

Ask HN: How would you bet on an imminent (3-6 month) tech bubble burst? - roymurdock

Caveats:
- With less than $50k
- In such a way that your risk is somewhat hedged (no straight shorting stocks)
======
anigbrowl
Put options allow you to sell at a specified strike priceat some future date.
If you expect stocks in that sector to fall, you buy a put option (I think for
about 5% of the strike price) and wait. If the stocks are above the strike
price on that date, then your option is worthless and you lose the money you
spent because you made a bad decision. If stocks are below the strike price
(by an amount equal to the cost of the option + transaction fees - say, 7.5%)
then you buy the now-cheap stock on the open market, sell it for the strike
price to the now sad-faced counterparty, and pocket the difference.

Alternatively you could sell short but hedge your bet with a call option,
which allows you to buy at a particular price in order to cover your short,
thus limiting your downside risk.

I'm no financial adviser, though. You should really deal with a broker for
this - explain your expectation of market behavior (eg a 50% decline in stock
value across the sector within 6 months) and then ask the broker how to
maximize your upside and minimize your exposure up to the amount of money you
are willing to lose if you are wrong. Don't forget the old maxim 'the market
can remain irrational for longer than you can remain solvent' \- place your
bet and then mentally write it off as a loss, not an asset. If it turns out
you bought a golden ticket then hooray, but timing the market is essentially a
big gamble and gamblers lose more often than they win. That strikes me as
another reason to use a broker; having someone else doing the execution lowers
the temptation to go double-or-nothing in a surge of adrenalin. If the market
behaves in accordance with your theory, you get a nice check in the mail, if
not you spend some time regretting the other ways you could have spent the
money but without the nausea that follows an adrenalin rush.

------
gesman
Wait until everyone believe that it's a bubble.

Then wait until everyone got disappointed that bubble is no bursting.

Then wait until everyone affirms that the bubble will never burst and it's the
"new economy" now.

Then buy ITM OEX PUT's with 1 yr ahead expiration date.

------
MichaelCrawford
I think it will take long than that, maybe two years.

Look at all the startups that are "X for Uber". When they go public without
any concept as to how to profit, that is when it will burst.

I knew when the dot-com crash would happen about eight months before it
actually did: I read a Reuters article about how all the business plans sent
to Page Mill Road, Palo Alto VCs were for companies that intended to cash out
by going public, without even attempting to produce anything of value to
anyone.

------
PhantomGremlin
Be really really really careful about how you place your bets. I think it's
dangerous to bet against an entire sector. "Tech" companies are so varied.

Back in 2000 a previous bubble burst. AKA the "dotcom crash". It had lots of
companies that were truly absurd. E.g. pets.com thought it could become
profitable by offering free shipping on heavy bags of dogfood.[1]

Now we still have absurd valuations. E.g. Mark Zuckerberg saw nothing wrong
with spending $19 billion of his shareholders' money on WhatsApp, a company
that had IIRC somewhere around $30 million in revenue. However, there's a big
difference. The rest of Facebook is quite profitable. It might be somewhat
overvalued, but it's a real company. It might eventually go the way of
MySpace, but I wouldn't bet against Facebook right now.

There's a very important saying on Wall Street:

    
    
       never short a company based
       (solely) on valuation
    

Okay, you specifically said you didn't want to "short". So let's just rephrase
it:

    
    
       Don't bet against a successful,
       growing company solely because
       you think it's overvalued.
    

Try to find companies that are on the way down. E.g.: Are their revenues
falling? Is their core business model threatened? Are there strong up-and-
coming competitors? Do they have a moron for a CEO? Are they an outright
fraud?

I agree with your general opinion. I think there's a lot of froth in some
current tech company valuations. I think the "bubble" will burst one of these
days. But right now I'm not betting any of my money on the "tech bubble burst"
I see coming. Because there's yet another very important saying on Wall
Street, attributed to John Maynard Keynes:[2]

    
    
       Markets can stay irrational
       longer than you can stay solvent
    

Good luck!

[1]
[https://en.wikipedia.org/wiki/Pets.com](https://en.wikipedia.org/wiki/Pets.com)
[2] [https://en.wikipedia.org/wiki/Efficient-
market_hypothesis](https://en.wikipedia.org/wiki/Efficient-market_hypothesis)

