isn't that just futures? price versus price sorta thing? trading the price and other punters, not the underlying asset?
i can see THIS working with RE - but not options.
Making money on sliding property prices - Derivatives!
- Thread starter spark
- Start date
isn't that just futures? price versus price sorta thing? trading the price and other punters, not the underlying asset?
i can see THIS working with RE - but not options.
it still raises some very big Qs.
Hypothetical Option Question
I would love a product like this. There is no way to short house prices without it (unless you sell what you have and plan to buy back in - already tried that one though! tough with costs and tough to get the timing right - I went too early).
Just wondering - lets say the current median is $500K. What price would you sell a put option that gave me the right (but not the obligation) to sell at $650K in 3 years time.
I'd actually pay pretty big dollars to buy one of these options. What would you sell one of these options for? If you are bullish (and confident about it) you would sell it fairly cheaply right as you would be confident the market price will be much higher than $650K in the future and it would be free money.
I would love a product like this. There is no way to short house prices without it (unless you sell what you have and plan to buy back in - already tried that one though! tough with costs and tough to get the timing right - I went too early).
Just wondering - lets say the current median is $500K. What price would you sell a put option that gave me the right (but not the obligation) to sell at $650K in 3 years time.
I'd actually pay pretty big dollars to buy one of these options. What would you sell one of these options for? If you are bullish (and confident about it) you would sell it fairly cheaply right as you would be confident the market price will be much higher than $650K in the future and it would be free money.
You wouldn't want to buy a put if you thought the market was going to go up. You'd buy a call instead, giving you the right to buy in three years time at say $500K.
GP
My understanding is that it's going to be a market maker structure on an wide (state wide or city wide) index, that's all.
Even now you can short/long London or UK property with these guys: www.igmarkets.com.au
Even now you can short/long London or UK property with these guys: www.igmarkets.com.au
Not that hard to work out. Find an option calculator on the net, enter the details (time, IR, volatility, prices) and it will calculate it for you.
cheers for that - i will be trying to wrap my head around this!
heard of options on futures? If you wanted you could create options on anything you can think of...
We could create an 'index' that equals the number of somersoft posts per day. We could setup an online 'exchange' and trade it (ie. make bets). We could also have options, and futures, and CFD's if you want....
all cash settled of course.....
might be prone to manipulation though
We could create an 'index' that equals the number of somersoft posts per day. We could setup an online 'exchange' and trade it (ie. make bets). We could also have options, and futures, and CFD's if you want....
all cash settled of course.....
might be prone to manipulation though
But you would be happy to sell a put. That was what I was getting at. Gives you money in your hand right now based on you beliefs on future property prices going up.
All hypothetical - no market exists and if I did something privately (i.e. buy a put from a property bull) I'd worry about credit risk.
that's an uncovered - or naked - put.
Sorry, I'm confused about which side of the deal you think it would be good to be on - would you want to be the seller or the buyer of the put?
You said:
Why, if you thought the price would be above $650K in three years? I wouldn't pay anything for the put if I was so sure of that.
To me, the price would be worked out by taking the "expected" rate of growth over the next three years and from that working out the expected value of the house at that time, and then taking the difference between $650K and that figure (that's the simplified version - the real version would need to include interest rates for opportunity cost, and possibly even expected volatility, and it would depend on how rent was handled with the option).
For example, if you thought growth would average 6% over the next three years, then a $500K house would be worth just under $600K then (ignoring transaction costs and rent). That would make the put worth $50K (ie. break-even if the 6% average growth rate held). Lower growth would put the buyer ahead while higher growth would put him behind (although the most-behind he could become would be $50K, the premium of the option).
Selling the put could be risky though. The most you could make would be $50K, whereas you could lose much more if prices fell or went nowhere over those three years. For example, if the house was still only worth $500K in three years, then you'd be down $100K (the $150K difference minus the $50K premium).
That's why buying calls is lower risk. A call to buy at $550K in three years time would also be worth $50K (using the simplified pricing version), but the most you could lose would be $50K whereas you could make much more if prices went much higher. For example, if the house was actually worth $800K in three years, you'd be up $200K.
GP
I'd be the buyer of the put. I think there is a price correction coming.
I understand your thinking though - spot on. If you were sure prices would be higher you would pay nothing for the put. Converseley though if the seller of the put was sure prices would be higher then the seller of the put would not ask for much.
Similar threads
