Alright retards, I've been laid off at work due to beervirus and I've been eyeing and toying with the idea to get back into options trading. I'm writing this post to raise the bar for discussion on this sub, I'm tired of seeing just memes. We'll never match WSB unless there is a healthy mix of dankass memes and geniass discussions.submitted by circuit_brain to IndianStreetBets [link] [comments]
Now, when it comes to options, I am completely self-taught (completely from first principles, back in 2008, before you autists came up with the idea of watching videos on youtube). Since I am completely self-taught, my perspective will be different from the people who learnt this stuff while studying MBA/finance courses/NSE accredited investing courses. So if what I'm saying is different from what you've heard from the dude who swindled you of 20K for two days of options education or your gay BF's live-in partner, remember when it comes to maths, there are many ways of approaching a problem, ultimately, all are the same - profit means account balance goes up, loss means a loss post on ISB goes up.
Now, I'm assuming that you understand how options work. If not, I suggest heading to Zerodha's Varsity to read up on options. If you're too lazy for this, get your micro-dick outta options, this is a man's game, surprise butt-sex awaits amateurs.
I'm also assuming that you've come to realise that the sustainable way to make money in options is to write options. Unless you've got Trump or Ambani on speed dial to get access to news before it becomes news, YOLOing whatever rent money you have on buying options will blow up your account, eventually.
Writing options also means the possibility of account balance going tits up is a real possibility. You gotta, gotta, gotta measure and manage your risk. You can do this only when you understand options as well as your dick.
Towards this, I intend to put up a bunch of posts (depending on many of you shit heads are still reading at this point) that comment about little things that are more of 'wisdom' than 'education'.
The example below talks about currency derivatives. Why currency? Read below:
Alright, to start off, here's the current spot rate of the USD-INR pair:
Here's today's USD-INR futures closing rate for Sep expiry:
The difference between spot and futures rates is due to differences in what is construed as 'risk-free' interest rates in the US and in India. Check out this video if you want to understand why the Sep futures is trading at a premium of 27 paisa to the spot rate.
Alright, so the deal is, if you buy 1 futures contract @ 74.49, unless the USDINR exchange rate rises by 27 paisa at the end of Sep (i.e. a spot rate of 74.49) you won't make a profit (ignoring brokerage and stuff). If the exchange rate were to remain the same without any change, you stand to lose (0.27 * 1000, currency derivatives have a lot size of 1000) Rs. 270 per lot. Even worse if the rupee were to appreciate (i.e. exchange spot rate goes down).
Now bear with me if the next few paras are exceedingly boorish, I need to spoon feed people who aren't used to currency derivatives. My strategies are mostly aimed at playing a more risk balanced play, something that yields consistent returns which can be compounded. 10% profit compounded monthly gives 314% growth per year, 3.5% profit compounded weekly gives ~600% growth per year.
Given how the USDINR rate is crashing, one way to profit would be to short a futures contract (duh!).
The orange line indicates the current USDINR exchange rate
As indicated above, if the exchange rate does nothing and remains as is till end of Sep, each lot of USDINR futures shorted yields about Rs. 250 in profit (for something that takes up Rs.3000 in margin, that's a >8% profit in return). Things look even better if the exchange rate were to fall further.
The problem is that things heat up quickly if the exchange rate were to go up. Ideally we would want to hedge against it (which also reduces the margin needed drastically). One way to hedge it would be to buy a at-the-money call (74.25CE @ rate of Rs. 0.555 -> Rs. 555 per lot (i.e 0.555*1000)).
Having purchased a call option, the P/L curve now looks like:
The max loss is now limited to Rs. 315
The keen-eyed among you will recognise the above P/L curve as one that matches that of a put option. By shorting a futures contract and buying a call option (both with same expiry), we have created a synthetic put option that would have costed us Rs. 315 (0.315*1000) for one lot.
Now, why go through all of this hassle if we can get the same returns by just buying a put option? Makes sense, as long as we can purchase the 74.25 strike put option at a price lesser than Rs. 0.315 (see above).
Let's see what the put options are going for:
Well, how about that...
The market price of 74.25 puts are exactly the same price as our synthetic put. While the synthetic put came in at Rs. 0.315, the put costs another 0.005 extra to avoid the trouble of shorting a futures contract and buying a call at the same time. This is not by chance, big trading desks have algos (trading bots for the virgins here) that keep an eye out for price disparities. In this case, if someone were to be willing to pay more, the algos would compete amongst themselves to sell the puts at any price above 0.32. And if someone were to be willing to sell a put for less than 0.315, the algos would immediately buy.
The price of the puts move in sync with the prices of the futures and call contracts. Conversely, we can create a synthetic call, and you will notice that the price of the synthetic call works out to be the same as the market price for the 74.25 strike call. We can also create a synthetic futures contract the same way.
The prices of derivatives aren't decided willy-nilly. They are precisely calculated at all times, which forms the basis for the best bid/ask prices. There is no room left for someone to come in and make free money via arbitraging using synthetic contracts.
If you found this insightful, and would like more of this sort of posts, let me know.
Options when used properly, can be used to generate risk adjusted returns that are commensurate with the amount of risk you are taking. If you are YOLO-ing, sure, you can double or triple your money, because you can also lose 100% of your margin. Conversely, you can aim for small, steady returns and compound the crap out of them. Play the long game, don't be penny wise and pound foolish.
submitted by lurkingsince2006 to wallstreetbets [link] [comments]
tl;dr - Earnings is gonna be lit!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'm calling $244M Net Revenue with $39.75M in Net Income, which would be $0.75 Diluted EPS. I'll walk you through how I got here
Total Net RevenueI 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)
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.
Gross MarginsI 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.
Operating ExpensesMarketing 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:
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.
Other ExpensesInterest 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.
Earnings (EPS)I project $39.75M or $0.75 Diluted EPS (53M shares). How does this hold up to the analysts?
EPS Expectations from Analysts (via Yahoo)
EPS Expectations from Analysts (via MarketBeat)
These losers are way under. Now you know why I am so optimistic about earnings.
Keep in mind, these analysts are still giving $28-$30 price targets.
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:
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'm not just holding, I added.
PRPLW Warrants: 391,280
PRPL Call Debit Spreads: 17.5c/25c 8/21 x90, 20c/25c 8/21 x247
Also, I bought some CSPR 7.5p 8/21 x200 for fun because I think that sucker is going to get shamed back down to $6 after a real mattress company shows what it can do.
UPDATESI've made some updates to the model, and produced two different models:
From the recent S-3 filing for the May secondary, I pulled the following:
I diluted earnings by the above share count.
Model With Warrant Liability Going to Zero
Model With Warrant Liability Going to $47M
A few people called me out on my assumption, that I also said could be wrong. My favorite callout came from u/lawschoolbluesny who started all smug and condescending, and proceeded to tell me about June 31st, from which I couldn't stop laughing. Stay in law school bud a bit longer...
One other comment he made needs an answer because WHY we are accruing MATTERS a lot!
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.
IBKR continually reviews its margin requirements with the objective of striking a balance between reasonable leverage and prudent risk management.The leverage offered on TSLA shares has been reduced due to our Collateral Value Pricing (CVP) policy.Update: They gave me some more information including TSLA's current CVP and how it's used to calculate the CVP margin rate.
The collateral value pricing policy was put in place by IBKR's upper management team and has been completely vetted and reviewed on numerous occasions. As you note, the implementation of the collateral value price (CVP) calculation constrains the amount of margin loan value (MLV) that IBKR is willing to lend to an account based on a new collateral value price (CVP). The purpose of CVP is to protect IBKR from a scenario in which a stock has a run up in price, for which we then allow a client to purchase the stock at the top using the nominal margin rate and the stock subsequently returns to its prior lower price level in a rapid decline. If the descent is greater than the nominal margin interval the potential for loss to IBKR will increase. We seek to set CVP at a level which the stock can reasonably sustain.
The current CVP Margin rate for TSLA is approximately 77%.
Regards, Frank IBKR Risk Group
IBKR's CVP Margin Policy has been in effect for a number of years. The CVP Margin Rate acts as a delta-based house charge. A net delta is calculated for your entire TSLA position which is multiplied by the CVP margin rate and stock value. This policy is not exclusive to TSLA. It applies to all equities.Update 2: Finally!! They finally explained it!! Why couldn't they just say this to begin with!
Current CVP = 493.126 TSLA = 2,235.890 CVP Margin Rate = 77.9%
CVP Margin Rate = Close Price – CVP / Close Price.
(2,235.890 - 493.126) / 2,235.890 = 77.9%
The collateral value price is the lowest adjusted average price over 20 consecutive trading days in the past year.
Hi guys,submitted by getmrmarket to Forex [link] [comments]
I have been using reddit for years in my personal life (not trading!) and wanted to give something back in an area where i am an expert.
I worked at an investment bank for seven years and joined them as a graduate FX trader so have lots of professional experience, by which i mean I was trained and paid by a big institution to trade on their behalf. This is very different to being a full-time home trader, although that is not to discredit those guys, who can accumulate a good amount of experience/wisdom through self learning.
When I get time I'm going to write a mid-length posts on each topic for you guys along the lines of how i was trained. I guess there would be 15-20 topics in total so about 50-60 posts. Feel free to comment or ask questions.
The first topic is Risk Management and we'll cover it in three parts
Why it mattersThe first rule of making money through trading is to ensure you do not lose money. Look at any serious hedge fund’s website and they’ll talk about their first priority being “preservation of investor capital.”
You have to keep it before you grow it.
Strangely, if you look at retail trading websites, for every one article on risk management there are probably fifty on trade selection. This is completely the wrong way around.
The great news is that this stuff is pretty simple and process-driven. Anyone can learn and follow best practices.
Seriously, avoiding mistakes is one of the most important things: there's not some holy grail system for finding winning trades, rather a routine and fairly boring set of processes that ensure that you are profitable, despite having plenty of losing trades alongside the winners.
Capital and position sizingThe first thing you have to know is how much capital you are working with. Let’s say you have $100,000 deposited. This is your maximum trading capital. Your trading capital is not the leveraged amount. It is the amount of money you have deposited and can withdraw or lose.
Position sizing is what ensures that a losing streak does not take you out of the market.
A rule of thumb is that one should risk no more than 2% of one’s account balance on an individual trade and no more than 8% of one’s account balance on a specific theme. We’ll look at why that’s a rule of thumb later. For now let’s just accept those numbers and look at examples.
So we have $100,000 in our account. And we wish to buy EURUSD. We should therefore not be risking more than 2% which $2,000.
We look at a technical chart and decide to leave a stop below the monthly low, which is 55 pips below market. We’ll come back to this in a bit. So what should our position size be?
We go to the calculator page, select Position Size and enter our details. There are many such calculators online - just google "Pip calculator".
So the appropriate size is a buy position of 363,636 EURUSD. If it reaches our stop level we know we’ll lose precisely $2,000 or 2% of our capital.
You should be using this calculator (or something similar) on every single trade so that you know your risk.
Now imagine that we have similar bets on EURJPY and EURGBP, which have also broken above moving averages. Clearly this EUR-momentum is a theme. If it works all three bets are likely to pay off. But if it goes wrong we are likely to lose on all three at once. We are going to look at this concept of correlation in more detail later.
The total amount of risk in our portfolio - if all of the trades on this EUR-momentum theme were to hit their stops - should not exceed $8,000 or 8% of total capital. This allows us to go big on themes we like without going bust when the theme does not work.
As we’ll see later, many traders only win on 40-60% of trades. So you have to accept losing trades will be common and ensure you size trades so they cannot ruin you.
Similarly, like poker players, we should risk more on trades we feel confident about and less on trades that seem less compelling. However, this should always be subject to overall position sizing constraints.
For example before you put on each trade you might rate the strength of your conviction in the trade and allocate a position size accordingly:
To keep yourself disciplined you should try to ensure that no more than one in twenty trades are graded exceptional and allocated 5% of account balance risk. It really should be a rare moment when all the stars align for you.
Notice that the nice thing about dealing in percentages is that it scales. Say you start out with $100,000 but end the year up 50% at $150,000. Now a 1% bet will risk $1,500 rather than $1,000. That makes sense as your capital has grown.
It is extremely common for retail accounts to blow-up by making only 4-5 losing trades because they are leveraged at 50:1 and have taken on far too large a position, relative to their account balance.
Consider that GBPUSD tends to move 1% each day. If you have an account balance of $10k then it would be crazy to take a position of $500k (50:1 leveraged). A 1% move on $500k is $5k.
Two perfectly regular down days in a row — or a single day’s move of 2% — and you will receive a margin call from the broker, have the account closed out, and have lost all your money.
Do not let this happen to you. Use position sizing discipline to protect yourself.
Kelly CriterionIf you’re wondering - why “about 2%” per trade? - that’s a fair question. Why not 0.5% or 10% or any other number?
The Kelly Criterion is a formula that was adapted for use in casinos. If you know the odds of winning and the expected pay-off, it tells you how much you should bet in each round.
This is harder than it sounds. Let’s say you could bet on a weighted coin flip, where it lands on heads 60% of the time and tails 40% of the time. The payout is $2 per $1 bet.
Well, absolutely you should bet. The odds are in your favour. But if you have, say, $100 it is less obvious how much you should bet to avoid ruin.
Say you bet $50, the odds that it could land on tails twice in a row are 16%. You could easily be out after the first two flips.
Equally, betting $1 is not going to maximise your advantage. The odds are 60/40 in your favour so only betting $1 is likely too conservative. The Kelly Criterion is a formula that produces the long-run optimal bet size, given the odds.
Applying the formula to forex trading looks like this:
Position size % = Winning trade % - ( (1- Winning trade %) / Risk-reward ratio
If you have recorded hundreds of trades in your journal - see next chapter - you can calculate what this outputs for you specifically.
If you don't have hundreds of trades then let’s assume some realistic defaults of Winning trade % being 30% and Risk-reward ratio being 3. The 3 implies your TP is 3x the distance of your stop from entry e.g. 300 pips take profit and 100 pips stop loss.
So that’s 0.3 - (1 - 0.3) / 3 = 6.6%.
Hold on a second. 6.6% of your account probably feels like a LOT to risk per trade.This is the main observation people have on Kelly: whilst it may optimise the long-run results it doesn’t take into account the pain of drawdowns. It is better thought of as the rational maximum limit. You needn’t go right up to the limit!
With a 30% winning trade ratio, the odds of you losing on four trades in a row is nearly one in four. That would result in a drawdown of nearly a quarter of your starting account balance. Could you really stomach that and put on the fifth trade, cool as ice? Most of us could not.
Accordingly people tend to reduce the bet size. For example, let’s say you know you would feel emotionally affected by losing 25% of your account.
Well, the simplest way is to divide the Kelly output by four. You have effectively hidden 75% of your account balance from Kelly and it is now optimised to avoid a total wipeout of just the 25% it can see.
This gives 6.6% / 4 = 1.65%. Of course different trading approaches and different risk appetites will provide different optimal bet sizes but as a rule of thumb something between 1-2% is appropriate for the style and risk appetite of most retail traders.
Incidentally be very wary of systems or traders who claim high winning trade % like 80%. Invariably these don’t pass a basic sense-check:
How to use stop losses sensiblyStop losses have a bad reputation amongst the retail community but are absolutely essential to risk management. No serious discretionary trader can operate without them.
A stop loss is a resting order, left with the broker, to automatically close your position if it reaches a certain price. For a recap on the various order types visit this chapter.
The valid concern with stop losses is that disreputable brokers look for a concentration of stops and then, when the market is close, whipsaw the price through the stop levels so that the clients ‘stop out’ and sell to the broker at a low rate before the market naturally comes back higher. This is referred to as ‘stop hunting’.
This would be extremely immoral behaviour and the way to guard against it is to use a highly reputable top-tier broker in a well regulated region such as the UK.
Why are stop losses so important? Well, there is no other way to manage risk with certainty.
You should always have a pre-determined stop loss before you put on a trade. Not having one is a recipe for disaster: you will find yourself emotionally attached to the trade as it goes against you and it will be extremely hard to cut the loss. This is a well known behavioural bias that we’ll explore in a later chapter.
Learning to take a loss and move on rationally is a key lesson for new traders.
A common mistake is to think of the market as a personal nemesis. The market, of course, is totally impersonal; it doesn’t care whether you make money or not.
Bruce Kovner, founder of the hedge fund Caxton Associates
There is an old saying amongst bank traders which is “losers average losers”.
It is tempting, having bought EURUSD and seeing it go lower, to buy more. Your average price will improve if you keep buying as it goes lower. If it was cheap before it must be a bargain now, right? Wrong.
Where does that end? Always have a pre-determined cut-off point which limits your risk. A level where you know the reason for the trade was proved ‘wrong’ ... and stick to it strictly. If you trade using discretion, use stops.
Picking a clear levelWhere you leave your stop loss is key.
Typically traders will leave them at big technical levels such as recent highs or lows. For example if EURUSD is trading at 1.1250 and the recent month’s low is 1.1205 then leaving it just below at 1.1200 seems sensible.
If you were going long, just below the double bottom support zone seems like a sensible area to leave a stop
You want to give it a bit of breathing room as we know support zones often get challenged before the price rallies. This is because lots of traders identify the same zones. You won’t be the only one selling around 1.1200.
The “weak hands” who leave their sell stop order at exactly the level are likely to get taken out as the market tests the support. Those who leave it ten or fifteen pips below the level have more breathing room and will survive a quick test of the level before a resumed run-up.
Your timeframe and trading style clearly play a part. Here’s a candlestick chart (one candle is one day) for GBPUSD.
If you are putting on a trend-following trade you expect to hold for weeks then you need to have a stop loss that can withstand the daily noise. Look at the downtrend on the chart. There were plenty of days in which the price rallied 60 pips or more during the wider downtrend.
So having a really tight stop of, say, 25 pips that gets chopped up in noisy short-term moves is not going to work for this kind of trade. You need to use a wider stop and take a smaller position size, determined by the stop level.
There are several tools you can use to help you estimate what is a safe distance and we’ll look at those in the next section.
There are of course exceptions. For example, if you are doing range-break style trading you might have a really tight stop, set just below the previous range high.
Clearly then where you set stops will depend on your trading style as well as your holding horizons and the volatility of each instrument.
Here are some guidelines that can help:
For example if you stop understanding why a product is going up or down and your fundamental thesis has been confirmed wrong, get out. For example, if you are long because you think the central bank is turning hawkish and AUDUSD is going to play catch up with rates … then you hear dovish noises from the central bank and the bond yields retrace lower and back in line with the currency - close your AUDUSD position. You already know your thesis was wrong. No need to give away more money to the market.
Coming up in part IIEDIT: part II here
Letting stops breathe
When to change a stop
Entering and exiting winning positions
Coming up in part IIISqueezes and other risks
Crap trades, timeouts and monthly limits
Disclaimer:This content is not investment advice and you should not place any reliance on it. The views expressed are the author's own and should not be attributed to any other person, including their employer.
submitted by dhsmatt2 to wallstreetbets [link] [comments]
Just about how I feel
Alright ladies and Gentleman- Many of you gambled with me on a purple earnings play and it didn't quite materialize as expected - I hope many of you purchased some of the lower more conservative debit spreads as they should be profitable still.
I took some time on earnings day, after hours to unload some shares as well as warrants with the expectation that the sell off would push us down to around 20.00, it appears that the selloff is mostly done as we've dropped about 4.5 from Thursday intraday peak.
I have begun selling cash secured puts for September expiration, 20.00 strike As I do not believe purple will drop past 18.65, which is the breakeven point for those puts.
Awesome quarter but not as awesome as expected
Alright, even though Purple didn't come close to my 225M estimate, it still had an amazing quarter in terms of fundaments. Purple achieved about 122M in revenue in Q1 and 165M in revenue in Q2, that is an impressive feat, especially considering they appeared to shutdown operations for a couple of weeks and that created deferred orders for Q3.
Adjusted earnings of 60+ cents per share, this excludes one time charges. This is actually an impressive number and beat many of the analysts expectations. The headlines showing the miss reported on GAAP, not adjusted.
Joe Megibow indicated that PRPL would have about 1B in capacity by the end of 2021, that is definitely an excellent reason to hold your investment or look for an entry.
After the call there were still price upgrades from almost every analyst as the year over year growth is very very impressive, especially for a manufacturing company.
Tip ranks price targets as of 11PM eastern
I believe the worst of the sell off is over and I expect that we will likely trade in the 21-25 dollar range from now until the next earnings. I have since exited about 60K shares of stock and about 60K warrants as I believe cash secured puts are a better play for the next couple of months. I will be selling puts for 20.00. on my remaining shares I will be selling covered call with 30 strikes.
I am also still holding my 22.5/25.00 debit spreads for October and I will hold my 25/30 and 25/35 debit spreads for January as I believe November could be a very very good earnings as the stock price will hopefully trade only slightly up and the accrual for warrants will be much smaller.
Revenue possibilities for Q3.
I believe that Q3 max revenue will likely be in the 200 Million range. This is due to PRPL running full production for 12 weeks instead of 10 and the additional 7th machine that is available for the entire quarter rather than just a single month of the quarter.
I believe that Purple will not quite achieve 200M in revenue because there will be a shift into wholesale that will push down top line, slightly, this is based on the comments from the calls. I believe purple will likely only achieve about 15% more revenue in Q3 than Q2, which is still impressive. This is my quick envelope calculation.
It is still early but I expect somewhere in the 180-190M range and gross Margin around 46-47%.
I was optimistic that this quarter would push us to a point where we could clean up the warrant situation but it appears that we will have another quarter of accruals and reversals. I was asked by u/indonesian_activist to detail the capital structure, I will try to do that in a follow on post as it is not as clean as I'd like but I don't believe it is a show stopper as the company is still producing healthy amounts of cash, gross margin improvement and market share improvement.
The capital structure is also promising because the founders still have a large stake in the company. Founder led companies are very very good.
My positions before and through earnings
No I didn't sell anything before the call. The first transaction In my account on 8/13 is selling warrants for 5.00 (which is cheaper than they are going for now and cheaper than they went for at any other time that earnings day). i was hoping to re-purchase if the stock plummeted, which it didn't so it cost be about 75K between shares and warrants.
I've broken down my first trade details and then shown a summary of every subsequent purchase. This is probably the last time I will go into this detail because it's time consuming, but i held every penny through earnings.
First After hours trade on 8/13, just above 8/12.
First trade is the 509.98 shown above, each following trade is above- goes from newest to oldest as the list goes down.
Current Position as of tonight
I sold 400 CSP contracts on Friday and I sold my 22.5 calls for about 1.00 on Friday as well as they were almost as expensive as the day I bought them. I am now holding a naked position as I have -2910 25.00 PRPL calls in the market.
I am holding the remainder of my calls and debit spreads.
I hope you guys made out ok- most of the more conservative spreads are still net positive. I will not lie about my moves but I also am not going to post my moves real time as sometimes they are time sensitive.
God speed Autists. Do your own research- I learned all my investing skills through Tik Tok.
All- I have received hundreds of DM asking where the stock is going. I have received questions such as: where do you think it stops, is it over valued, undervalued, should my mom invest, should i Yolo, should i sell and take profits? blah, blah blah. Here is some DD- stop asking me about where this ends up because I don't know for sure but I have some Feely Good estimates. I hope this post makes your nipples hard and if it doesn't you're probably a gay bear.submitted by dhsmatt2 to wallstreetbets [link] [comments]
I am going to give you a quick run down of what my expectations are for Q2 earnings and it will include the good, the bad and the ugly. The ugly being the warrant accrual that will hurt GAAP.
First of all, There is little that needs to be determined for Q2 top-line as they have already released April and May Sales. April Sales Came in around ~62M based on my math and May Sales came in at 88M and some change. Based on these numbers, we can safely assume that we will at a minimum have somewhere around 225M in revenue for the quarter by using the average of April and May to determine June. I believe 225M to be on the low side and I have continued to up my estimates as I believe E-commerce is still thriving, especially purple. Purple continues to climb the web traffic ladder and has moved up another ~500 spots to be the 13,000 most popular site in the world.
For simplicity sake, I am going to use some historical numbers to estimate profits. If you'll look at previous posts that I've made then you'll see how I arrived at these numbers. There are some quick napkin calculations below. We can safely assume that the average wholesale selling price of a mattress is ~1350 dollars and we can assume that GM for wholesale is around 30%. This means the average cost of a mattress to manufacture is ~945 on average. From my previous posts, we knew that pre Covid the business was split by units, not by gross sales. On average, wholesale consumed 50% of capacity and DTC consumed 50% of capacity. In order to determine average DTC selling price then we can equation .5*1350 + .5*(DTC Price) = 1900. PRPL indicated their average selling price per mattress was ~1900.00, I found this in their s-3.
.5*1350 + .5*(DTC Price) = 1900=========== DTC average price is 2450.00, 1350 is average Wholesale price.
DTC Margin is ~62% Estimated
Wholesale Margin ~30% Estimated
Historically, advertising costs have been about 30% of revenue. I have been tracking advertisement for purple and from a TV cost standpoint, they have not increased their commercial count at all in the last three months. See link, PRPL is still only performing 125 commercials per day. This commercial rate has held steady for 6 months.
I believe purple has increased their ad spend online but I believe it will be proportional to their new capacity on a unit basis.
Previously purple had 6 Machines of capacity and spent 38M in advertising, I believe they will spend (7/6)*38M which is 44M or roughly 15M per month. Just because revenue is up, doesn't mean they will spend more per unit- they are capacity constrained and that is terribly inefficient.
The following table shows my best guesses on their major category costs. This includes the gross Margin and the other costs subtracted from the Gross Margin.
If we used 66.5M, PRPL would report 1.23 EPS on an adjusted Basis.
The warrant Accrual will unfavorably push the EPS down on a GAAP basis and we will likely see something around .59 EPS. If they can achieve this for the next 4 quarters then in a years time there is a huge potential for stock increases based on the following P/E's.
People may say that this is super inaccurate..... but if you look at the following cash statement then you will realize that PRPL has been generating more than 1M per day in cash for the last two months - that is absolutely insane.
purple has generated 70M in cash in 60 days.
Mark my words, PRPL is going to be more profitable than TPX this quarter. TPX reported earnings of .68 EPS today on revenue of 665M. TPX is trading at 80+ per share. if purple reports a similar .68 EPS then it would be valued about 60% lower than TPX on an EPS basis. if purple posts EPS of ~1 dollar then it would be undervalued as compared to TPX by about 80%.
I hope your NIPS are tender now. Hope this helps you understand why I believe PRPL to be so undervalued.
Greetings my fellow clan of delinquent compatriots. I made a post 3 weeks ago regarding how to avoid IV crush during this recent market rally. The link to that can be found here: Don't Scream "GUH", Avoid IV Crush. That trade worked out well, and I am back.submitted by bigd0g111 to wallstreetbets [link] [comments]
Today, I am back with a follow-up for navigating the road ahead. This post is not about why the market will potentially retest the lows, but rather how to maximize profit and limit downside risk should the move down occur. Just as the vega-neutral post focused on volatility trades, this one explores vol strategies further. I tried to substitute words with pictures for the illiterate inclined.
For solid DD on where the market is going, view u/Variation-Separate or u/scarvesandsuspenders recent posts. I do believe that sitting at either the 50% or potential near term 61.8% retracement will trigger the next leg down, and this post is about how to capitalize on that through volatility.
At best, you will get a trade idea (other than $SPY puts / $SPY straddles). At worst, you will gain some solid understanding of volatility and how it applies to you. My goal in this post is to take a pretty abstract concept and break it down so that we can all become more profitable. Take 5 minutes, read, challenge my strategy, ask questions, and achieve nirvana. Let's begin.
So You Say I Should Trade Volatility, Aye:
Yes. That is exactly what I am saying. While retail traders and WSBers have been yoloing FD on TSLA and SPCE (Jan 2022 calls will print), smart money has been executing the best trade of the past decade. The trade: Short volatility, hedged with volatility insurance. This is done by shorting $VXX (short vol), and purchasing $VIX calls (long vol) on a rolling basis as a hedge. Depending on the time frame of your $VIX calls (weekly, quarterly, monthly), this trade has performed dramatically well.
The strategy is rooted in the belief that volatility will, over time, mean revert and decrease after spikes caused by a "black swan." It is logical - option premiums on the S&P 500 (for which the $VIX tracks) theoretically will never remain permanently inflated as news becomes digested. Take a look at 2008, 2000, etc - the common theme is volatility starts to slowly recede before the lows of the S&P 500 are registered as the catalyst causes an explosion of volatility, and as the market prices in the "black swan," the market naturally performs price discovery causing volatility to come down. That is not to say volatility does not continue to spike during draw-downs in equities - it does, but typically not as dramatically unless the incoming news is categorized as dramatically more significant.
Implied volatility for the broader market can be understood through $VIX. IV is forward looking, and gives us an understanding of how much the market is expecting to move over the next 30-day period (this is a simplification, but applies). Realized volatility is actual variance in price movement over a period in time. To compare the two, solve for the realized volatility over the past 30 day period (21 trading days) by taking the standard deviation, adjusted for an annualized reading. I calculated this to get updated data, and the current output is below:
RV / IV 2020
What we can see is that a pretty stark divergence has occurred, with realized vol moving higher than implied vol. This negative spread relationship is counter-intuitive. Think about it. If IV is forward looking, it should be trading at a premium to where RV is currently trading at because we need to account for the uncertainty in the future variance of the markets.
This is not the first time this has happened. It occurred in 2002, in 2008, and in a few periods of high volatility since the GFC.
RV / IV 2008
RV / IV Collection
The important theme is that, over time, the relationship eventually returns to normalcy. That is, overtime either realized vol decreases, implied vol increases, or a combination of the two occurs. This is where our previous author went astray by saying this divergence requires a spike in IV - there are many ways for this imbalance to revert to normalcy.
When RV is below IV, the market is understating the risk of a large loss. When RV is above IV, the market is clearly in distress, and it is overstating the risk of a large loss. Put simply: RV > IV, the market favors option buyers, RV < IV, the market favors option sellers.
This is huge, because it clearly articulates the opportunity cost of purchasing verse selling options. But as I highlighted before, the return to a positive IV / RV spread can occur with a decrease in RV, an increase in IV, or a combination of the two, and the time frame is murky. So, Master Skywalker, what are we going to do?
Let's take a look at the $VIX futures because they can show us what the market is forecasting for expected future movement of $SPX option implied volatility. The term structure for the $VIX futures is showing mad backwardation - that is, the future settlement dates are trading well below the current spot price. In WSB terms, the futures market is implying $VIX will continue to fall over the next 8 months.
$VIX Futures Term Structure
The Volatility Trade, Applied Right Now:
We are presented with 3 potential outcomes:
Short $VIX Futures with Settlement for Sept 2020 - Bet that RV Decreases Over 5 Month Period
Note: I recognize that most of you do not have access to futures or even shorting for that matter, which is why I will also present a solid hybrid hypothetical trade, but hear me out.
What this does: $VIX futures with further settlement dates, while less liquid, are less sensitive to short-term spikes in the $VIX. This trade is a bet that implied volatility through September will be decreasing in aggregate. The $VIX calls with short-term settlement dates are implemented to hedge my short $VIX futures, and capitalize on any potential increase in IV moving forward should we retest the lows in $SPY. This trade let's me bet on a short-term decrease in $SPY (and related spike in $VIX), while hedging with a longer-term bet that volatility will decrease. It is essentially a volatility strangle with different time frames. This requires margin, and excess cash in case of margin call :)
How a Newb With a Robinhood Account Can Do This:
The simple newb approach would be a reverse calendar spread (sell long dated calls, buy short-date calls) on $VXX, but that caps our gains, and we are not here for capped gains. If you are, jump over to investing.
I recognize that RH does not allow $VIX, let alone $VIX futures. So let's reassess the goal of this trade: We expect $SPY to retest the lows, volatility to spike in the short-term, and I want tendies to print because of this. This movement should work toward restoring a positive relationship between RV and IV. But, maybe you, like me, have cautious conviction about this trade given the Fed, US Gov stimulus, and other erroneous factors. So, with the goal of maximizing gains, and limiting losses, we are going to hedge our exposure.
The Hypothetical Hedged Vol Trade:
tl;dr - I expect the market to move in the direction of retesting the lows, but Fed bailout, Fiscal stimulus, and overall complacency could prevent a retest. Thus, instead of trading $SPY, consider trading volatility as the relationship between realized vol and implied vol is fucked up, and will correct itself over time. Because of this, explore going short volatility while hedging with long volatility call options. Long $SVXY, Long $VXX Calls.
As always, discuss, challenge, ask questions and shitpost!
The purpose of this post is to educate people on volatility plays, not recommendations. I will not recommend strikes, expirations, or anything. Use your noodle. This is Not financial advise, just for educational purposes.
submitted by mPrestige to revain_org [link] [comments]
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Bittrex Global Fee30 Day Volume (USD)MakerTaker$0k - $50k0.2%0.2%$50k - $1M0.12%0.18%$1M - $10M0.05%0.15%$10M - $60M0.02%0.1%$60M+0%0.08%>$100MContact TAM representative
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Stop Limit Order Purposehttps://preview.redd.it/hlxvy9ti4zh51.jpg?width=1141&format=pjpg&auto=webp&s=064a77459a4dcb4555a885cbc56629aae10fc38b
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Confirming your IP address.
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The full version
For a long time now, I have been playing almost exclusively martial characters, very rarely if ever playing full spellcaster classes. Some people would say that this is boring, that I should expand my horizons, do other things, but part of the reason I play so many martials is that the ultimate warrior is my ideal power fantasy. I don't care for the wizard who can bend space and time or the druid who can turn themselves into a dragon or the cleric who has learned to become the very avatar of their god on this mortal plane. These things do not interest me, they are not the representation of the kind of character I would want to become at the height of their power in a fantasy setting. No, my power fantasy is the man who can take on the world through martial prowess alone. To be a character who has become so skilled with his blade, so mighty with the wielding of weapons, that he is considered an army unto himself. A terror that carves its way through the battlefield, bolstering the morale of his allies and crushing the enemies that stand before him with unstoppable force.Please be civil in the comments and follow the rules.
But, therein lies the problem. This is not possible for martial characters in Dungeons and Dragons 5th edition.
Now, let's back up a bit and get some context first. Please bear with me, this is probably going to be a long post.
A conversation that I regularly participate in the comments of this subreddit one where I feel martial characters are underpowered in comparison to spellcasting classes. Many would disagree by saying something along the lines of this:
"Spellcasters are versatile with low hit points while martial characters are tanky with good single target damage. That's the trade off."
The idea is that it is fair that a wizard can cast Fireball to hit multiple targets at once because eventually the Fighter can learn to make 4 attacks in one turn and use all of them to absolutely wail on one guy. AoE damage vs. Single Target damage. And for a while, I agreed with this notion. It's only recently that I've come to realize that even if this is true, it's still unfair.
There are situations that can represent a challenge without access to magic that simultaneously can be handwaved with magic. Stealth can be trivialized through Pass Without a Trace or higher level castings of Invisibility. Uncross-able divides can be crossed with Dimension Door or Arcane Gate or even just a simple Misty Step. A person can be convinced to do something with a casting of Suggestion or forced to do something with Dominate Person. These are the things that magic is capable of accomplishing. And this capacity to be useful in a myriad of circumstances is one of the great draws of being able to cast magic.
However, it's considered to be a fair trade that martial characters are not good/completely incapable of accomplishing such things simply because they are good at being able to hit things. Not even things, but a singular thing. Single target damage. Only Fighters get more than two attacks per Action, so getting mobbed by a large number of enemies at once is very bad for any martial character that is not a Fighter, and only marginally less bad if you are a Fighter. The problem of course is simply that they aren't capable of hitting them all at once. The martial's current role in a party is that they are supposed to be the ones who deal a large amount of damage to the boss enemy on their turn. The Barbarian uses their Reckless attack to roll 4d20 and try to get a Brutal Critical on the Demogorgon, the Fighter uses their Action Surge to try and hit the Adult Red Dragon 8 times, the Paladin uses all of their highest level spell slots to Divine Smite Acererak for 7d8 Radiant Damage. Lots of damage, but only on the single enemy. I find this to be unfair as a trade off for two primary reasons:
It feels bad to be only good at fighting single enemies. All of these martial examples are not likely to be good at skill checks. Good at what they're good at, sure, but most characters will only end up with between 4 and 6 proficiencies unless they're a Rogue or take the Skilled Feat. And in all of these cases, the optimal stat distribution causes them to not be naturally good at other things as well. Barbarians are very multi-ability-dependent, needing high Strength and Constitution but then also needing Dexterity to bump up their AC, each being prioritized in that order. That means the other three mental stats will become worse. Fighters also tend to prioritize Strength and Constitution (if you're playing the classic archetype) and most Paladins do the same with Charisma being a tertiary stat since it is their spellcasting. So with all of them prioritizing Strength and Constitution, there is only a single skill (Athletics) between those two abilities. Even if you play a Dexterity Fighter, you're only getting good at 3 skills. As opposed to a Wizard or a Druid or a Cleric who put their points into their main stat and become decent at 5 skills as a result. Whether martial or spellcaster, all of these classes get 2 proficiencies to start. But by nature spellcasters will be skilled at more things than the martials will be because their main stats are better for more things. So it feels like being a martial makes you only good at fighting single enemies while spellcasters get to be good at fighting multiple enemies, getting over impassable obstacles, and many different kinds of skill checks. Which brings me to my second reason.
Spellcasters are actually just as good or better at single target damage than martial characters. The average damage for a failed save on Meteor Swarm is about 50% more than the average damage for 8 successful hits with a greatsword as a Fighter using Action Surge.
Meteor Swarm: 20d6(rolls of 3)+20d6(rolls of 4) = 140
8 Greatsword Attacks with 20 Strength: 16d6(rolls of 3 and 4) + 40 = 96
"But that's a 9th level spell vs Action Surge. Of course the 9th level spell is more powerful."
Let's compare instead a mid level Wizard vs a mid level Barbarian using the Comprehensive Damage Per Round Calculator.
Wizard lvl 12
First round animate object as a 6th lvl spell vs. ac 17
- dmg output 48.3
Second and third round animate object + 2 castings of Cone of Cold
- dmg output 78.3*2
Total damage for a lvl 12 wizard in 3 rounds: 204.9
Barbarian lvl 12
Human barbarian, 20 str, PaM, GWM, a +1 glaive vs. ac 17
+5 to hit (10-5 from GWM)
First round bonus action rage and 2 reckless attacks
- dmg output 36.3
Second and third round
glaive attack and bonus action attack with the end.
- dmg output 52.1*2
Total damage for a lvl 12 barbarian in 3 rounds: 140.5
As you can see, the Wizard handily outstrips the Barbarian. And we even gave the Barbarian a magic item and feats that time. Spellcasting classes are capable of outputting just as much or more single target damage as a martial class. The argument that is often made after this is that a martial class can continue to output this throughout the course of a day whereas a spellcaster has to use many resources that they can only get back later, but I contest this by saying most people don't have that many encounters per day and that while a martial can sustain this damage over the course of several rounds, most encounters will not last long that long anyways. All the enemies will be dead before a martial can stack up enough hits to match what the spellcaster has already done. Even if we do assume multiple rests and encounters over a day, the Wizard can use Arcane Recovery to get back the 6th level spell slot they just used. So they're still probably just fine for the next encounter.
So for those two reasons, I present the case that martials truly are left in the dust by spellcasters in almost every regard. That's the context for this. But this isn't just me crying because I'm a power gamer who wants to be OP. More than just the mathematics of it, I feel that there is a power fantasy is left almost entirely unfulfilled for martial characters.
What is it that makes warrior characters in movies and stories stand out, look cool, and feel powerful?
What does Captain America do? https://youtu.be/oRwFd1G6_U4?t=42
What does The Punisher do? https://youtu.be/01SYT5MPsHw?t=28
What does The Bride in Kill Bill do? https://youtu.be/a3aFv8IQb4s?t=319
Neo and Trinity do? https://youtu.be/NgAmX8GRwDw?t=57
Aragorn? (the most classic of all fantasy warrior archetypes) https://youtu.be/wSgeEH-Zwbk?t=3
Thor? (yes, even though he uses magic I still argue he's a martial character because of the way that he primarily engages in physical combat) https://youtu.be/-mHaq88BAV4?t=131
Ip Man? https://youtu.be/Kv9ygN2B8WU?t=97
John Wick? https://youtu.be/SamAItb8L58?t=86
Or John Wick? https://youtu.be/0L9SzBANF0w?t=264
Or what about John Wick? https://youtu.be/ElZ9y6l9KhI
A common theme with all of these characters is that they can fight many opponents at once and still win. Whether outnumbered by a handful or outnumbered by a hundred, they make a real contest out of something that would and should make instant losers out of anybody else. When they do it by themselves, they're badass. When they do it in the middle of a battlefield, their martial prowess inspires the common soldiers around them. This is all part of the fantasy of being a powerful non-magic fighting character. I put in John Wick three times because the whole draw of his character is that he's so hyper-competent at killing that he can take down entire organizations of enemies by himself. Even in a world of assassins and professional killers, they consider him their Boogeyman. And this character was so popular it spawned a franchise that thusfar has made more than $500 million dollars at the box office. But the part where he has a 1v1 with the bad guy is not what makes us like him. It's arguably the most underwhelming part of the first John Wick movie. Being able to fight many enemies is often cooler than fighting a single skilled enemy.
Take this clip from the movie Hero as a prime example that shows both ends of the spectrum. In the first half of the scene, two people are fighting their way through a literal army on their own and winning. In the second half of the scene, there is a duel between two swordmasters. And while the duel exhibits great skill, it is not the more impressive half of the scene. To put it another way, the thing that makes you think Broken Sword is skilled is not that he duels the Emperor. Rather, it's the other way around. You believe that the Emperor is skilled because he is capable of fighting Broken Sword, a man who just cut his way through an entire army with the help of only one other person.
The pinnacle of a martial character's "cool factor" is not the ability to be able to participate in skilled single combat against someone of equal skill, but to be outnumbered so dramatically that there should be no chance of winning, and yet they can and do anyways. The odds and logic of the situation tell you that it is impossible. But they accomplish the impossible with nothing but the swiftness of their sword.
Now, don't get me wrong, one on one fights definitely are cool. But what can take an entire scene to establish that competence can be established in seconds using a battle in which the hero is heavily outnumbered. They are cool in different ways, one being naturally more drawn out than the other, but it's important to have both. If you're only limited to one or the other but not both, that kind of sucks.
Back to D&D, it is not possible to be this kind of character as a martial. Firstly, due to the mathematics and action economy of the system, it is always more efficient to put all of your damage onto a single target because it's hard to spread out. Secondly because you are limited in the number of attacks you can make, that puts a hard limit on the number of enemies you can kill per turn. 20th level Fighter with 4 attacks? Barring specific subclass abilities or feats, it's literally impossible to exceed killing that number of enemies. Even with feats, you only max out at 5 attacks (using the bonus action attack from Great Weapon Master) on your turn without using Action Surge. If you are outnumbered 100 to 1, how long do you think a 20th level martial character could last? Say you're a 20th level Fighter against 100 Goblins, no Great Weapon Master feat. Assuming you hit with 100% accuracy and kill every one of them in one shot and use both of your Action Surges, it will take you 23 turns to kill them all. And for each one of your turns, they can also make their turn, surrounding you on all sides and attacking you 8 times a turn in response. For ease of calculation, if you had 18 AC wearing non-magical plate armor, Mob Combat rules (found on DMG page 250) assume you are statistically likely to take 12 damage per turn. 252 damage (using average damage) over 21 turns of keeping you surrounded. If you have enemies that aren't CR 1/4 against a 20th level character, say 100 CR 1/2 Thugs, they could make two attacks each, that turns into 16 times per turn and that turns into 30 damage per turn. 630 damage over 21 turns. If the Fighter had 20 Constitution and maximum health rolls (10 on a d10) at every level, they would have 300 hit points. They would barely survive against the goblins. They would not survive against the thugs. That's not even including the possibility of being attacked from range with shortbows and crossbows and such. Eventually, you will lose. And it won't even really be close.
We think these characters should be capable of surviving situations like these, after all at 20th level any Fighter should be a legendary character based on their prowess and skill. But the way the game works, they just aren't capable of surviving.
What is the power fantasy of a spellcaster? To be so powerful that they can bend reality to their will? To cast magics that affect the very fabric of existence? Could a 20th level spellcaster survive a 1 v 100? Quite handily I think actually. How about a 1 v 1000? Well, given that Meteor Swarm allows you to make explosions of 40d6 damage in a 40 foot radius in 4 different locations, you could actually hit 900 creatures at once if they were all bunched up enough (each meteor can hit 225 creatures at peak efficiency). Turn that down to a 1 v 100 real quick. Mathematically, it's entirely possible simply because they can deal enough damage at a fast enough rate combined with the myriad of spells they can use for damage mitigation (Shield, Blade Ward, Blink, Stoneskin, Mirror Image, Blur, etc.)
Many might argue that this is fair, as it is unrealistic for a single person to be able to fight 100 people at once without magic and win. That could never happen in real life. But then I would counter with this:
Aren't we playing Dungeons and Dragons?
Is it realistic for someone to be able to pull meteors out of orbit with their mind? Or open up gates to other dimensions because they figured out how to tear holes in reality? Or to have discovered a word that is so powerful, so forbidden, that simply speaking it can cause another person to drop dead on the spot? Or to raise an undead army of skeletons? Why does realism become the limit for a Fighter when the Wizard's entire existence is predicated on breaking the rules of our reality?
Almost any spellcaster's power fantasy can come true. If you want to be someone who causes explosions on the battlefield, you can do that. If you want to be someone who turns illusions into reality, you can do that. If you want to be a seer who prophesies the future, you can do that. If you want to take over the world with thousands of full powered spellcasting clones of yourself, you can even do that. You are more limited by your own imagination and creativity than the actual rules of the game. But the simple fantasy of "I want to be able to fight a bunch of guys at once" is out of reach of the martial character, despite the fact that it's supposed to be the primary thing they're good at.
To summarize and conclude, I am of the opinion that the most common image of a skilled fantasy warrior is exemplified in their ability to fight a large number of enemies at once or in quick succession, not their ability to handily defeat a single opponent. The biggest design flaw and biggest disappointment for martial characters is their inability to fulfill this fantasy. Their single target damage is mechanically what they are known for, but I think what martial players like me really want more than anything is to be able to fight many enemies at once. I believe one of the ultimate power fantasies for a martial character is to be able to fearlessly charge forward into any number of enemies with full confidence of victory until a suitable challenger approaches. If Dungeons and Dragons is a game of wish fulfillment, the wishes of martial players like me cannot be fulfilled as it is currently designed.
I've been looking at old playtest packets for 5th edition and I found out some interesting things. The 11th level Hunter Ranger feature, Multiattack used to be something that any martial character had a choice to take at some point. Whirlwind Attack was available to be learned by Fighters and Monks, and Volley was on the list of Fighter maneuvers that could be learned. It seems to me that the reason that martial characters are so subpar in comparison now is that they were watered down across the board, mechanics that used to be able to be used by many are currently sequestered into individual subclasses.
Now, to be clear, I'm not really looking for a "solution" to this problem. At least not as far as 5th edition is concerned. The issues are too fundamental, too rooted in the core of the system to solve without an egregious amount of homebrewing. But I did want to put this out there as a topic of discussion to see if others in the community find validity in my idea. Is the problem of "linear fighters vs quadratic wizards" just an issue of efficiency, versatility, and mathematics? Or is the true problem that martial characters lack the ability to fulfill what is probably one of the core wishes of people who want to be warriors in fantasy settings?
edits: many typos I spotted after the fact -_-
There's a lot of common responses I keep seeing pop up here that I want to address here in the main post.
"This is a game of resource management, you should just have more encounters per day to balance it out!"
First of all, this isn't something that a player can do themselves. This is entirely dependent on a DM and it's much more work for them to do so and be accommodating. They have to balance every encounter. It isn't as simple as just "having more encounters." Someone has to do that work.
Second of all, I mentioned this, but at a certain point it just becomes a slog when you're being constantly worn down every day just to give enough time for turtle martials to catch up to rabbit spellcasters. I don't know about you, but even as a martial, I wouldn't have fun doing this all the time.
Third of all, it completely ignores the point of my post. I don't care about being able to mathematically catch up to the wizard over the course of a day, I want to feel badass in my own right and I want to be able to do it whenever I want. It doesn't matter that a Wizard can cast Meteor Swarm once per day and I can use Action Surge once/twice per short rest. The point is that I use it and I'm done. And until I get that next short rest, I'm just as weak as a Wizard. Fighters can "recover" more quickly than spellcasters, but in the actual encounter? In the actual fight? They have less resources that they can burn through more quickly than spellcasters. This is the crux of the problem here. Without rests, there is nothing that makes a Fighter better than a Wizard. Anything I can do, he can do better, 🎶 he can do anything better than me. 🎶
It's basically the same thing as saying a Wizard can finish a marathon with their spells but then they'll be really tired when they're done. You can finish the marathon too if you take a few hour long rests along the way. Why can't I just finish the marathon with my own strength? Am I at least faster at sprinting the hundred meter dash? No, the Wizard is faster at that too, but you'll be able to do another hundred meter dash in an hour or so. He still can too, he'll just be marginally slower than you.
Do you see the problem with this argument yet?
"Martial characters should be getting magic items to make them better and then they'll be as good as spellcasters."
But spellcasters don't need magic items. This only supports the argument that martial classes are handicapped in comparison to spellcasters. It's essentially saying that spellcasters can stand on their own but martial classes need a magic item wheelchair to be able to keep up. Do you see the problem here?
Why is it too much to ask that martial classes can stand at the same level as spellcasters through just their own class features?
"Cleave is a really good tool."
And I agree. But last time I asked my DM, he said no. Maybe I'll get to ask him again, but I respect his rulings because he's my friend and I respect him.
"It sounds like the 5th edition system is not for you. You should try something else, like Pathfinder 2e!"
I would if I could but my group seems happy playing 5th edition. As much as this post is a huge complaint rant, not everything is about me. And I won't DM a Pathfinder game because frankly, I'm not good at DMing. I think other people have less fun when I'm behind the screen and I think I have less fun when I'm behind the screen. I wish it weren't the case, but it seems to be the one I'm stuck with. I just don't have a mind made for DMing.
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