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  • Crude drops on inventory build [View news story]
    This is a classical situation in economics. To some extent, the sheer number of players would suggest a model of perfect competition. Logic might suggest that everyone would cut back. But, the appearance of perfect competition is deceptive.
    Game theory would indicate that the best strategy for larger players would be to produce at a maximum level. All players similarly situated would find that to be the optimal move. Players that are compelled to cover variable costs and meet loan covenants, are forced to generate some level of cash. If these players stop producing, there are insufficient reserves to stay in the game. Yet, as the price drops, all they really do is postpone the inevitable-much like rearranging the deck chairs on the Titanic.
    The bigger players should produce as much as possible, and as quickly as possible. The short-term price is incidental to them.
    After the smaller players have lost the prisoner's dilemma game that they are forced to play, a new set of strategies will emerge. Most of you can figure that one out.
    Feb 19, 2015. 10:36 AM | 2 Likes Like |Link to Comment
  • A Big Financial Sector Hurts Economic Growth [View article]
    "An idle mind is the devil's workshop."
    Only the financial alchemists possessed the knowledge and wherewithal to leverage plain vanilla to multi- flavored, derivative concoctions. They found the new taste quite intoxicating. They are applauded and encouraged by the unlimited enthusiasm of central planners.
    Feb 18, 2015. 09:24 PM | 1 Like Like |Link to Comment
  • Warren Buffett Increases His Stake In Deere, Is It Time To Buy? [View article]
    Sometimes there are reasons to buy a stock, other than conventional metrics. Suppose XYZ is the dominant player in its arena- and has been for decades. It may face a stagnant period for quite some time, but can quite readily ride out the limbo time frame.
    So, if I buy 50,000 shares, I can sell 500 covered calls- and I can blend ITM, ATM and OTM, and use different expiration periods. I can roll out, double down, and do a lot of different things, realizing that the stock price has a low probability of any sustained uptick. I can lower my basis on the shares significantly, while generating substantial returns.
    Feb 18, 2015. 08:57 PM | Likes Like |Link to Comment
  • Housing Is Poised For An Upside Breakout [View article]
    What time today was the breakout scheduled? I've been looking for waves of cash-flush Millennials to create traffic jams-nothing yet.
    Feb 18, 2015. 03:51 PM | 1 Like Like |Link to Comment
  • Wall Street's Calling The Sheep: Buy The Dip Now, Join The Slaughter Later [View article]
    "Dip" and "slaughter" are meaningless terms. I have, and will continue to make money, irrespective of any moves related to what is collectively called 'the market.'
    If you allow yourself to get fleeced, slaughtered or screwed over-it's simply because you don't know how to play the game.
    Now, whether or not central planning has substantially modified the game-that's certainly worthy of discussion. But, through it all, you eat what you kill. Are you predator or prey?
    Feb 18, 2015. 09:54 AM | 2 Likes Like |Link to Comment
  • MBA Mortgage Applications [View news story]
    I guess I'm perplexed, maybe a bit befuddled, over the term "surge"-as in rates "surged".
    If rates really 'surged'-what result?
    I was happy to get a 10% fixed rate mortgage back in the early 80's.
    If we contemplate a thought experiment, and imagined rates 'surging' to even half that number-I doubt we find any dissent as to the obvious outcome.
    Perhaps, just perhaps, median income and employment prospects should be considered, along with mortgage rates.
    But, hey, we could have a big breakout to the upside in home buying any day now. Yes, and if a frog had wings....
    Feb 18, 2015. 09:43 AM | 1 Like Like |Link to Comment
  • Watch The Small Cap Canary In The Stock Market Coal Mine [View article]
    My typing skills diminish as I go to an i-pad, and get worse via phone. Sorry about lack of clarity.
    Yes-a call option. "Delta" can be viewed as the odds of an option moving in the money. "Gamma" is the 'speed' of movement in delta, so I think in terms of nailing a 'gamma spike.' "Theta", while not linear, nonetheless acts as a remedial or gravitational pull that checks the gamma spike.
    Actually, you don't need to know all the technicalities, just observe the changes in price of an option over any time period. Incidentally, this underscores why some people fret over selling a covered call-there are simple observations that greatly enhance your odds. Over time, it becomes hugely important.
    Feb 17, 2015. 09:58 AM | Likes Like |Link to Comment
  • Watch The Small Cap Canary In The Stock Market Coal Mine [View article]
    Use this to your advantage. It doesn't really matter WHY event "x" occurs. Every conceivable event has some probability. And, you need a set of strategies to game that event.
    Options are, far and away, the max way to prepare an appropriate mix. One method I use is to fish for spikes. I might place a GTC VIX order to sell at a very high price. The odds of getting hit are extremely low. But, if it happens, that option now has a very high chance of dropping in value- which rings the register. Now, I force the issue at times by dropping the trigger point- especially as expiration looms.
    Feb 15, 2015. 11:15 AM | Likes Like |Link to Comment
  • Watch The Small Cap Canary In The Stock Market Coal Mine [View article]
    Yes- have to monitor long options- stops needed or forced to double down.
    USO is better option choice due to reasonable bid-ask spreads. Over hundreds of option trades, this adds up over a year.
    This does create a bit of a conflict where you want to use levered ETFs. But, if handled right, creates independent source of returns and removes assignment issues.
    The proliferation of all these ETFs over the past few years has changed strategy mix.
    Feb 15, 2015. 11:00 AM | Likes Like |Link to Comment
  • Tiger Woods And Investment Gurus Lose Their 'Touch', Question: Do They Ever Get It Back? [View article]
    Crenshaw still plays because he doesn't have to qualify-the Champions Tour has exemption rules that reward results from many years ago. On the other hand, many great players are excluded due to the toughest qualification process on any tour on the planet.
    For example, there's a pre- qualifier AND qualifier, just to get in a single event. And, there's only some half dozen open spots available. A typical qualifier may have 50 guys from around the world- many are former tour players, mini- tour players or distinguished amateurs. Normally, one has to shoot 2 or 3 under to have a chance. Even if you qualify for an event, you have to then finish in the top 10- or try to qualify again. If you can manage to get in the top 30 winnings for a year, life gets a little easier.
    I've competed with a lot of these players- some go back to high school golf. It's a lot of fun, if you've got the money to burn. Otherwise, it can be very costly.
    Personally, I find money management to be a skill that increases with maturity- not age per se. Competitive golf requires physical talent and mental toughness. Physically, the body can't sustain a high level beyond a certain age. Livermore had some interesting comments about not wanting partners- he wanted success or failure to be solely on his shoulders. Same applies to tournament golf- you need to be a bit of a loner.
    Feb 14, 2015. 10:21 AM | Likes Like |Link to Comment
  • Lending Club: Opportunity To Buy A Stake In A Rapidly-Growing FinTech Company At A Decent Price [View article]
    Yes- APR rate includes fees to arrive at an accurate yield. Distinction re payday loans? Good question.
    Pawnshops are the real yield hogs though- other than loan sharks.
    But- look at all the charges banks get away with! Not in making loans, but all the fees associated with checking/ savings accounts.
    With these types of loans, quick turnover can really amp returns. For instance, if I make 90 day loans at 5% origination, I turn that into a much higher annual rate. So, for example, how would you like to loan $100k out every 90 days and collect 4(5k) plus interest. After a few iterations, you pocket your original cash, and the rest is gravy.
    What if you could make 30 day loans at 5% origination? I've seen funds make 30 day rehab loans, secured by real estate and a letter of credit take- out. The world's second oldest profession is still very much alive, and performing as well as ever.
    Feb 12, 2015. 10:53 PM | 1 Like Like |Link to Comment
  • Small Business Optimism And The Death Of Entrepreneurship [View article]
    We all know small builders and contractors that went bust-after spending a lifetime building their business. Small manufacturing has suffered as well-and any business that competes with Home Depot-or any of the big box monoliths-are either out of business, or hanging by a thread.
    The 'butcher, baker, candlestick maker' of my childhood has vanished. Even doctors can't establish a sole practice anymore. And, it's getting worse-not better.
    There are many examples, but just look at the optometry practice. They compete with Costco, Walmart, various chain stores, etc. The end result is to destroy the entire fabric upon which this nation was built. The life lessons that were imparted by the greatest generation, and transmitted via local schools, churches and social institutions are all but gone. Just look at your local news every morning. If you live in or around a major city, here's a sample of what you'll hear/see: drive by shooting, baby found in garbage dump, someone found beheaded and mutilated, parents imprison one of their kids, disgruntled parent kills seven family members and then kills himself-the basic robbery is so pervasive that you'll need to read the paper for more details. If any of this had happened when I was growing up-it would have been major, national news. Now, it's just another day.
    It does appear that the Father, Son and Holy Ghost did indeed catch that last train for the coast-one would be hard-pressed to hear those church bells chime anymore.
    Feb 12, 2015. 08:08 PM | Likes Like |Link to Comment
  • Watch The Small Cap Canary In The Stock Market Coal Mine [View article]
    Great-glad to know he's still writing. And thanks for your technical comments above. It's often harder to buy puts than calls because we are conditioned to think up, up and away-as Lawrence noted about his MS tenure.
    However, put prices tend to maintain value, other things equal, longer than a call counter-part. So, it can be argued that it's better to buy shares and insure with puts, than to buy calls. And, if the puts decline in value, it's a sure bet that your shares are moving up.
    To DavidLMO how are you playing oil and gas? ETFs? How do you go about selecting your strike prices? Best wishes for continued success. I like it when someone other than the fat cat can play the game.
    Feb 12, 2015. 07:31 PM | Likes Like |Link to Comment
  • Watch The Small Cap Canary In The Stock Market Coal Mine [View article]
    yes-margin for uncovered positions. But, 'unmargined leverage' for spreads that are covered.
    Phil Davis-whatever happened to him? I used to enjoy reading his articles. They always seemed to have a movie clip, or some song.
    Feb 12, 2015. 04:16 PM | Likes Like |Link to Comment
  • Watch The Small Cap Canary In The Stock Market Coal Mine [View article]
    Interesting perspectives-I just noticed that small caps are really struggling to climb back to their 52 week pinnacle. (TNA was a tad over 86).
    Here's a suggestion to play small caps:
    Devise a 'strategy set' as follows:
    *On any down day, buy x shares of TNA (x=a number that's insignificant to your account)
    *On the next upday, sell IWM bear call spreads (where the max loss is offset by the triple leverage of TNA)-
    *If TNA drops (IWM will drop), and the IWM call spreads will be profitable.
    *If the gain on the short call spread exceeds the drop in TNA, close the spread and book the profit.
    *Now, you can add to the TNA shares, and wait for a gain (remember to adjust the basis to reflect total set return), and/or sell more IWM call spreads. NOTE: the strike spacing is a part of the previous profit, and the total amount of TNA shares you own-this is a dynamic, not a rigid methodology-and will always be unique to your initial parameters plus subsequent moves.
    *Establish objectives, and align with risk. Be prepared for outliers-which will happen over a 12 month frame (E.g. suppose you wake up to find that TNA moved from 78 to 86. If this happens on an expiration day, you will need to roll over the spread-or close the entire set (sell TNA shares, collect on the OTM long TNA options, and buy back the losing short TNA calls). You win on a net/net basis-assuming you didn't flunk 3rd grade math.
    *It's conceivable that your TNA shares just float around within a narrow zone. In this instance, IWM short call spreads will decay slower. This would be analogous to renting your beach house out for steady income. Sustained volatility would be more profitable-assuming you gamed it correctly-but, either way, you have minimized dimensional risk, and added an income component.
    I can't tell you how many shares of TNA to buy, or how many IWM call spreads to sell-the choices are exponential-and are unique to one's own capacity. Also, start with a small play.
    If you're an advanced player, you can sell naked calls on IWM, and use as many TNA shares as you deem appropriate-and this can VARY from t(n) to T(n)(I mean, if TNA is trading at 59, maybe I just wait for a spike before I do anything; if it's trading at 86 and Putin sends in a fleet of tanks in violation of a Ukraine cease-fire-you might sell a boatload of IWM calls). Some degree of horse sense is required.
    Feb 12, 2015. 01:23 PM | Likes Like |Link to Comment