Alok Swain

Penn West: A Slightly Expensive Replacement for Harvest Energy

Hi Trace Mayer,

I am also in the same position. Own HTE currently and am dissapointed with the acquisition. I thought the CDN $10 is way too low. This company not too long back was trading for CDN $20. Would have at least expected anywhere above CND $15-20 range.

And I am also in the same position that if this merger goes through, I have to redeploy the cash that I get from it. I think PGH is a better bet than PWE. The yields are higher. What are your thoughts on that.

Thanks

Alok

Bond Market Expects Inflation to Be Only 1.75%

Excellent sarcasm!


On Oct 19 04:52 PM Tetrapod wrote:

> Are you kidding? Have you priced an Apple 2e or a Commodore 64? Dirt
> Cheap! After you adjust for headrests, seat-belts, airbags, power
> windows and locks, CD player, catalytic converter, padded steering
> wheel, and all the other stuff that cars didn't have in 1964, cars
> are pretty cheap too! Same thing with food when you adjust for the
> cost of all the saturated fats and additives! ;-)
>
> On Oct 17 08:33 PM rennert wrote:

UNG: The Effects of Contango

Hi H.T.Love

Good article.

I however didnt understand your disclosure very well. Could you please clarify.

It says and I quote "Disclosure: long UNG, short covered calls, long synthetic short positions"

I understand "long UNG" and shorting "short covered calls" but what does "long synthetic short positions" mean. It kinda sounds contradictory.

Please explain.

Again very informative.

Regards,

Alok Swain

Nokia Enters the Already Crowded Netbook Market: Pros and Cons

Agree with all the comments above.

Would like to add something more.

In India Nokia has succeeded in gaining substancial market share because it came up with innovative cell phones that are attuned to Indian Environment (dusty) and rugged and very cheap (less than $100). It won there because it was so cheap that people with very low income could afford it and the cell phone plans from companies like Airtel allow you to keep your cell phone number with minimal one time fee somwhere around $10 dollars and very low cost plans, that even Indian villagers with low per capita income of around $1500-$2000 dollars can afford it. The point being Nokia won by targetting a huge market with innovative & cheap products, and in the process became a major market leader.

This as many commentators have written above looks like its doomed from the start. It has all the bad charecteristics. Its late to the market. Its expensive. The bundled plan is very expensive. Why would anybody in their right mind buy it, when in Atlanta (where I live) I can buy Internet plans for $25 from Clear.

Options Strategies: What Worked for Me

Hi Tom,

Great Article.

Tom, I also started doing options trading nearly the same time period. Started on Nov 2007 to till date. Would like to review my performance maybe this year end. I was about -2% last year (Jan-Dec 2008, M2M), considerably up this year.

I do options trading (as well as stock trading) in both my Margin (ordinary trading account) and IRA (non-margin account).

One thing I am still unable to quite properly grasp (or have a good handle on) is how to calculate the returns, from an accounting point of view.

Let me elaborate with a simple example.

Say I sell a PUT (Cash Secured Equity Put) in my IRA (non-margined) on C (current price $4.77) (at strike of $5.00) and collect a premium of $0.415.

So my return should be calculated on $4.585 (Strike Price - Premium) as thats what I posted in my a/c.

If it expired worthless, then my returns would be computed as $0.415 / $4.585 (which is monthly that needs to be extended annually based on some proper discounting mechanism.) Fair enough.

But in my trading account which is margined I only post $1.369 per share.

In this case if it expires worthless whats my return and how do I calculate it properly. Should it be same as above or $0.415 / $1.369 (Premium /Margin Posted).

If instead of expiring worthless lets assume that C closed at $4.99.

What would be the returns in that case.

For non-margin accounts (($0.415 - $0.01) / $4.585)
For margin accounts (($0.415 - $0.01) / $1.369) if I decide to buy back the puts on the last trading day.
But if I am assigned then its going to be different as now it becomes a stock and the margin changes to $2.5 .
So the proper calculation would be (($0.415 - $0.01) / $2.5) perhaps.

So the proper accounting of option trading profits is very difficult based on various factors, margined account or non-margined, expired worthless or assigned, bought back or assigned, share price of the stock (as the margin changes on the share price etc).

You have not said how you computed it, whether on a margin account or non-margin account etc.

And the things get really complicated when a trade has multiple legs and you re-adjust the trade midway, then the margin and risk changes and how do you calculate the returns in that case. As the money at risk is different in those cases. Hence the returns would be different. Or you try to take a position in the stocks as a hedge, the returns would change too, and so would the strategy.

So the accounting of profits and losses is very complicated from what I have found, and I dont have a good framework on how to deal with it. Its not as cut and dry as one may think.

Thanks for your article and insight. But I feel the returns that you attribute to each strategy maynot quite reflect these considerations.

Regards,

Alok Swain

How to Trade Using Game Theory

Good Work Naufal
Thanks
Alok

Los Angeles Ports Face a Grim Future

Great Article as always from Tyler and some great comments as well.

Thanks Guys

Alok Swain

Should Banks Extend and Pretend?

Agree!


On Aug 22 08:05 AM Old Rick wrote:

> "If the expected loss from extending is higher than the loss that
> would need to be taken today, then they extend."
> ----------------------...
> In the context of the "efficient (rationale?) world", I didn't quite
> get the above statement. It seems inverse to me.

Taylor Rule Estimate: Fed Fund Rate Differential at a Whopping 6.8%

a) Good article, especially about the "Taylor Rule Estimate" about what the interest rate should be, if interest rates were to be allowed to go below zero.

b) It takes the "unemployment numbers" and "desired inflation" into account in making an estimate of interest rates.

c) Here the gap of 6.8% differential between the "Taylor Estimate" and fed funds rate is the amount of deflation that we are experiencing, that remains un-bridged.

Double and Triple ETFs Decay Their Value Faster, By Design

Pantheistic,

I sort of understand you concept about trending forces and volatility or noise as you call it. These are the two forces that influenc the long term behaviour of these leveraged ETFs.

I was wondering if you can share how did you model it, like in Excel, can you share the model or any other info that would help me/us do similar simulation.

Thanks for your insight.

Regards,

Alok


On Feb 25 04:26 AM pantheistic multiple-ego solipsist wrote:

> found this via google, did some quick testing by modeling double
> ETFs with an excel file, and playing around with it.
>
> I modeled a doubled and inverse double ETF by having the double ETF
> always have 2x the percentage change of the underlying between two
> discrete times, and the inverse double -2x the percentage change.
> Also, I put in a paired long column to make looking at the results
> of paired shorting or paired long strategy.
>
> Here are some observations:
>
> With the same starting and ending prices and varying intermediate
> prices, both the double and inverse double ETFs have the same (but
> lower) value.
>
> Increasing the volatility decreases the ETF values.
>
> Essentially, a double ETF is short random noise, but long a directional
> movement. Shorting ETFs in pairs is basically betting that the current
> price reflects some underlying fundamental which will cause the price
> to revert to that mean. If you want to interpret it graphically,
> think of a graph of a running average with noise bands superimposed
> on it. Paired ETF trading is betting on the slope of the running
> average relative to the size of the noise bands. Paired long is on
> the high slope side, paired short is on the high noise side.

Treasury: More Borrowing, Less Short-Term

Fully agree with Mr Dave Wrixon.

I will add a few additional points here.

f) Investors (aka market) rightfully uses the liquidity of the US short term treasury as a parking place for money. Hence the considerable demand in the short end of the term structure (for liquidity needs not investment needs, mind you). But the long end of the treasury is really an investment, where finding people to commit to invest for such long duration at such low yields is going to be increasingly difficult for the US govt (assuming the economy recovers, or seems to recover, which is probably the case.)

g) And when that happens we will enter a new stage in the evolution the current credit crisis. The era of inflation, rising long term yields etc. The era of bond market rebellion. Its coming.

h) Its quite possible that the US govt get into the same kind of problem like CIT bank (that needs to roll its impending short term debt and unable to find adequate buyers is being forced to pay through the nose to be kept alive. In fact right now CIT bank is paying more on the new debt than what its investments are fetching, sort of like negative equity in real estate investing.). In my opinion its quite likely US govt will have the same problem when it tries to roll its short term debt into long term ones.

Thanks

Alok



On Aug 04 01:24 PM Dave Wrixon wrote:

> Yes, investors want short-term debt, because they know long-term
> they would get seriously burnt. Yes, the US has been satisfying a
> need to some degree, but finding buyers for long-term debt at even
> half reasonable yields is going to prove a major challenge. Failure
> to do so will be a catalyst for the wheels dropping of the wagon.

Treasury: More Borrowing, Less Short-Term

a) I think this is one of the most important data out there. The term structure of the outstanding debt of US govt.

b) In fact looking at the forward projections can reveal more about the thinking of the US govt that it cant communicate otherwise publicly.

c) US govt is right to issue more long term debt now when the long term yeilds are so low, and lock in low interest payments for a long time to come. As a corollary thats also a bad deal for the investors to elongate the bond duration of their bond portfolio.

d) My advise to investors would be to reduce the duration now, use short dated Treasures 91 day Tbills to park the money. Let the inflation come, long term yields rise, thats when you want to move to long term duration, pile in by as long a bond as you can find.

e) The above scenario will only manifest if the economy recovers soon, and we get some inflation, if not continue to be in short dated treasuries and not get fooled and by long term debt at these prices.

Commercial Real Estate - Make Up Your Own Mind

Good Article

Cohen & Steers Realty Funds Merge

Love the sarcasm :-))

Cisco Says Video Traffic Is Growing, But Where's the Business Going to Come From?

Fully concur.

Dan good work.

Many people mistake the growth of traffic with revenue. You have made the key point that they don't necessarily correlate.

In fact if the traffic volume grows that's good for companies like Cisco, they get to sell more gear, no wander they want to publicize it. But is that necessarily good for service-providers, because they have to get their equipment upgraded to support these services. And if they don't get to monetize these services, their revenues decline and their capex increases. That's bad for the service providers.

Usually if you find somebody peddling info like this - that some traffic or the other is growing at a fast rate (if not exponentially) those are mostly box makers like Cisco. They have a vested interest in showing that traffic is growing disproportionately, just so they can get to sell more gear. May be I'm just cynical. I should be after seeing the telecom bust of 1999-2000.