Jul

28

If I had 300mm in used cars and I wanted to protect the losses of a sudden drop in prices or book values banks use….
 
My solution is to not use options as learned by listening to Mr Vic on the vigorish.
 
If a stock's price was tracking current tick data of aggregate mean car prices, wouldn't it be best to sell a line of that stock against the inventory?
 
If so, how do we quickly calculate how much in stock in total vs the 300mm of inventory. 
 
Yes I'm aware of the joke.
 

Someone said there is no way to hedge this, and I said why not sell some used car companies stocks just in case and….

A reader writes:

Yes, the difficult question is to find the correlation between the used car inventory and hence their aggregate values with the used car sellers' stock prices. I don't know which publicly trade companies only sell used cars. Once one knows the equivalent delta value of the inventory, then one can hedge the delta risk using various strategies as you have suggested.

James Lackey writes:

After a day, I think of ways I could as a day trader blow this trade up. The risk is car prices crash as they should and the used car big box store's stock goes up big on a squeeze. Therefore the way to protect that is to buy call options. Buying options is not businesslike as the vigorish is unbusinesslike. I do believe others must be in this trade as I'm always the last to know. I'm sure I'm not the only guy that thought of this trade. Yet so far the dealers and the vampire squid isn't pitching this trade.

Someone said to me there is no way to hedge this book. I laughed and called bs and said there is.always a way. Problem is the cost.

Duncan Coker writes:

The only part of Dalio's book I found readable was the first section where he
talked about his early consulting work prior to Bridgewater. One of his first
major accounts, McDonalds, needed to hedge chickens. Dalio came up with an
elegant solution with ratios of feed, energy and land. Futures were not a
ubiquitous as they are today and his ideas were quite good.

A reader adds:

Jake Powell also commented on the recent high prices of used cars shall come to pass in his congressional testimony this morning. Similar to the Dalio methodology, then perhaps auto parts stores like ORLY an/or AAP could be affected then.


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