Keep This In Mind When Arbitraging Caesars' Capital Structure [View article]
Thanks, Eric, for the comment. I truly enjoyed your article.
If one thinks a restructuring will occur before January 2014's expiration, there are several opportunities to purchase a variety of CZR CUSIPs and purchase a corresponding out-of-the-money put option, creating a scenario in which it is virtually impossible to lose money on the bond. It is even possible to construct the trade whereby one would make money whether a default occurs or not. The key to this, though, is there must be a resolution prior to January 2014's expiration.
When I was doing the math on some of those scenarios, I was modeling in 20% recoveries on anything less than first-lien secureds and 70% recoveries on first-lien secureds.
I'm not using options yet because I just initiated a position today. I'll wait and see what happens first. If ABX keeps going down and you need help figuring out how to use options to protect yourself, send me a message and I'll come up with a few ideas for you to consider.
Thanks, Carl, for the comment. I am aware that gold and GLD recently broke longer-term support levels. It is important for readers not to overlook what I said about the ability to use options to protect me should things not go my way.
There have been a few times over the years when I was too early on a trade, but was able to use options to make money on the entire position despite selling the underlying security at a loss (trading around a core position). The key is to have an entry point that makes that possible. I believe that is now the case for ABX.
Congrats on your January call. Remember that I just made my call today, not prior to the massive declines. And remember that options chains provide a powerful tool for managing positions. Investors who are both long and short the same stock at the same time can make money at the same time. It all depends on how the positions are managed.
I agree, ndras. Attempting to pick a bottom is definitely a risky proposition. And I certainly would not have done it without an option chain available to me to help protect against the downside. It is a relatively rare occasion when I attempt to pick a bottom for a trade. It usually occurs when I think there are factors external to the business prospects of a company that are driving the declines. I believe that is presently the case with the miners.
You make a good point. It is one I considered before making my purchase today. Declines in broader market averages can certainly put downward pressure on the miners. But downward pressure is different from forcing them to go down. It could simply prevent them from going up as much as they otherwise would once the margin selling is over.
For AU, I already have a full position in the company through the bonds so I didn't even consider its stock. Regarding dividends, ABX is now yielding over 4.5%. But if gold prices keep falling, the miners may decide a dividend cut is in order.
If I were looking to hold a position in the miners for several years, I would care more about the dividend. This position is not a "long-term" position for me, so I don't care much about the dividend.
Thanks for the comment, WheelsComingOff. The call premiums on ABX are more than adequate to cover the difference between my purchase price and the 2008 low. And the same is true for anyone else who bought today (even if they were unfortunate enough to buy close to the high of the day). If it breaks below the 2008 low (not just from algos seeking out stop loss orders, but a legitimate break), I will be forced to reevaluate. Should that happen, there are a few options tricks I have up my sleeve to exit positions with no or minimal losses.
I probably didn't make this clear in my article, but I think the miners can be bought for a trade. I still don't like holding them as a long-term gold position (except for NEM because of its enhanced dividend policy).
The Downside Of Buying Stocks On Sale Through Selling Puts [View article]
Brendan,
The fact that SA published your article says nothing about whether it was a mischaracterization of mine. The editors' don't have time to read the articles we link to (especially not my 2,300 word article you linked to). And the fact yours was an Editors' Pick also says nothing about its quality. Some of the best articles I've ever read on SA were not Editors' Picks. And some of the worst were.
Second, I do not provide advice unless specifically stated as such. I offer ideas. I presented an idea for people to consider. It may be suitable for some readers and may not be suitable for others. More specifically, I most certainly did not recommend the specific strike prices I used in my article (as you claim I did).
The dividend issue gets back to the point that you said nothing new. I addressed the relevant points from your article in mine (published before yours). You wrote an article that specifically referenced my article and simply repeated what I said. But you did it in a way that, had I not responded, could have left readers with the impression that I failed to understand or address your points.
You most certainly have every right to write about the topic. Had you done so without referencing my article, I would have never responded to your article. By mentioning and linking to my article, you invited a response. I'll leave things at that and let readers decide for themselves what to make of this.
The Downside Of Buying Stocks On Sale Through Selling Puts [View article]
Brendan,
There are so many problems with your gross mischaracterization of my article, I hardly know where to begin. Additionally, you provide absolutely nothing new in your article (I referenced all your points directly or indirectly), so I am confused as to why you even wrote your article. But before I address all that, it is important to also point out your lack of understanding for basic options terminology:
In your paragraph that begins, “A further risk of this strategy is early execution of the SPY put contract” you reference a writer of an options contract being assigned shares early. The word “execution” means to be filled on a buy or sell order. Option writers (sellers) can be assigned on shares. Option buyers have the right to exercise shares.
Next, I made it crystal clear in my article that the purpose of this strategy was for people who have decided they want to buy stocks to put themselves in a position to get assigned on the shares. More specifically, I said, “The strategy I would like to describe concerns selling in-the-money put options with the hope of those puts not expiring worthless. Instead, you want to be assigned shares.” I even put the part about wanting to be assigned shares in italics. You appear to have missed that. Yes, when buying a financial security, there is the risk of that security going lower. And each investor, on his or her own, will need to determine if taking that risk is appropriate. When an investor has decided it is appropriate to buy stocks (whether for emotional reasons I hinted at in my article) or because they believe what I think is a bunch of analysts speaking nonsense about the market being cheap, then those investors might also be interested in a different strategy (the one I presented).
On another note, I am the one who pointed out the dividend/premium issue you brought up. Instead, you present it as if it is an original thought of yours. When the crux of an article you write is about someone else’s article, you should not take other writers’ work (for example, the dividend/premium issue) and present it in a way whereby readers will infer that I (the author of the article you reference) didn’t address that issue. That is entirely inappropriate.
Regarding your conclusion: “As a result, the question of whether to buy stocks at current prices is not circumvented by a strategy that sacrifices return in order to lower cost-basis. If you want to own the SPY for the price where it is currently trading it may be more desirable to simply purchase it directly or to wait for a suitable pullback.” My article was tagged as a “Portfolio Strategy & Asset Allocation” article. I explained what I wanted to accomplish with my article when I said, “I wanted to demonstrate the strategy across multiple ETFs representing broad-market indices, and, at the same time, provide an idea for those investors who may have missed the incredible rally certain indices have had and are about to capitulate (and buy stocks at today’s prices).”
I also stated: “I have had the idea for this article for quite some time but saved it for today because I imagine a lot of people are getting very close to capitulating and buying stocks after the relentless rally we’ve had.” This statement further points out that my article was meant for people who, on their own, will make up their minds that it is time to buy stocks. I even gave multiple examples of other indices in the article, so as to further drive home the point that my article was about strategy and not about SPY. And just to make it absolutely crystal clear that my article was about strategy and not about telling people to execute (proper use of the word execute) the strategy on any specific security or at any specific strike price, I also said the following: “I hope you find this strategy useful should the time ever come that you simply cannot wait any longer for a pullback and feel like you have to buy.”
Moreover, I did not recommend anything in the article (contrary to what you claim). Instead, I offered an idea for a strategy that investors who already made up their minds to buy stocks might consider. Your statement, “An SPY $180 Jan-2015 put was recommended” is a gross mischaracterization of what I did. I used the $180 strike as an example (and clearly said this). Additionally, just in case a reader didn’t catch that it was an example and not a recommendation, I also said the following: “It is important to remember that the specific numbers mentioned in this article are less relevant than the strategy itself.”
Furthermore, you state this about my article: “This article does not imply that the market will rise that much, instead it simply notes that two years is a long period of time and historically the odds are a good deal higher than many appreciate at first glance.” In fact, I did nothing of the sort. For those who carefully read my article in its entirety, I did, however, leave a subtle hint as to what I think is going to happen with stocks in the future. You apparently did not find it. Only people who carefully read the article in its entirety will have picked up on it.
Although I did not recommend anything specific in my article (instead I presented a strategy that can be used across a variety of securities for investors to consider), I will make a few recommendations now:
1. If you are going to respond to an article of mine in the future, I recommend understanding it. Understanding is a level beyond simply reading it. Your article demonstrates you did not take the time to understand what I wrote.
2. When commenting on a subject (like options), spend some time learning the terminology (especially the most basic of terms).
3. When responding to another’s writing, don’t take an idea from that person’s article and present it in yours in a way readers might infer was your original thought. Your presentation of the dividend/low premium issue is essentially identical to mine. And you present it in a way that might make readers think I did not address it. You certainly had the right to publish it (it was not plagiarism, but it was a means of tricking your readers into making them think you thought of an important issue, when in fact you didn’t). But having the right to do something does not make it an appropriate thing to do.
I expect more from fellow Seeking Alpha contributors. If you have questions about a subject in an article of mine, please just ask. If you have questions about how you should interpret something in an article of mine, please just ask.
You wrote: "Because interest rates can only go so low (about where they are right now), prices can’t climb much higher, which means there’s only one direction bond prices can go."
Actually, rates can go much lower. They can even go negative. Whether they will is a different question. But you said "interest rates can only go so low (about where they are right now)" and that simply isn't true.
The Fed Is Not Pushing Stock Prices Higher [View article]
Just an FYI that S&P 500 earnings peaked in Q2 2012 and have been declining ever since.
Trailing 12-month operating earnings: Q1 2012 - $98.12 Q2 2012 - $98.69 Q3 2012 - $97.40 Q4 2012 - $96.83 Q1 2013 - TBD...Estimate of $98.08 (we'll soon see if this proves correct)
Since the time earnings peaked, the S&P 500 rose 15% on declining earnings. Of course, analysts kept their forward projections quite rosy, and, as usual, will likely end up wrong (I address this in my article "One Thing I Wish I Could Short" http://seekingalpha.co...)
It's certainly acceptable if you believe the recent rise in the S&P 500 is justified. Let's just be honest about what's causing it. It isn't actual earnings growth. It is, at best, the hope for better earnings growth.
Cyprus's parliament is due to convene this afternoon to debate an astonishing eurozone demand that it tax all bank deposits at up to 10% in return for a €10B bailout. While approval is not guaranteed, Cypriots rushed to take as much money as allowed out of ATMs. And although EU Commissioner Olli Rehn ruled out a deposit raid in other eurozone countries, menacingly for savers, eurogroup chief Jeroen Dijsselbloem would not. "We are in a new world," says an economist. Update: The parliamentary debate has been postponed until tomorrow. [View news story]
For those interested, here is my article on the subject:
No particular reason. When I wrote the article, I chose the first ticker that popped into my head for each sector. XLB is certainly a fine choice as well.
Keep This In Mind When Arbitraging Caesars' Capital Structure [View article]
If one thinks a restructuring will occur before January 2014's expiration, there are several opportunities to purchase a variety of CZR CUSIPs and purchase a corresponding out-of-the-money put option, creating a scenario in which it is virtually impossible to lose money on the bond. It is even possible to construct the trade whereby one would make money whether a default occurs or not. The key to this, though, is there must be a resolution prior to January 2014's expiration.
When I was doing the math on some of those scenarios, I was modeling in 20% recoveries on anything less than first-lien secureds and 70% recoveries on first-lien secureds.
Regards,
TFL
It's Time To Buy Some Gold Miners [View article]
Regards,
TFL
It's Time To Buy Some Gold Miners [View article]
I'm not using options yet because I just initiated a position today. I'll wait and see what happens first. If ABX keeps going down and you need help figuring out how to use options to protect yourself, send me a message and I'll come up with a few ideas for you to consider.
Regards,
TFL
It's Time To Buy Some Gold Miners [View article]
There have been a few times over the years when I was too early on a trade, but was able to use options to make money on the entire position despite selling the underlying security at a loss (trading around a core position). The key is to have an entry point that makes that possible. I believe that is now the case for ABX.
Regards,
TFL
It's Time To Buy Some Gold Miners [View article]
Regards,
TFL
It's Time To Buy Some Gold Miners [View article]
Regards,
TFL
It's Time To Buy Some Gold Miners [View article]
Regards,
TFL
It's Time To Buy Some Gold Miners [View article]
If I were looking to hold a position in the miners for several years, I would care more about the dividend. This position is not a "long-term" position for me, so I don't care much about the dividend.
Regards,
TFL
It's Time To Buy Some Gold Miners [View article]
I probably didn't make this clear in my article, but I think the miners can be bought for a trade. I still don't like holding them as a long-term gold position (except for NEM because of its enhanced dividend policy).
Regards,
TFL
The Downside Of Buying Stocks On Sale Through Selling Puts [View article]
The fact that SA published your article says nothing about whether it was a mischaracterization of mine. The editors' don't have time to read the articles we link to (especially not my 2,300 word article you linked to). And the fact yours was an Editors' Pick also says nothing about its quality. Some of the best articles I've ever read on SA were not Editors' Picks. And some of the worst were.
Second, I do not provide advice unless specifically stated as such. I offer ideas. I presented an idea for people to consider. It may be suitable for some readers and may not be suitable for others. More specifically, I most certainly did not recommend the specific strike prices I used in my article (as you claim I did).
The dividend issue gets back to the point that you said nothing new. I addressed the relevant points from your article in mine (published before yours). You wrote an article that specifically referenced my article and simply repeated what I said. But you did it in a way that, had I not responded, could have left readers with the impression that I failed to understand or address your points.
You most certainly have every right to write about the topic. Had you done so without referencing my article, I would have never responded to your article. By mentioning and linking to my article, you invited a response. I'll leave things at that and let readers decide for themselves what to make of this.
Regards,
TFL
The Downside Of Buying Stocks On Sale Through Selling Puts [View article]
There are so many problems with your gross mischaracterization of my article, I hardly know where to begin. Additionally, you provide absolutely nothing new in your article (I referenced all your points directly or indirectly), so I am confused as to why you even wrote your article. But before I address all that, it is important to also point out your lack of understanding for basic options terminology:
In your paragraph that begins, “A further risk of this strategy is early execution of the SPY put contract” you reference a writer of an options contract being assigned shares early. The word “execution” means to be filled on a buy or sell order. Option writers (sellers) can be assigned on shares. Option buyers have the right to exercise shares.
Next, I made it crystal clear in my article that the purpose of this strategy was for people who have decided they want to buy stocks to put themselves in a position to get assigned on the shares. More specifically, I said, “The strategy I would like to describe concerns selling in-the-money put options with the hope of those puts not expiring worthless. Instead, you want to be assigned shares.” I even put the part about wanting to be assigned shares in italics. You appear to have missed that. Yes, when buying a financial security, there is the risk of that security going lower. And each investor, on his or her own, will need to determine if taking that risk is appropriate. When an investor has decided it is appropriate to buy stocks (whether for emotional reasons I hinted at in my article) or because they believe what I think is a bunch of analysts speaking nonsense about the market being cheap, then those investors might also be interested in a different strategy (the one I presented).
On another note, I am the one who pointed out the dividend/premium issue you brought up. Instead, you present it as if it is an original thought of yours. When the crux of an article you write is about someone else’s article, you should not take other writers’ work (for example, the dividend/premium issue) and present it in a way whereby readers will infer that I (the author of the article you reference) didn’t address that issue. That is entirely inappropriate.
Regarding your conclusion: “As a result, the question of whether to buy stocks at current prices is not circumvented by a strategy that sacrifices return in order to lower cost-basis. If you want to own the SPY for the price where it is currently trading it may be more desirable to simply purchase it directly or to wait for a suitable pullback.” My article was tagged as a “Portfolio Strategy & Asset Allocation” article. I explained what I wanted to accomplish with my article when I said, “I wanted to demonstrate the strategy across multiple ETFs representing broad-market indices, and, at the same time, provide an idea for those investors who may have missed the incredible rally certain indices have had and are about to capitulate (and buy stocks at today’s prices).”
I also stated: “I have had the idea for this article for quite some time but saved it for today because I imagine a lot of people are getting very close to capitulating and buying stocks after the relentless rally we’ve had.” This statement further points out that my article was meant for people who, on their own, will make up their minds that it is time to buy stocks. I even gave multiple examples of other indices in the article, so as to further drive home the point that my article was about strategy and not about SPY. And just to make it absolutely crystal clear that my article was about strategy and not about telling people to execute (proper use of the word execute) the strategy on any specific security or at any specific strike price, I also said the following: “I hope you find this strategy useful should the time ever come that you simply cannot wait any longer for a pullback and feel like you have to buy.”
Moreover, I did not recommend anything in the article (contrary to what you claim). Instead, I offered an idea for a strategy that investors who already made up their minds to buy stocks might consider. Your statement, “An SPY $180 Jan-2015 put was recommended” is a gross mischaracterization of what I did. I used the $180 strike as an example (and clearly said this). Additionally, just in case a reader didn’t catch that it was an example and not a recommendation, I also said the following: “It is important to remember that the specific numbers mentioned in this article are less relevant than the strategy itself.”
Furthermore, you state this about my article: “This article does not imply that the market will rise that much, instead it simply notes that two years is a long period of time and historically the odds are a good deal higher than many appreciate at first glance.” In fact, I did nothing of the sort. For those who carefully read my article in its entirety, I did, however, leave a subtle hint as to what I think is going to happen with stocks in the future. You apparently did not find it. Only people who carefully read the article in its entirety will have picked up on it.
Although I did not recommend anything specific in my article (instead I presented a strategy that can be used across a variety of securities for investors to consider), I will make a few recommendations now:
1. If you are going to respond to an article of mine in the future, I recommend understanding it. Understanding is a level beyond simply reading it. Your article demonstrates you did not take the time to understand what I wrote.
2. When commenting on a subject (like options), spend some time learning the terminology (especially the most basic of terms).
3. When responding to another’s writing, don’t take an idea from that person’s article and present it in yours in a way readers might infer was your original thought. Your presentation of the dividend/low premium issue is essentially identical to mine. And you present it in a way that might make readers think I did not address it. You certainly had the right to publish it (it was not plagiarism, but it was a means of tricking your readers into making them think you thought of an important issue, when in fact you didn’t). But having the right to do something does not make it an appropriate thing to do.
I expect more from fellow Seeking Alpha contributors. If you have questions about a subject in an article of mine, please just ask. If you have questions about how you should interpret something in an article of mine, please just ask.
Bond Bubble And The Great Rotation [View article]
You wrote: "Because interest rates can only go so low (about where they are right now), prices can’t climb much higher, which means there’s only one direction bond prices can go."
Actually, rates can go much lower. They can even go negative. Whether they will is a different question. But you said "interest rates can only go so low (about where they are right now)" and that simply isn't true.
You also wrote: "Rates have to go higher."
Why do rates have to go higher?
Regards,
TFL
The Fed Is Not Pushing Stock Prices Higher [View article]
Trailing 12-month operating earnings:
Q1 2012 - $98.12
Q2 2012 - $98.69
Q3 2012 - $97.40
Q4 2012 - $96.83
Q1 2013 - TBD...Estimate of $98.08 (we'll soon see if this proves correct)
Since the time earnings peaked, the S&P 500 rose 15% on declining earnings. Of course, analysts kept their forward projections quite rosy, and, as usual, will likely end up wrong (I address this in my article "One Thing I Wish I Could Short" http://seekingalpha.co...)
It's certainly acceptable if you believe the recent rise in the S&P 500 is justified. Let's just be honest about what's causing it. It isn't actual earnings growth. It is, at best, the hope for better earnings growth.
Regards,
TFL
Cyprus's parliament is due to convene this afternoon to debate an astonishing eurozone demand that it tax all bank deposits at up to 10% in return for a €10B bailout. While approval is not guaranteed, Cypriots rushed to take as much money as allowed out of ATMs. And although EU Commissioner Olli Rehn ruled out a deposit raid in other eurozone countries, menacingly for savers, eurogroup chief Jeroen Dijsselbloem would not. "We are in a new world," says an economist. Update: The parliamentary debate has been postponed until tomorrow. [View news story]
http://bit.ly/15Utv8o
Regards,
TFL
One Thing I Wish I Could Short [View article]
Thank you for reading the article!