HELOC

[DWKB]

Ok, talk me out of it:

Wife and I are taking on a kitchen remodel.

Contractor estimate of $40k. We have $37k in saving account doing nothing right now.

Got an offer for a fee-free HELOC from my bank (assuming my LtV comes in ok) to get the funds. Do not have a set rate yet, but it will be less than 5% I believe.

Tell me why I shouldn’t take out the $40k from the HELOC, put the $37k in an index fund and pay interest only payments for the next 10 years on the loan and hopefully earn more than that on my fund.

 

[82CardsGrad]

How do you feel about the value of our home, now and over the next 5-10 years?

 

[DWKB]

How do you feel about the value of our home, now and over the next 5-10 years?

I mean, my home will move as the National market moves and I’ve got a pandemic rate loan on it right now.

The real gamble is will the S&P generate more value in the next 10 years on that money than the debt I’ll invite on that interest only loan.

5% on $40k is around $2k a year, $20k overall. Will an S&P index fund generate more than $20k over the course of 10 years? It avg 8% lifetime and 14% the last decade.

 

[82CardsGrad]

I mean, my home will move as the National market moves and I’ve got a pandemic rate loan on it right now.

The real gamble is will the S&P generate more value in the next 10 years on that money than the debt I’ll invite on that interest only loan.

5% on $40k is around $2k a year, $20k overall. Will an S&P index fund generate more than $20k over the course of 10 years? It avg 8% lifetime and 14% the last decade.

Yea... the odds heavily favor an investment into an S&P Index Fund. The danger with Heloc's is two-fold:

1.) The combined Heloc and first mortgage end up bumping too close to the value of the home, such that, should things go south (2008/2009 did happen) and your home value plummets, you could be find yourself upside down and without any equity...

2.) Some people get addicted to Helocs... and start using their home as a credit card. I think lenders and the laws have gotten much more discreet and careful about that though...

 

[DWKB]

Yea... the odds heavily favor an investment into an S&P Index Fund. The danger with Heloc's is two-fold:

1.) The combined Heloc and first mortgage end up bumping too close to the value of the home, such that, should things go south (2008/2009 did happen) and your home value plummets, you could be find yourself upside down and without any equity...

2.) Some people get addicted to Helocs... and start using their home as a credit card. I think lenders and the laws have gotten much more discreet and careful about that though...

Gotcha,

not worried about the addiction. This is for a specific job and only that amount.

Our LtV for both Mtg and Heloc combined would be capped at 85% as that’s the banks restriction.

 

[Devilmaycare]

I mean, my home will move as the National market moves and I’ve got a pandemic rate loan on it right now.

The real gamble is will the S&P generate more value in the next 10 years on that money than the debt I’ll invite on that interest only loan.

5% on $40k is around $2k a year, $20k overall. Will an S&P index fund generate more than $20k over the course of 10 years? It avg 8% lifetime and 14% the last decade.

Just YOLO it and put the $37k into GME or AMC.

Two questions, will paying HELOC put a crimp in your monthly cash flow? Is your mortgage + HELOC low enough that when we see a correction in the housing market that you're not going to a mile underwater. I don't know if there's as big of a bubble there as there is here but it would be my main concern.

If both of those aren't an issue then I'd probably go with the HELOC and invest. You should make money with that over the 10 years. S&P has been doing >5%/year and you have the compounding effect that'll give you even more. The only real worry would be if something like 2008 happens and the entire market takes a dive.

 

[DWKB]

Just YOLO it and put the $37k into GME or AMC.

Two questions, will paying HELOC put a crimp in your monthly cash flow? Is your mortgage + HELOC low enough that when we see a correction in the housing market that you're not going to a mile underwater. I don't know if there's as big of a bubble there as there is here but it would be my main concern.

If both of those aren't an issue then I'd probably go with the HELOC and invest. You should make money with that over the 10 years. S&P has been doing >5%/year and you have the compounding effect that'll give you even more. The only real worry would be if something like 2008 happens and the entire market takes a dive.

If I mathed it out right, my monthly interest payment should be around $166/month. Currently paying an extra $100/month in Mtg principal that can offset that. So I’m on the hook for an extra $66 a month for the next 10 years.

If my home value plummets, I’m not sure how that would affect my financial situation outside of locking me into the home to ride it out. I’m in a great rate and we don’t plan on moving too soon unless catastrophe comes.

 

[elindholm]

I wouldn't do it at 5%. Under Biden, I think it's reasonably likely that capital gains taxes will go up, which tilts the numbers toward spending your savings (whose growth would be taxed) rather than adding more debt. If you're prepared to make interest-only payments to the tune of $2000 a year, you can invest those funds in stocks instead. It's pretty unlikely that you'll catch up to the $37k you took out, but on the other hand you won't have a debt hanging over your head all that time, plus you'll get the benefits of dollar-cost averaging if you split that $2000 into monthly investments.

It's a tough call, but 5% is high enough that you would really need the market to be quite well behaved over the next ten years in order for the numbers to be solidly in your favor, and the downside risk seems pretty large to me. Have you leaned on your lender to try to get a lower rate? 5% is very high given the overall state of the economy. You say it's "fee-free," but that means they're getting their profit on the high interest rate. The overall numbers might be more favorable to you if you pay a little up front in exchange for a lower interest rate. Banks tend to offer lousy HELOC pricing and you'll probably get a much better offer from a discount broker if you have time to shop around.

 

[dreamcastrocks]

I wouldn't do it at all. You'd be better off financing part of it.

Better yet, if you have a 401k that you can borrow from, that is a much better idea. You can pay yourself interest on the loan, instead of paying the bank.

 

[BigRedRage]

Ok, talk me out of it:

Wife and I are taking on a kitchen remodel.

Contractor estimate of $40k. We have $37k in saving account doing nothing right now.

Got an offer for a fee-free HELOC from my bank (assuming my LtV comes in ok) to get the funds. Do not have a set rate yet, but it will be less than 5% I believe.

Tell me why I shouldn’t take out the $40k from the HELOC, put the $37k in an index fund and pay interest only payments for the next 10 years on the loan and hopefully earn more than that on my fund.

If you do this but can pay more than interest only payments while your wealth is building, it's a good idea. Liquidating savings is always the last choice IMO. Also, the 401k loan and paying back your interest to yourself is a good suggestion.

A lot hinges on your monthly budget and what you save monthly now vs with a HELOC or loan. Being able to put away monthly and retain liquid assets are always top priorities.

 

[Folster]

One thing to consider is what you expect the market to return over the next 10 years. The market is considered by most analysts to have a pretty high valuation at this current point. We have a recent example of a lost decade starting with the dot com crash and ending with the financial crisis. I don't think many analysts are predicting double digit returns over the next 10 years for where we are right now. But who knows.

 

[Finito]

Just YOLO it and put the $37k into GME or AMC.

Two questions, will paying HELOC put a crimp in your monthly cash flow? Is your mortgage + HELOC low enough that when we see a correction in the housing market that you're not going to a mile underwater. I don't know if there's as big of a bubble there as there is here but it would be my main concern.

If both of those aren't an issue then I'd probably go with the HELOC and invest. You should make money with that over the 10 years. S&P has been doing >5%/year and you have the compounding effect that'll give you even more. The only real worry would be if something like 2008 happens and the entire market takes a dive.

my man

still sitting on my 1001 shares of AMC at a 10.66 average been diamond handing since March

 

[elindholm]

still sitting on my 1001 shares of AMC at a 10.66 average been diamond handing since March

I think a lot of people hold meme stocks for the entertainment value, and not really as investments. You're down $30k over the past two months. That sounds like a lot, but if you didn't have a clear idea of what you'd have wanted to do with that money, it's not a big loss. The "enjoy the ride" style isn't for me, but I know it's appealing to others, so go for it! Even dogecoin is getting a bit of a dead cat bounce these days.

 

[Finito]

I think a lot of people hold meme stocks for the entertainment value, and not really as investments. You're down $30k over the past two months. That sounds like a lot, but if you didn't have a clear idea of what you'd have wanted to do with that money, it's not a big loss. The "enjoy the ride" style isn't for me, but I know it's appealing to others, so go for it! Even dogecoin is getting a bit of a dead cat bounce these days.

I’m up 22k for the year on it. It’s not a meme stock and I don’t consider myself a meme investor I’m a regular retail investor.

as of close on Friday it’s up 697% on the year and citadel is literally losing a billion dollars a week trying to keep these shorted stocks down. have they covered there short position? Not a single cent. It has a 3-1 buy/sell ratio and the price is going down? Odd don’t you think. When the chairman of the SEC is on TV talking about dark pool abuse and naked shorts that’s big news.


IMO it’s the best play in the market

 

[elindholm]

I’m up 22k for the year on it. It’s not a meme stock and I don’t consider myself a meme investor I’m a regular retail investor.

AMC is absolutely a meme stock. It's pointless to claim otherwise. You may believe that you are holding it for non-meme reasons, but it's still on everyone's short list of most prominent meme stocks.

as of close on Friday it’s up 697% on the year and citadel is literally losing a billion dollars a week trying to keep these shorted stocks down. have they covered there short position? Not a single cent. It has a 3-1 buy/sell ratio and the price is going down? Odd don’t you think. When the chairman of the SEC is on TV talking about dark pool abuse and naked shorts that’s big news.

Yes, there will probably be another round or two of the short squeeze game, but that's highly timing-dependent. And since you seem to be planning to hold for the long haul, a short-term price spike does you no good at all.

IMO it’s the best play in the market

It has posted losses for seven consecutive quarters, and unless tomorrow's earnings report is a huge surprise, make it eight. There's a good chance that they go bankrupt within three years. You're probably better off investing in Sears.

 

[Yuma]

Maybe I am looking at this the contrarian way. What do you think the stock market will do over that time? The Heloc is a fixed debt. The money you are investing you do not want to go below the value of paying off the heloc if needed. If you think you will be positive on your investment I would do it. If you come close to breaking even, a little down or a little up, it won't hurt. If you invest and lose a lot you will have to pay it all off out of pocket. Even if you lose money, you would have some left to help pay off the heloc. Whereas, if you spend your cash and pay for the home project outright, you have no money left at the end of the day. No debt either. Getting the Heloc and having money left over either way is OK as long as you can afford to make the payments. If the payments cause you cash flow problems, then don't do it.

 

[Devilmaycare]

my man

still sitting on my 1001 shares of AMC at a 10.66 average been diamond handing since March

Nice, I'm still holding some shares too, not as much as you though. It'd be nice if we got the big squeeze soon. I'm sitting at either a $60 or $0 average depending on how you look at it. I had a stop loss accidentally trigger at $55 when it when into the 60s and had a quick drop. I wasn't able to get the order canceled quick enough when the stock was halted. So I bought back in right away minus like 10 shares that covered my initial buy in. So all my shares are house money now.

 

[Finito]

AMC is absolutely a meme stock. It's pointless to claim otherwise. You may believe that you are holding it for non-meme reasons, but it's still on everyone's short list of most prominent meme stocks.



Yes, there will probably be another round or two of the short squeeze game, but that's highly timing-dependent. And since you seem to be planning to hold for the long haul, a short-term price spike does you no good at all.



It has posted losses for seven consecutive quarters, and unless tomorrow's earnings report is a huge surprise, make it eight. There's a good chance that they go bankrupt within three years. You're probably better off investing in Sears.

a meme to who? CNBC? Jim Cramer? Bought and paid for my friend


that’s the problem your trying to apply fundamentals to something that is ridiculously unconventional. The fact you think an earnings report means anything tells me where you stand. It’s so out dated it’s not even funny.

this is 100% not a long term investment it’s a short squeeze play and it’s probably going to be the most violent in the history of the stock market.

bottom line when you short a stock you have to cover and it’s gotten so out of hand it’s going to be impossible to cover without it being catastrophic.

retail investors own 80% of the float

look at all the new rules that have been put in place in the last two months. A hedge fund will never again be able to over extend themselves like this.

like I said up 700% for the year and I’m up 22K while Citadel is losing a billion dollars a week, yes a billion so you tell me where the smart money is.

 

[Folster]

AMC is absolutely a meme stock. It's pointless to claim otherwise. You may believe that you are holding it for non-meme reasons, but it's still on everyone's short list of most prominent meme stocks.



Yes, there will probably be another round or two of the short squeeze game, but that's highly timing-dependent. And since you seem to be planning to hold for the long haul, a short-term price spike does you no good at all.



It has posted losses for seven consecutive quarters, and unless tomorrow's earnings report is a huge surprise, make it eight. There's a good chance that they go bankrupt within three years. You're probably better off investing in Sears.

Totally Agree.

Even if someone believed in their turnaround story, they've absolutely decimated shareholder value with dilution. September 2020 they had 108 million outstanding shares. Today there are over 512 million outstanding shares of AMC. If you owned 1/10 of the company prior to the dilution, you now own only 1/50. They were smart to do it while the value was pumped, but no serious investor is long AMC, plenty of traders are in and out though.

 

[Folster]

a meme to who? CNBC? Jim Cramer? Bought and paid for my friend


that’s the problem your trying to apply fundamentals to something that is ridiculously unconventional. The fact you think an earnings report means anything tells me where you stand. It’s so out dated it’s not even funny.

this is 100% not a long term investment it’s a short squeeze play and it’s probably going to be the most violent in the history of the stock market.

bottom line when you short a stock you have to cover and it’s gotten so out of hand it’s going to be impossible to cover without it being catastrophic.

retail investors own 80% of the float

look at all the new rules that have been put in place in the last two months. A hedge fund will never again be able to over extend themselves like this.

like I said up 700% for the year and I’m up 22K while Citadel is losing a billion dollars a week, yes a billion so you tell me where the smart money is.

Where are you getting your information about Citadel losing a billion dollars?

Hedge funds only have to report their positions quarterly in a filing called a 13F. Citadel last reported in May for Q1 which ended March.

In their latest filing, Citadel disclosed the following about their positions in AMC.

Citadel Advisors Llc has a history of taking positions in derivatives of the underlying security (AMC) in the form of stock options. The firm currently holds 4,110,000 call options valued at $41,963,000 USD and 5,676,200 put options valued at $57,954,000 USD .

I also saw they were long $725K in shares as well, perhaps from exercising some calls already.

What that means is that Citadel effectively held a straddle on AMC in which they could profit regardless if the price went up or down, a common strategy for a volatile and unpredictable security. If AMC goes to the moon, they exercise their calls and buy shares at the lower strike price so they can sell at the higher current price. Once it falls back to Earth, they exercise their puts and force the seller of the put to buy AMC at the higher strike price. Again they profit.

Keep in mind this is Citadel's holding data from 4 months ago so nobody really knows what exactly Citadel's positions look like right now.

Those who think these hedge fund managers are still getting creamed by the WSB crowd are deluding themselves especially after a few got taken for a ride with GME.

Not to mention Citadel is paying for the order flow from all of these trading apps where a lot of these meme traders are "sticking it to the man". So I imagine they know what's coming.

 

[Finito]

Where are you getting your information about Citadel losing a billion dollars?

Hedge funds only have to report their positions quarterly in a filing called a 13F. Citadel last reported in May for Q1 which ended March.

In their latest filing, Citadel disclosed the following about their positions in AMC.


I also saw they were long $725K in shares as well, perhaps from exercising some calls already.

What that means is that Citadel effectively held a straddle on AMC in which they could profit regardless if the price went up or down, a common strategy for a volatile and unpredictable security. If AMC goes to the moon, they exercise their calls and buy shares at the lower strike price so they can sell at the higher current price. Once it falls back to Earth, they exercise their puts and force the seller of the put to buy AMC at the higher strike price. Again they profit.

Keep in mind this is Citadel's holding data from 4 months ago so nobody really knows what exactly Citadel's positions look like right now.

Those who think these hedge fund managers are still getting creamed by the WSB crowd are deluding themselves especially after a few got taken for a ride with GME.

Not to mention Citadel is paying for the order flow from all of these trading apps where a lot of these meme traders are "sticking it to the man". So I imagine they know what's coming.

AMC short sellers dealt massive $1.2 billion blow after weeklong stock rally

Investors shorting the meme stock AMC Entertainment are estimated to have lost $1.23 billion over the last week.

www.google.com

AMC short sellers just lost $512 million in a single day as the stock spiked once again

The Monday loss is massive, but falls short of the $2.8 billion that short-sellers lost at one point during the theater chain's rally in May.

markets.businessinsider.com

AMC short-sellers mauled losing $2B in worst week of 2021

Short-sellers betting against AMC Entertainment Holdings Inc. were mauled this week as shares soared after the company made several bold moves.

www.google.com

GameStop short-seller Melvin Capital suffers 49% loss in 1st-quarter

The hedge fund lost 53% in January, gained 22% in February, and then slid another 7% in March.

www.google.com

um everywhere

 

[Folster]

AMC short sellers dealt massive $1.2 billion blow after weeklong stock rally

Investors shorting the meme stock AMC Entertainment are estimated to have lost $1.23 billion over the last week.

www.google.com

AMC short sellers just lost $512 million in a single day as the stock spiked once again

The Monday loss is massive, but falls short of the $2.8 billion that short-sellers lost at one point during the theater chain's rally in May.

markets.businessinsider.com

AMC short-sellers mauled losing $2B in worst week of 2021

Short-sellers betting against AMC Entertainment Holdings Inc. were mauled this week as shares soared after the company made several bold moves.

www.google.com

GameStop short-seller Melvin Capital suffers 49% loss in 1st-quarter

The hedge fund lost 53% in January, gained 22% in February, and then slid another 7% in March.

www.google.com

um everywhere

The only article you posted that specifically mentions Citadel is the last one but they are discussing GME and Citadel injecting cash into a faultering Melvin Capital who reportedly got caught up in the GME short, not AMC.

None of those other articles mention Citadel specifically and it's very likely any hedge funds being impacted by a short squeeze are also profiting or at the very least limiting their downside with a straddle or other type hedge.

Can you point me to information that shows Citadel's current position in AMC, not what they released in their 13F 4 months ago?

 

[Finito]

The only article you posted that specifically mentions Citadel is the last one but they are discussing GME and Citadel injecting cash into a faultering Melvin Capital who reportedly got caught up in the GME short, not AMC.

None of those other articles mention Citadel specifically and it's very likely any hedge funds being impacted by a short squeeze are also profiting or at the very least limiting their downside with a straddle.

Can you point me to information that shows Citadel's current position in AMC, not what they released in their 13F 4 months ago?

i understand what your trying to say. I’m fully aware of how to make money on stocks as far as going up and down.

but we both know this right.

when you short a stock you have to cover? Yes?

that includes all synthetic shares to right? Yes?

AMC is shorter 150% how is that even possible. It’s possible because of creating shares that don’t exist. Naked shorts. You also have to pay interest on all your real shares and fake shares

if retail owns 80+% of the float and isn’t selling. The numbers show to this day and almost 3-1 buy/sell ratio( by the way how can you still buy stock in this company)

it cost money to short a stock and to drive the price down right? Yes

You said people got “taken for a ride” with GameStop I imagine you mean that in the regular way as you were conned or taken advantage of. GameStop was trading at $17 in January and today is trading at $133 that’s a ride I’d love to be on. AMC in January was $2 today it’s $33 give me one person on this planet who wouldn’t take those results in 8 months.

 

[Folster]

i understand what your trying to say. I’m fully aware of how to make money on stocks as far as going up and down.

but we both know this right.

when you short a stock you have to cover? Yes?

that includes all synthetic shares to right? Yes?

AMC is shorter 150% how is that even possible. It’s possible because of creating shares that don’t exist. Naked shorts. You also have to pay interest on all your real shares and fake shares

if retail owns 80+% of the float and isn’t selling. The numbers show to this day and almost 3-1 buy/sell ratio( by the way how can you still buy stock in this company)

it cost money to short a stock and to drive the price down right? Yes

You said people got “taken for a ride” with GameStop I imagine you mean that in the regular way as you were conned or taken advantage of. GameStop was trading at $17 in January and today is trading at $133 that’s a ride I’d love to be on. AMC in January was $2 today it’s $33 give me one person on this planet who wouldn’t take those results in 8 months.

I'm not sure you understand the options strategy that Citadel had in place. They were not short any shares of AMC according to their 13F. They were long some, but their largest AMC positions were both call and put options. When you buy a call, you are bullish on a stock. Citadel had/has an option to buy AMC in the future for a specified price. If the price goes up and they get to buy it for the lower price. If the price goes down, they don't have to exercise the option, but they have lost their premium they paid for the call.

Citadel also purchased put options which gives them the option to sell AMC in the future at a specified price. If the price goes down they get to force the writer/seller of the put to buy at the higher specified price. If the price goes up, the options expire worthless and they are out the premium they paid for the put.

The only way Citadel could lose on this straddle strategy would be if the price of AMC did not move. Then, both the call and put options would have expired worthless and they would have lost the value of the premiums. This was not a very risky position considering their downside was capped at the premiums they paid and the fact that AMC volatility is a virtual given.

So they weren't betting that AMC would go up or down, they were betting it would not stay the same and they would profit from a move in either direction.

In fact, the people who got hurt on AMC were the people who sold or wrote the call options to Citadel when the price was low and the people who sold or wrote the put options when the price was high. Citadel was neither of those. Obviously those who had uncovered shorts, especially those that were leveraged got hit hard. And all of the meme investors who went long at or near the top took it on the chin as well.

Sorry for the point of confusion when I stated "taken for a ride". I was not clear. Melvin Capital and other shorters got taken for a ride with their uncovered shorts. I doubt there is a hedge fund that didn't take note of that error, and I'm sure they have taken steps to avoid the same error in their funds.

 

[Finito]

I'm not sure you understand the options strategy that Citadel had in place. They were not short any shares of AMC according to their 13F. They were long some, but their largest AMC positions were both call and put options. When you buy a call, you are bullish on a stock. Citadel had/has an option to buy AMC in the future for a specified price. If the price goes up and they get to buy it for the lower price. If the price goes down, they don't have to exercise the option, but they have lost their premium they paid for the call.

Citadel also purchased put options which gives them the option to sell AMC in the future at a specified price. If the price goes down they get to force the writer/seller of the put to buy at the higher specified price. If the price goes up, the options expire worthless and they are out the premium they paid for the put.

The only way Citadel could lose on this straddle strategy would be if the price of AMC did not move. Then, both the call and put options would have expired worthless and they would have lost the value of the premiums. This was not a very risky position considering their downside was capped at the premiums they paid and the fact that AMC volatility is a virtual given.

So they weren't betting that AMC would go up or down, they were betting it would not stay the same and they would profit from a move in either directions

In fact, the people who got hurt on AMC were the people who sold or wrote the call options to Citadel when the price was low and the people who sold or wrote the put options when the price was high. Citadel was neither of those. Obviously those who had uncovered shorts, especially those that were leveraged got hit hard. And all of the meme investors who went long at or near the top took it on the chin as well.

Sorry for the point of confusion when I stated "taken for a ride". I was not clear. Melvin Capital and other shorters got taken for a ride with their uncovered shorts. I doubt there is a hedge fund that didn't take note of that error, and I'm sure they have taken steps to avoid the same error in their funds.

oh well thanks for clearing this up for me.