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by Galanwe 25 days ago
> I'd love is some sort of trade that would eliminate my exposure to SpaceX

You can just short SpaceX of an amount equivalent to its share of your SP500 holdings. You will have to pay borrowing costs though, but on something that liquid it will be very small.
2 comments
BJones12 25 days ago
Yeah. For comparison, SpaceX will be maybe half the size of MSFT. MSFT is 7.4% of the SP500 index, so for a $1,000,000 portfolio if you were to short MSFT you'd pay 0.25% on the value of that 7.4%, or $185/year.

So eliminating SpaceX exposure will cost you $100 per million of your SP500 ETF per year, or so.

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parliament32 25 days ago
Shorts have unlimited risk. Buying a put is risk-defined and probably a better strategy.
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BJones12 25 days ago
No, because the unlimited risk of shorting is balanced (hedged) by the unlimited upside of holding the same number of shares via the ETF.
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jocaal 25 days ago
You cannot however sell only SpaceX shares from your ETF to cover your short's losses. So due to liquidity issues I wouldn't recommend your strategy.
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ls612 25 days ago
We aren’t talking about penny stocks we are talking about a tech giant. At the scales that any ordinary investor is operating at there will be no liquidity issues with shorting it and if it is in your index fund the short and long positions will directly offset if you size it correctly leading you to have net zero exposure to SpaceX.
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Galanwe 25 days ago
What are you talking about? You don't need to touch anything about your ETF. You just have to short a single name on the side.

Also there is no liquidity issue, we're talking SP500 names here, you'll pay GC, which should be around 25bps as the other comment mentions.

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BobaFloutist 25 days ago
They're saying if the stock goes up and you get margin-called on the short, you have to sell index shares, you can't just annihilate the Tesla shares with the anti-Tesla shares and walk away.
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Galanwe 25 days ago
That depends if you trade cash or synthetic.

I think most people trade synthetic, just because it's faster and you don't have to wait for settlements, but maybe that is different if you trade onshore (I am a foreign investor).

Anyway if you are synthetic your margin is most likely shared between shorts and long on the same instrument, so no, you wouldn't be called.

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parliament32 25 days ago
Yeah you're not wrong. I didn't think about it that way because you can't really break something out of an ETF basket, and you also don't control the ETF basket, but if you think those risks are minimal it's probably fine to just compare dollars-to-dollars.

Personally I would still probably go with the long put strategy unless the price difference is exorbitant.

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Galanwe 25 days ago
> also don't control the ETF basket

The ETF is this case follows the index, so there's really no surprise.

> I would still probably go with the long put strategy

Just, don't. There is a world of complexity between a simple short, and entering an option contract with non linear pnl.

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parliament32 25 days ago
The ETF that seemingly arbitrarily changes its rules? In such a short time frame too? This change is going proposal to implementation in.. what, two weeks total? I don't know about you but I don't keep up on this stuff unless it hits the news like this one.

You are not entering a contract with a long put. You are buying a contract that, if you want, you can just let expire with no obligation to do anything. It's effectively simple insurance (as opposed to a short position, which is an actual liability, which will eat you alive in exceptional circumstances).

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Galanwe 25 days ago
> You are not entering a contract with a long put

Yes you are, and options are complicated. Actually, the mere fact that you think they are "simple insurance" is enough proof to me that you probably don't understand it enough to safely buy one.

> You are buying a contract

Oh right, you've bought a PUT, now the fun part: you have to manage your position/exposure, could you enlighten me how you do that?

Could you explain me why buying a SpaceX PUT in a high IV regime (e.g. soon after IPO) will have it drop 40% when the IV decreases after 1 month, even though price moved in my favor? It should be simple, it's just a simple insurance product right?

Seriously. Someone, likely not super financially literate, ask a simple question about how to neutralize a stock exposure, and your answer is to advise buying options? Just stop.

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Galanwe 25 days ago
It's not just a short, it's a portfolio of X short + X long. It's effectively canceling perfectly.
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