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George Acs  

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  • Volatility... It's Back [View article]
    Well, I guess you learned enough not to trade the ideas.

    VIX is somewhat more complex than just a measure of the magnitude of change. It encompasses the range of changes and their frequency. It is a statistical measure of the predictability of a measure compared to its historical behavior. The magnitude of change can be large, but still result in low volatility if the preponderance of change is uni-directional.

    Volatility does have a strong inverse correlation to direction, however, over time. Positive movements in volatility are associated with negative movements in stocks.

    As far as the "natural rhythm" of the market, I'm not certain that there is such a thing. There is certainly a predictable time gap between known events, such as earnings seasons, but the reaction of the markets to the sum totality of any particular earnings season is far from a given. If there was such high correlation between earnings season and market performance it would soon be disrupted as everyone would be making their trades to coincide with their expectations, which would create a significant imbalance and disruption of equilibrium.

    The point of the chart of the VIX was first made in an article a month ago which suggested that the rise in VIX being seen at that time was likely to be limited, based on recent history and was more likely a precursor to a more significant advance in the VIX. I believe that we're now in that period of moving toward a "maxi-VIX"
    Apr 13, 2014. 10:59 AM | Likes Like |Link to Comment
  • Volatility... It's Back [View article]
    Last quarter companies benefited from their buy backs by having artificially inflated earnings metrics. It will be interesting to see whether there will again be "better than expected" earnings that were less based on revenues or cost reductions, but more on shrinking supply.

    My belief is that companies will largely be guiding in a positive direction, however, particularly as weather will be written out of the picture and there may be some evidence of increased consumer participation in the economy.

    While a little nervous about what awaits going forward, I think this earnings season will at the very least ameliorate any market decline and maybe get somewhat of a return to fundamentals and less on FOMC tea leaf reading.
    Apr 13, 2014. 10:44 AM | Likes Like |Link to Comment
  • Volatility... It's Back [View article]
    Since I usually am focused on short term opportunities to generate income from holdings that are hoped to also be of a short term nature, I don't think too much about some of those individual longer term issues, such as for BBY and YHOO. While the issues you mentioned may all be accurate, other than for a known event, such as Yahoo reporting earnings this week, there is little reason to believe that the dam will break spontaneously from microeconomic factors.

    While I may want to pick up shares of BBY this week, for example, I'm not quite as keen about doing so in advance of earnings, although it may turn out to be a good put sale at that time.

    On the other hand, MET really as irrational, just as the 2 1/2 event of surging and plunging was irrational, if it was truly interest rate spurred. I don't expect to be too busy adding new positions this week, but MET is probably highest on my list if it opens flat on Monday.
    Apr 13, 2014. 10:03 AM | Likes Like |Link to Comment
  • Volatility... It's Back [View article]

    While I do like the opportunity to pick up bargains, there's still some apprehension whenever thoughts of a correction are at hand. It would be nice knowing that they were going to be limited in size and time frame, but you just never know what really awaits.

    It's all part of that "careful what you wish for" truism.
    Apr 13, 2014. 09:28 AM | Likes Like |Link to Comment
  • Volatility... It's Back [View article]
    Over the last 10 years the VIX has assumed almost a bell shaped curve appearance, other than "hurricane" spikes in mid 2010 late 2011.

    In that 10 year period about half of the time has been spent below 20 and most of the rest of the time below 30.

    If you're a buy and hold investor you definitely want to see those low numbers, but I like seeing them in that 20-30 range, especially if I'm already hedged and have cash to play with while the calm is awaited.
    Apr 13, 2014. 09:25 AM | Likes Like |Link to Comment
  • Playing Leapfrog With Molycorp [View article]
    Thank you for those very kind words.

    I was relatively slow to come to an appreciation of the power of put contract sales, but increasingly see their utility. The hardest thing is to remember what side you're rooting for and to develop a mindset that sometimes seems counter-intuitive to what most of us have believed to be the traditional approach to equities.
    Apr 12, 2014. 05:28 PM | Likes Like |Link to Comment
  • Playing Leapfrog With Molycorp [View article]
    Thanks, but I know sarcasm when I see it, such as my reference to personal narcissism.

    It's often difficult to envision the many different considerations that may be at hand, especially when writing a relatively short piece. Reader's comments are a great way to open up or clarify that which is said or unsaid. I generally enjoy them much more than the articles, although on some topics the emotional charge takes over.
    Apr 11, 2014. 08:27 AM | Likes Like |Link to Comment
  • Playing Leapfrog With Molycorp [View article]
    As I mentioned in an earlier comment, it's really true that only the imagination limits what may be available through the use of options. There's so much more that can be done than simply looking to take advantage of leverage and than can lead to a much more sane way of navigating through markets.

    I've never really understood interest rate instruments nor currencies and think my mind would really get scrambled if I had to invert my thought process both to deal with the mindset required for puts as well as the mindset required for interest rates. Too much inversion for me.
    Apr 10, 2014. 06:10 PM | Likes Like |Link to Comment
  • Playing Leapfrog With Molycorp [View article]
    Thank you. My narcissism tells me that's a compliment.
    Apr 10, 2014. 07:42 AM | Likes Like |Link to Comment
  • Playing Leapfrog With Molycorp [View article]
    Thank you.

    You clearly have more faith than I, especially if using naked calls. I'm at that stage in life that stress is something that doesn't get me to function at a higher level anymore.

    A "spread" is simply a trading technique that eliminates the need to make two individual trades and waiting for one to execute before being able to submit and execute the second. It also eliminates that maddening feeling of finally getting the first leg of the trade to close and then seeing prices move against you before the second leg can be executed.

    Instead of specifying specific bid or ask prices you specify the "net" premium you wish to receive after all legs are made. No trade will be made unless both legs can be executed at that net premium or better.
    Apr 10, 2014. 07:41 AM | Likes Like |Link to Comment
  • Playing Leapfrog With Molycorp [View article]
    CREE has been a good one. It can really be amazing just how significant returns can be even when a stock makes no net movement in share price.

    For years while people were moaning about how Microsoft was dead money it was anything but for those rolling and rolling. I would so much rather see these trading ranges with occasional spikes or plunges than any other kind of movement. The alternating price moves are far more predictable than trying to guess when shares will go up or down.
    Apr 10, 2014. 07:37 AM | Likes Like |Link to Comment
  • Playing Leapfrog With Molycorp [View article]
    While none of the suppositions you make are part of the strategy presented in this paper, the math is correct, because you do not lose the premium.

    If you sold puts and were completely passive and exercised no management at all of the position if the price finished below the strike level you would be obligated to pay that amount per share to the holder of the options contract.

    Of course, even if you did actively manage the position your absolute risk potential would be that shares became completely worthless, yet you are still obligated to pay $5 for them.

    WHether worthless or otherwise, if the options are exercised you would then take ownership of shares, with your cost basis being adjusted to reflect the premium you received. When looking at your account you would see a cost basis of $4.40, in this example.

    Once you own the shares you can elect to sell calls against them and collect a premium. In this case, if you used a $5 strike level to sell call contracts, you would be obligated to turn your shares over to the contract holder if shares closed above $5 at expiration, or even sooner if the price was significantly above the strike level.

    In the strategy presented here there is the need for active management of the position because one of the goals is to avoid taking ownership of shares. That is usually done by closing the existing position and replacing it with a new one, that will provide its own premium to the seller and expire at some time into the future.
    Apr 9, 2014. 05:32 PM | 1 Like Like |Link to Comment
  • Playing Leapfrog With Molycorp [View article]
    While none of the suppos
    Apr 9, 2014. 05:20 PM | Likes Like |Link to Comment
  • Playing Leapfrog With Molycorp [View article]
    Thank you.

    Like so many things, it's sometimes unfortunate how late in life you are able to actually appreciate what has always been there right in front of you.

    The nice thing about options is that only the imagination limits the applications and for the seller they can be such a powerful tool for income generation or portfolio protection, just as for the buyer they can be a powerful tool for sucking your assets away in the hopes of leveraging them.
    Apr 9, 2014. 02:25 PM | 1 Like Like |Link to Comment
  • Playing Leapfrog With Molycorp [View article]
    Since this is a site that tends to focus on stock related issues, you might understand why someone would interpret "collar" to mean "collar," especially when used in a context that suggested a "collar"

    While the ITM put premiums may be "massive" for the stocks that you follow, that just re-inforces why it is so often mostly in the interests of the seller to engage in the option transaction. As a seller I like it when those premiums evaporate on puts that I have sold.

    You are missing something very critical in this discussion and in the strategy presented in the article.

    I am the seller. As a seller of options I collect the premium. More is better, in such cases. The only purchases of put contracts are to offset or close (or rollover) a contract sold. They are not made in isolation. They are made either to secure profit or to continue its propagation.

    The premium received for then subsequently selling a new contract for a future date is additive to the accrued premium revenues and should represent another "net credit" that gets added to your income stream.

    Remember, you are the counter-party in this strategy. You sell what you don't own and just keep selling it and selling it.
    Apr 9, 2014. 02:08 PM | 3 Likes Like |Link to Comment