Last week I wrote an admittedly bleak article comparing the Modern format to a Bear Market. The article sparked a great deal of valuable discussion--if you haven’t read through the comments section on that article, I would highly encourage it. I recognize my view isn’t the only one and I am always eager to engage in debate and hear what others believe. Often times, comments from others will help shape my own opinion and we all improve from the healthy discussion.
In that same article I promised an update on my Shock Lands. The jury is still out on these crucial Modern mana-fixers. Through this major price pullback on Modern cards, I continue to have an internal struggle on whether or not to hold my 91 Shock Lands as we navigate through strong headwinds: Standard rotation, Modern PTQ season ending, and continuous risk for reprints (no matter how unlikely).
I remain on the fence in a petrified state. I get a sense that Shock Lands will drop further due to the above factors. But, at the same time, I know the long term prospect for Shock Lands, barring unexpected reprint, is generally positive. The Lands are played heavily in Modern, a format Wizards continues to support feverishly, and they also do well in Casual formats like Commander and Cube. What’s more, I’m not sure if it’ll be worth my selling out of Shock Lands now to reacquire in the future. Prices have already drifted downward and the upcoming downside may be too small to justify any value saved.
Fortunately for me, I’ve discovered another way.
Options: Advanced Trading Strategies
On Wall Street there are endless ways to bet on the market. You can make money if a stock goes up, if a stock goes down, if a stock remains flat, if a stock fluctuates often, etc. Meanwhile, in the MTG Finance world, we’ve been restricting ourselves to buying and selling in order to make investments and generate income. It doesn’t have to be this way.
For those interested in utilizing advanced trading to make income from MTG Finance, may I present to you the concept of options.
An option is an advanced trading tool that can help someone generate income from various scenarios in finance, even if a card’s price doesn’t simply rise. Wikipedia explains options as:
A contract which gives the buyer the right, but not the obligation, to buy or sell an underlying asset or instrument at a specified strike price on or before a specified date. The seller has the corresponding obligation to fulfill the transaction – that is to sell or buy – if the buyer “exercises” the option. The buyer pays a premium to the seller for this right.
Put simply, an option is a bet on a card’s price movement within a specified period of time. It’s almost like saying “I want to buy your 50 copies of a given card in the future, but only if it goes above an agreed upon price. If it doesn’t, I don’t want to buy them.” But since the potential buyer has the option to buy or not buy those cards they have to pay a premium up front. The option seller is at the mercy of the option buyer. If the buyer “exercises” their option before the deadline, they pay the agreed upon price to the seller and the seller ships the cards no matter what the market price becomes.
The concept sounds complicated at first, and the complexity is likely to be a barrier to some who aren’t interested in advanced MTG speculation. They may be thinking that this concept is far too complex to merit trying, and that no one would be interested in making such bets.
They’d be wrong.
My Shock Lands struggle above is the perfect opportunity to leverage options trading in MTG Finance. The below example is really happening. It will hopefully explain options using in a concrete manner.
The Covered Call
I will concede that some options trading could be very difficult to regulate and control. How would you track who owns a given contract? How would you hold the sellers accountable months or even years after a deal is made? These limitations will admittedly make options an underutilized tool in MTG Finance. But, in some cases, options can be a preferred method, depending on the situation.
For example, I currently have a large bet on my Shock Lands. I think in the short term they will be underwhelming, but in the distant future they have upside. I don’t like the idea of sitting on 91 Shock Lands over the next 6-12 months because I will incur wasted opportunity sitting on these.
However, selling them and re-buying them in a year carries its own risks and costs. With a “Covered Call” I can make money by betting Shock Lands will do just as I anticipate: flat to down in the next 6-12 months followed by upward momentum.
Investopedia.com defines “Covered Call” as:
an options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset in an attempt to generate increased income from the asset. This is often employed when an investor has a short-term neutral view on the asset and for this reason hold the asset long and simultaneously have a short position via the option to generate income from the option premium.
Okay, enough complex terminology. Let’s talk numbers.
The Deal I Just Made
I essentially wrote a contract. The contract states “the owner of this contract has the right to buy the below cards for $9 each + shipping before January 10th, 2015.”
- 13x Breeding Pool
- 10x Watery Grave
- 7x Godless Shrine
- 5x Sacred Foundry
- 8x Stomping Ground
- 7x Blood Crypt
- 9x Temple Garden
- 10x Hallowed Fountain
- 16x Steam Vents
- 6x Overgrown Tomb
After I wrote this contract, I sold it to a Twitter follower – Adrian P. (@apaniyam) for $50. That’s all there is to it. I now have $50 more than I had before and no one can take that away from me. Now if Shock Lands stay flat or go down in the coming months, at least I made a little bit of cash off them. And if they go up after January 10th, as I expect, I will still be holding the 91 Shock Lands to sell for more profit. Sounds like an easy win, right?
Well, not exactly. With any trade there is risk. I’m essentially selling any profits I may make on these Shock Lands should they exceed $9 each over the next 6 months. So if the average Shock Land price were to hit $12 in 6 months, Adrian will exercise his right to cash in this option. I will be obligated to sell him all my Shocks at $9 each + shipping despite the higher market price. He will easily make $3 on average per Shock Land in profit that I gave up the right to make with this option.
In fact, this is directly related to Adrian’s motivation to buy this contract. I’ve already explained in detail why I like my side of the deal, but Adrian asked me to share his side:
“Coming from a 80 (2 playset) position I have sold out 100% of my shocklands as I believe the market is going down. However we also know there have been some massive swings in volatility over the last few years of mtg finance. When you chart the basket you sent, it is actually par value to the market when you include the premium and shipping (i think it works out to a dollar out overall on tcg mid). Here in Australia we don't have many opportunities to hit a large position like this, so I have paid a fraction of what it would cost me to travel to a large event and pick these up if the market is looking healthy and ripe to rise in 6 months. I will probably call the option if the market is in the final price range of 7-9. Paying a premium to get a wide exposure early.”
So Adrian is gaining exposure to 91 Shock Lands without having to pay all the money for them up front. He sold his large position in Shock Lands already, meaning he can do whatever he wants with his cash. But for $50, he now has significant exposure to Shock Lands via my contract. If Shock Lands drop, he loses $50 and I’m stuck holding them all. If they go up, he gets Shock Lands at a discount. If they stay flat, he may still take all the Shocks due to the fact they are harder to track down in Australia.
Wrapping It Up
There you have it. Possibly the first options trade in the history of MTG Finance. The tool can seem complex at first, but once you make that first transaction and you look at the numbers, options can be much more concrete. In the case of my deal, I’m going to make the most value if Shock Lands remain below $9 over the next six months. If they go above $9 in the next six months (in Australia), than the contract buyer makes profits.
But even still, I’ll be selling my Shock Lands at $9, which I will likely be happy to do. That to me is the beauty of this deal. I’m essentially hedging my bets – either way I’m making money. I certainly couldn’t get $9 each for my Shock Lands today since I’m not a retailer. Buy list prices are unfavorable right now. I’ve just limited my upside for a while.
One last note: Adrian now owns this contract. One of his rights is that he can sell the contract himself to someone else. He was willing to pay $50 for the right to buy my Shocks at $9 each, but maybe he knows someone who is really bullish on Shock Lands. They may be willing to pay $100 for the same right. Adrian could theoretically sell his contract to that other person for $100, netting $50 of profit without having to actually deal in cards. Pretty cool, right?
Options aren’t for everyone. They can be complex and intimidating, especially at first. But if we as an MTG Finance community truly want to take this to the “next level” and find new opportunities to add value to our portfolios, then I would recommend considering options. They enable trades even when markets are stagnant. And because people have such differing opinions on cards, there should be plenty of opportunities for such option trades to happen once there is a robust platform that drives accountability.
- Star City Games has upped their pre-sale price on M15 Chord of Calling to $14.99. I don’t think this price will stick as copies are opened, and I’d encourage you to move yours as close to this price as possible in the coming weeks. There should be ample opportunity to re-acquire in the single-digit price range over the coming months.
- Enemy colored Pain Lands recently reprinted in M15 maintain a high price tag and SCG still has low stock. They only have a few Yavimaya Coast in stock, for example, and the preorder price for M15 is $3.99. More copies will be available of this card as well, though older card frames may maintain a small premium.
- The five “Souls” of M15 are generating a great deal of hype. Star City Games is sold out of three of the five in pre-orders: Soul of Zendikar at $9.99, Soul of Shandalar at $11.99, and Soul of New Phyrexia at $29.99! Soul of Ravnica remains cheapest at $5. Thinking back to the Titans of Core Sets past, $3-$5 should be the price floor on any of these “Souls” while they’re in Standard.