long the market can stay irrational.

I would make a bet against that thinking. Betting against a technological innovation that (1) is mostly software and (2) doesn't require violations of physical laws is unlikely to be a good idea.

You mean like controlled nuclear fusion (GE, in the 1960s), Strategic Missile Defense aka Reagan's Star Wars? You only hear about the ones that succeeded. You rarely hear about the far greater number of seemingly promising technologies that failed. Outside of a few airports and amusement parks, we don't even have self driving trains, and they run a on tracks. Where such cars might work is in big cities, but that will require a large investment in physical infrastructure (ie roadway sensors etc) or highly limited access highways. No such expenditures are on the business plan of LYFT or Uber.

Why would self-driving cards need heavy investment in roadway sensors? That isn't how the problem is being approached based on what I gather.

Roadway sensors would take a lot of the work away from the cars lidar and AI technology, both of which are as yet unproven, and possibly insurmountable.

[KyleAAA]

My thinking is this: LYFT' and Uber can't make money without self-driving cars. I willing to bet such cars ain't gonna' happen for decades, if ever. The problem is that I have to be buying out of the money puts for a long time to for this to pan out for me. You know what Keynes said about how long the market can stay irrational.

I would make a bet against that thinking. Betting against a technological innovation that (1) is mostly software and (2) doesn't require violations of physical laws is unlikely to be a good idea.

You mean like controlled nuclear fusion (GE, in the 1960s), Strategic Missile Defense aka Reagan's Star Wars? You only hear about the ones that succeeded. You rarely hear about the far greater number of seemingly promising technologies that failed. Outside of a few airports and amusement parks, we don't even have self driving trains, and they run a on tracks. Where such cars might work is in big cities, but that will require a large investment in physical infrastructure (ie roadway sensors etc) or highly limited access highways. No such expenditures are on the business plan of LYFT or Uber.

Why would self-driving cards need heavy investment in roadway sensors? That isn't how the problem is being approached based on what I gather.

Roadway sensors would take a lot of the work away from the cars lidar and AI technology, both of which are as yet unproven, and possibly insurmountable.

I think that would be a much more difficult technical challenge. Cars need to be able to operate totally autonomously to be safe. Relying on an external road sensor would violate that principle. I'm pretty confident the AI is not insurmountable. It might still be a decade off, but I think it's just a matter of time.

[gmaynardkrebs]

I would make a bet against that thinking. Betting against a technological innovation that (1) is mostly software and (2) doesn't require violations of physical laws is unlikely to be a good idea.

You mean like controlled nuclear fusion (GE, in the 1960s), Strategic Missile Defense aka Reagan's Star Wars? You only hear about the ones that succeeded. You rarely hear about the far greater number of seemingly promising technologies that failed. Outside of a few airports and amusement parks, we don't even have self driving trains, and they run a on tracks. Where such cars might work is in big cities, but that will require a large investment in physical infrastructure (ie roadway sensors etc) or highly limited access highways. No such expenditures are on the business plan of LYFT or Uber.

Why would self-driving cards need heavy investment in roadway sensors? That isn't how the problem is being approached based on what I gather.

Roadway sensors would take a lot of the work away from the cars lidar and AI technology, both of which are as yet unproven, and possibly insurmountable.

I think that would be a much more difficult technical challenge. Cars need to be able to operate totally autonomously to be safe. Relying on an external road sensor would violate that principle.

I think they are both difficult. However, sensor technology has fewer unknowns.

[alex_686]

So, I was on the margin and option desk during the dot.com boom and bust. I meet many smart people who betted against the bubble. The bubble continued to raise, they were wiped out, and then the bubble burst.

The market can remain irrational longer than you can stay solvent.

Shorting is a different beast than going long. Timing is a critical component. You may have figure out the reason why Lyft will collapse, but do you know when the market will figure this out and turn against Lyft? That is just as important.

Long dated out-of-the-money options would be your best bet.

[gmaynardkrebs]

So, I was on the margin and option desk during the dot.com boom and bust. I meet many smart people who betted against the bubble. The bubble continued to raise, they were wiped out, and then the bubble burst.

The market can remain irrational longer than you can stay solvent.

Shorting is a different beast than going long. Timing is a critical component. You may have figure out the reason why Lyft will collapse, but do you know when the market will figure this out and turn against Lyft? That is just as important.

Long dated out-of-the-money options would be your best bet.

The longest I see on Vanguard is 1/22. (That is for GE -- Lyft is not there yet.) Is that as long as they go?

[csan]

I think $70ish is about right for Lyft, so I wouldn’t bet against it. The secular trend behind ride sharing isn’t disappearing and there is more than enough market opportunity for both lyft and Uber to thrive. But for what you want, either shorting coupled with a long term call to hedge or buy puts.

My thinking is this: LYFT' and Uber can't make money without self-driving cars. I willing to bet such cars ain't gonna' happen for decades, if ever. The problem is that I have to be buying out of the money puts for a long time to for this to pan out for me. You know what Keynes said about how long the market can stay irrational.

Is the jury still out on this? I have seen some academic research which points to the surprising conclusion that this may not be true in all circumstances.

Here's an example: Ride-Sharing Networks with Mixed Autonomy


You can ignore the ugly math in the paper. However, in the conclusions, the authors note that: "Surprisingly, the case study illustrates that the platform may not necessarily find it optimal to use AVs even when the cost of operating an AV is less than the expected compensation to a driver in the system." (AV = Autonomous Vehicle). Obviously, this all depends on how autonomy is implemented into the current rideshare fleets.

P.S: I found this thread interesting enough to make me a member instead of a lurker

[alex_686]

The longest I see on Vanguard is 1/22. (That is for GE -- Lyft is not there yet.) Is that as long as they go?

New options come off the press for 9 months. Some markets offer Leaps, which are longer.

And it has been a while, but I think the SEC forbids the shorting of stock for the first 30 days, so I don’t think options would be trading much. I would wait a bit. LYFT won’t collapse in the next 90 days.

[alfaspider]

I have personally asked him to participate in this forum (Bogleheads).

He is the leading expert in Valuation. He will be run out of here with highly intelligent comments like "Nobody knows nuthin" & "Market timer"

Perhaps, but such comments would be mixing up different things. There are plenty of reasons why a company might need to be valued that have little to do with stock picking and market timing by individual investors.

[munemaker]

I have personally asked him to participate in this forum (Bogleheads).

He is the leading expert in Valuation. He will be run out of here with highly intelligent comments like "Nobody knows nuthin" & "Market timer"

+1

Forget this nonsense. Stick to index funds.

[gmaynardkrebs]

I think $70ish is about right for Lyft, so I wouldn’t bet against it. The secular trend behind ride sharing isn’t disappearing and there is more than enough market opportunity for both lyft and Uber to thrive. But for what you want, either shorting coupled with a long term call to hedge or buy puts.

My thinking is this: LYFT' and Uber can't make money without self-driving cars. I willing to bet such cars ain't gonna' happen for decades, if ever. The problem is that I have to be buying out of the money puts for a long time to for this to pan out for me. You know what Keynes said about how long the market can stay irrational.

Is the jury still out on this? I have seen some academic research which points to the surprising conclusion that this may not be true in all circumstances.

Here's an example: Ride-Sharing Networks with Mixed Autonomy


You can ignore the ugly math in the paper. However, in the conclusions, the authors note that: "Surprisingly, the case study illustrates that the platform may not necessarily find it optimal to use AVs even when the cost of operating an AV is less than the expected compensation to a driver in the system." (AV = Autonomous Vehicle). Obviously, this all depends on how autonomy is implemented into the current rideshare fleets.

P.S: I found this thread interesting enough to make me a member instead of a lurker

Since I started the thread that "converted" you, I'll be the first to say "welcome aboard."

Uber has said at various points that SDVs are "existential" for the companies survival, and I believe that LYFT has too. Based on their own stated premise, the ticker symbol for both companies should be DOA.

[gmaynardkrebs]

I also remember facebook IPO'ing at I believe $25 a share and thinking who would buy this, facebook cant make money because as soon as they charge for an account, everyone will just leave and go to the next platform and facebook will be as valuable as Myspace.....

Fortunatly for Facebook, the the average user can't figure out how to use an ad blocker.

[whodidntante]

I've seen this movie. You want to invest in Johnny Cab.

[BSBHead]

Fun post given the discussion on self driving cars. From a investor perspective, I have zero idea who will win the ride sharing game, but agree that it's all about autonomous driving cars. I think the barriers to entry on ride sharing are weirdly low and future competition for Lyft exists from a lot of different places such was Google (with our without Waymo), Tesla, GM, Volvo, Mercedes, as well as Uber. The fact that Lyft is going public to me means the smart money is monetizing their investment.

[gmaynardkrebs]

Fun post given the discussion on self driving cars. From a investor perspective, I have zero idea who will win the ride sharing game, but agree that it's all about autonomous driving cars. I think the barriers to entry on ride sharing are weirdly low and future competition for Lyft exists from a lot of different places such was Google (with our without Waymo), Tesla, GM, Volvo, Mercedes, as well as Uber. The fact that Lyft is going public to me means the smart money is monetizing their investment.

Lyft reminds me of the dot.com boom. There is no plausible scenario by which it or Uber will ever make a profit. Besides the dubious reliance on SDVs, the barriers to entry are virtually nil, even in the unlikely event that acceptably safe SDVs can be made. I'm going to guess that the vast majority of Uber and Lyft rides are local, which means that there will be tons of competing local ride hailing companies.

[heyyou]

There is always something that I want, but whether I buy it or not, soon what I'm wanting is something different.