Patrick Boyle

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Yesterday SpaceX became the largest company ever to go public, in an IPO that values Elon Musk's rocket-and-AI conglomerate at $1.78 trillion. But SpaceX is just the first. Anthropic and OpenAI have both filed to go public, Alphabet has just raised a record $85 billion in new stock, and Meta is reportedly considering doing the same. Goldman Sachs expects as much as $675 billion of new equity to hit the market this year.

For two decades the stock market did nothing but shrink — companies stayed private, bought back their own shares, and got taken private by private equity, leaving less and less stock to go around. That era is now over. In this video I look at why all of this is happening at once, what the AI buildout has to do with it, why the SpaceX deal has been such an awkward experience for Wall Street, what the prospectus actually reveals about where the $75 billion is going, and whether any of it is a good investment — with a look back at what happened to people who bought Cisco at the top in 2000.

Patrick's Books:
Statistics For The Trading Floor: https://amzn.to/3eerLA0
Derivatives For The Trading Floor: https://amzn.to/3cjsyPF
Corporate Finance: https://amzn.to/3fn3rvC

Ways To Support The Channel
Patreon: https://www.patreon.com/PatrickBoyleOnFinance
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Visit our website: https://www.onfinance.org
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Business Inquiries ➡️ [email protected]

Patrick Boyle On Finance Podcast:
Spotify: https://open.spotify.com/show/7uhrWlDvxzy9hLoW0EYf0b
Apple: https://podcasts.apple.com/us/podcast/patrick-boyle-on-finance/id1547740313
Google Podcasts: https://tinyurl.com/62862nve

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This week, SpaceX filed the prospectus for what is expected to be the largest IPO in history. The document is extraordinary — part financial disclosure, part science fiction, and part governance structure that a corporate law professor has described as offering shareholders "no votes, no sales, and no suits." We look at the numbers, the products that don't yet exist, the AI business that SpaceX's own engineers won't use, the related-party transactions, the compensation package tied to a Mars colony the company admits is "improbable," and the one rocket that everything depends on. Everything I am about to tell you comes directly from the filing.

Cape Fear Advisors Substack: https://capefearadvisors.substack.com/p/spacex-adding-it-up-the-235-billion

Patrick's Books:
Statistics For The Trading Floor: https://amzn.to/3eerLA0
Derivatives For The Trading Floor: https://amzn.to/3cjsyPF
Corporate Finance: https://amzn.to/3fn3rvC

Ways To Support The Channel
Patreon: https://www.patreon.com/PatrickBoyleOnFinance
Buy Me a Coffee: https://www.buymeacoffee.com/patrickboyle

Visit our website: https://www.onfinance.org
Follow Patrick on Twitter Here: https://bsky.app/profile/pboyle.bsky.social

Business Inquiries ➡️ [email protected]

Patrick Boyle On Finance Podcast:
Spotify: https://open.spotify.com/show/7uhrWlDvxzy9hLoW0EYf0b
Apple: https://podcasts.apple.com/us/podcast/patrick-boyle-on-finance/id1547740313
Google Podcasts: https://tinyurl.com/62862nve

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Today we will learn about put call parity and how it works,

These classes are all based on the book Trading and Pricing Financial Derivatives, available on Amazon at this link. https://amzn.to/2WIoAL0
Check out our website http://www.onfinance.org/

Follow Patrick on twitter here: https://twitter.com/PatrickEBoyle

What is Put-Call Parity
Put-call parity is a no arbitrage principle that specifies the relationship between the price of European put options and European call options, with the same underlying asset, strike price and expiration date. Put-call parity states that simultaneously holding a short European put and long European call of the same class will deliver the same return as holding one forward (or futures) contract on the same underlying asset, with the same expiration, and a forward price equal to the option's strike price. If the prices of the put and call options diverge so that this relationship does not hold, an arbitrage opportunity would exist, meaning that arbitrage traders would be able to earn a risk-free profit. Such opportunities are uncommon and short-lived in liquid markets.

The equation expressing put-call parity is:

C + PV(x) = P + S

where:

C = price of the European call option

PV(x) = the present value of the strike price (x), discounted from the value on the expiration date at the risk-free rate

P = price of the European put

S = spot price or the current market value of the underlying asset

Put-call parity applies only to European options, which can only be exercised on the expiration date, and not American options, which can be exercised before.

Watch Patrick's other videos on covered calls and protective puts to better understand this concept.

Covered Call Video: https://www.youtube.com/watch?v=UlC9iM2Wh7I
Protective Put Video: https://www.youtube.com/watch?v=MUs4jga-NAI&t=26s
What is Put Call Parity? How does it work? put call parity formula

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All slides are available on my Patreon page: https://www.patreon.com/PatrickBoyleOnFinance
Book Suggestions:

Burton Malkiel, A Random Walk Down Wall Street (2007) https://amzn.to/2Hr2SW1
Roger Lowenstein, Buffett: The Making of an American Capitalist (2008) https://amzn.to/3hUkFl6
Jack Schwager, Market Wizards Series https://amzn.to/3a89diH
Jack Schwager, Market Sense And Nonsense (2013) https://amzn.to/3jerS0Z
Nassim Nicholas Taleb, Fooled By Randomness (2007) https://amzn.to/365wN08
Victor Niederhoffer, Education of a Speculator (1998) https://amzn.to/2EuhMJZ
Victor Niederhoffer, Practical Speculation (2004) https://amzn.to/2Hr3nzn
Dimson, E., Marsh, P., and M. Staunton, Triumph of the Optimists: 101 Years of Global Investment Returns (2002) https://amzn.to/363JWXG
Roger Lowenstein, When Genius Failed (2001) https://amzn.to/364aHv7
Ivan Boesky, Merger Mania (1985) https://amzn.to/3crKszQ
Howard Marks, The Most Important Thing (2011) https://amzn.to/30n89EX
Frank Partnoy, F.I.A.S.C.O. (1999) https://amzn.to/366gGj4
Michael Lewis, Liars Poker (1989) - The Big Short (2010) https://amzn.to/3mPjhE1
Gregory Zuckerman, The Man Who Solved the Market (2019) https://amzn.to/2FVOZi8

Patricks' Books:
Statistics for Traders: https://amzn.to/3eerLA0
Financial Derivatives: https://amzn.to/307ByTb
Corporate Finance: https://amzn.to/3fn3rvC

Visit our website: www.onfinance.org
Follow Patrick on Twitter Here: https://twitter.com/PatrickEBoyle

Risk & Return in Finance.
The higher the risk taken, the more greater the expected return should be, and conversely, the lower the risk, the more modest the expected return. In this class we learn about how traders and portfolio managers think about risk and return. We learn about indifference curves, diversification and the importance of correlation in building a portfolio. We learn about sharpe ratio, sortino ratio and beta.


Often people are confused by the idea of the risk return tradeoff. They think that taking a higher risk means that you are guaranteed a higher return. Of course, if this was the case, risk would not be risky. In finance what the risk return tradeoff is referring to is the idea that an investor would only agree to take greater risk, if they believed that the positive outcomes were greater than the positive outcomes achieved for low risk investments.

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What is Backwardation and Contango in Futures Markets?

These classes are all based on the book Trading and Pricing Financial Derivatives, available on Amazon at this link. https://amzn.to/2WIoAL0
Check out our website http://www.onfinance.org/

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Contango and backwardation are terms often used within commodity circles. These terms refer to the shape of the futures curve of a commodity such as gold, silver, wheat or crude oil. A futures curve can be plotted on a chart of a particular contract by using an X and Y axis. The X axis contains the various contract expiration dates while the Y axis contains the corresponding futures prices. A normal futures curve will show a rising slope as the prices of futures contracts rises in time. An inverted futures curve will show a falling slope as the prices of futures contracts falls over time.

A contango market simply means that the futures contracts are trading at a premium to the spot price. For example, if the price of a crude oil contract today is $100 per barrel, but the price for delivery in six months is $110 per barrel, that market would be in contango. On the other hand, if crude oil is trading at $100 per barrel for delivery right now, and the six month contract is trading at $95 per barrel, then that market would be said to be in backwardation.

Contango and backwardation are curve structures seen in futures markets based on several factors. It is important to remember that the futures price eventually converges on the spot price. In other words, any gaps between the futures price and the spot price will close as contract expiration nears.

The shape of the futures curve is important to commodity hedgers and speculators. Both care about whether commodity futures markets are contango markets or normal backwardation markets. In 1993, the German company Metallgesellschaft famously lost more than $1 billion dollars, mostly because management deployed a hedging system that profited from normal backwardation markets but did not anticipate a shift to contango markets.

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These classes are all based on the book Trading and Pricing Financial Derivatives, available on Amazon at this link. https://amzn.to/2WIoAL0
Check out our website http://www.onfinance.org/

Follow Patrick on twitter here: https://twitter.com/PatrickEBoyle

What is a Protective Put?
A protective put is a trading or investment strategy that investors can use to guard against losses in a stock or other asset. The put option acts like an insurance policy—it costs money, which reduces the investor's potential gains from owning the security but also reduces the risk of losing money if the security declines in value. A protective put is also known as a married put.

Breaking Down the Protective Put
Protective puts involve being long a stock and purchasing put options for that stock with a strike price that is near the underlying stock's current price or slightly out of the money. A protective put is typically used when an investor is still bullish on a stock but wishes to hedge against potential losses and uncertainty.


Profit and Loss
The maximum profit of a protective put is theoretically unlimited as the strategy involves being long on the underlying stock. If the stock keeps rising, the long stock position benefits and the bought put option isn't needed.

The maximum loss is limited to the purchase price of the underlying stock less the strike price of the put option and the premium paid. The strike price of the put option acts as a barrier where losses in the underlying stock stop. The ideal situation in a protective put is for the stock price to increase, as the investor would benefit from the long stock position. In this case, the put option will expire worthless, but the stock will have increased in value.

Take a look at my other two videos in this series, one on covered calls and one on put call parity where we learn the relationship between a protective put and being long a call option.

Covered Call Video: https://www.youtube.com/watch?v=UlC9iM2Wh7I
Put Call Parity Video: https://www.youtube.com/watch?v=LPrlfElGZJ0&t=0s

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Buy The Book Here: https://amzn.to/2J2kF3A
Visit our website: www.onfinance.org
Follow Patrick on Twitter Here: https://twitter.com/PatrickEBoyle

A follow up video explaining how the USO ETF works https://youtu.be/BIqIjbHeV-g
Video on Contango & Backwardation: https://youtu.be/0QVFMwq2Uus
What are Futures: https://youtu.be/zlIts3ddX00

Patreon Page: https://www.patreon.com/PatrickBoyleOnFinance

Todays video explains what it means that oil futures fell to a negative price today.

U.S. crude oil prices had their worst day on record today, with crude storage facilities filling rapidly as the coronavirus pandemic continues to crush demand.

A futures contract for U.S. crude prices dropped more than 100% and turned negative for the first time in history on Monday, showing just how much demand has collapsed due to the coronavirus pandemic.

This collapse into negative territory is not reflective of the true reality in the oil market. The price of the May oil futures contract, which expires Tuesday, detached from later month futures contracts, which continued to trade above $20 per barrel.

West Texas Intermediate crude for May delivery fell more than 100% to settle at negative $37.63 per barrel, meaning producers would pay traders to take the oil off their hands.

This negative price has never happened before for an oil futures contract. Futures contracts trade by the month. The June WTI contract, which expires on May 19, fell about 18% to settle at $20.43 per barrel. This contract, which was more actively traded, is a better reflection of the reality in the oil market. The July contract was roughly 11% lower at $26.18 per barrel.

Meanwhile, international benchmark Brent crude stood at $26.41 on Monday, around 6% lower for the session.

This comes amid concern that the volume of oil held in U.S. storage is rising sharply, with the coronavirus crisis compounding the problem by dramatically reducing consumption.

The current forward crude oil curves for Brent and WTI are now in what the financial press is calling Super-Contango. The contango is very front-loaded,

A contango market implies oil traders believe crude prices will rally in the future, encouraging them to store oil now and to sell at a later date.

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These classes are all based on the book Trading and Pricing Financial Derivatives, available on Amazon at this link. https://amzn.to/2WIoAL0
Check out our website http://www.onfinance.org/

Follow Patrick on twitter here: https://twitter.com/PatrickEBoyle

Exercising Options
Calls and put options give the owner the right to buy or sell a stock at a certain price by a certain date. When the owner of that call or put option has an option that is "in-the-money" and decides to buy or sell the stock, it is said that they are "exercising" their option. However, just because an option is "in-the-money" it doesn't mean that it is always in the best interest of the option holder to exercise it. Most of the time the option owner is better off to just sell the option at the current market price. This is because the option price is usually higher than the "intrinsic value", or the amount the option is actually "in-the-money." At expiration date, it usually makes sense to exercise the option.
When to Exercise a Call Option
If you own a call option and the stock price is HIGHER than the strike price at expiration, then it makes sense for you to exercise your call. This way you can buy the stock at a lower price and immediately sell it in the market at the higher price.
When to Exercise a Put Option
If you own a put option and the stock price is LOWER than the strike price at expiration, then it makes sense for you to exercise your put. This way you can sell the stock at a higher price and immediately buy it back at the lower price.

I will do another video shortly on when it is optimal to early exercise options.

Trading options.

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