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  • Weighing The Week Ahead: Are Investors Too Complacent? [View article]
    Interesting info about car thefts. Hopefully I'm ok since I don't own a Ford 150.
    So, I suppose I could be complacent about the low odds of a thief stealing my car. But, in thinking about complacency in any activity where risk is involved, we generally feel better if we're insured. Even if I owned a Ford 150, and kept it parked outside my Florida residence, I would be complacent-knowing that I've eliminated the theft risk.
    So, why is it that we gauge our 'feelings' about portfolio risk on whether a majority of strangers seem to be 'complacent?' Most people don't get up in the middle of the night to see if there car is still safe-yet a lot of people will check the futures as soon as they wake-to see if someone 'stole' their portfolio value. Not only that, but quite a few people continue to monitor and obsess about their stock value-until the market closes. And, of course, this behavioral nonsense continues, day after day-until one dies, goes broke, gets out of the market, or becomes incompetent.
    It's indeed unfortunate that the vast majority of people go to bed, quite content (or complacent) in regards to their automobiles-but living lives of quiet desperation as to their investments. But, if all these folks suddenly realized that they could insure their portfolios, volatility would be eliminated. Now that would be a nightmare for traders of volatility. Come to think of it, let's just continue with business as usual.

    Nov 23, 2014. 10:24 PM | 1 Like Like |Link to Comment
  • For Wealth-Building Investments, Time Is The Trouble; So Time Is The Treasure [View article]

    Time is always a timely topic.
    Here's an interesting perspective from Daniel Kahneman:
    "The central fact of our existence is that time is the ultimate finite resource, but the remembering self ignores that reality...The remembering self's neglect of duration, its exaggerated emphasis on peaks and ends, and its susceptibility to hindsight combine to yield distorted reflections of our actual experience."

    William Eckhardt, in discussing things that impeded success, noted that..."psychologically, what seems of paramount importance is whether the positions you have 'right now' are going to work. Current positions seem to be crucial beyond any statistical justification...two of the cardinal sins of trading-giving losses too much rope and taking profits prematurely-are both attempts to make 'current' positions more likely to succeed...."
    Nov 23, 2014. 03:18 PM | 1 Like Like |Link to Comment
  • OPEC Muscle Flexing Pushes Crude To Value Levels [View article]
    Selling puts on oil is one of the best trades out there- even if one gets assigned- so what? Selling puts on the air we breathe is the only idea that's superior- but can't seem to find an option chain for that
    Nov 21, 2014. 06:00 PM | Likes Like |Link to Comment
  • How Does Freeport-McMoRan Use Collars To Hedge Commodity Price Exposure? [View article]
    Very interesting. I think the take-away for most is simply that one doesn't have to insure 100% of portfolio risk. Like auto/home coverage, there are many types of 'deductibles.'
    There's also something else to contemplate, which is equally important. An auto or home may be rendered useless or non-functional, without repair. The insurance covers the agreed upon coverage, and the property is 'repaired.' In contrast to that coverage, where one is restored to status quo, portfolio protection (e.g.. a simple put), actually does quite a bit more. Not only is there an immediate payoff for 'damages', but the insured property can 'repair' itself (perhaps over a lengthy time, or maybe very quickly)-resulting in a net gain to the portfolio.
    In this sense, put coverage is more akin to business interruption insurance. Laws now require all of us to have minimum insurance for autos, and all mortgage companies require homeowners coverage. What would happen to the market if similar requirements were mandated-perhaps like the penalty for not procuring health insurance? What funds would be needed to cover the pension guaranty obligations-assuming put coverage was required in lieu of actual dollars for self-insurance?
    Suppose the Fed had simply procured put insurance on all 401(k) holdings in 2007-as opposed to going thru all the machinations, illusions, concoctions to force the market up? Wouldn't that have been more useful to the good ol' working class than bailing out the TBTF banks?
    Nov 20, 2014. 01:22 PM | 1 Like Like |Link to Comment
  • A Diversified, Safer Way To Hedge Against Stocks Using ETFs [View article]
    Good point about one size NOT fitting all players. I've hedged executives that had to hold shares for n time period by using collars. The amounts involved were relatively substantial, and the collar paid for itself.
    A smaller, retail trader can afford to be nimble. When I started managing a pension fund (way back in 1981), transaction costs were terrible. Anyone arguing about transaction costs today is...well, I'll keep it to my self.
    But, let me come at this from a new perspective. A LOT OF MONEY CAN BE MADE SIMPLY BY GAMING THE INSTRUMENTS DESIGNED TO HEDGE.
    I somewhat agree with fishfryer above, in that the amount of leverage in the system is not just unprecedented, it's exponentially enormous.
    But, in any event, the one thing I would add to the article is that puts are not expensive IF (a)purchased when everyone is crazed with euphoria, and (b)offset with lower strike short puts to mitigate premium.
    If you're a die-hard, buy/hold fanatic, using puts can add enormous value to your portfolio-but have a methodology that's consistent.
    And finally, it's the actual management of any hedging strategy that is most difficult to learn. For example, suppose you own 100 shares of TSLA, and you bought a 6 month ATM put. TSLA has a down day, and you're put is profitable to the tune of $1,000. What are you thinking? You're thinking that TSLA could drop some more and you want to max out your insurance. The way to think about the situation is to realize that, whatever happens (from here to eternity), you are better off than the guy who bought 100 shares at the same price, but never hedged. DON'T TRY TO TIME TAKING THE GAIN! I've seen reasonably good traders fall victim to this same scenario. Instead of getting upset if TSLA continues to drop-you should switch gears and average back in. Yes, this is gut-wrenching. But, is it not a function of time-unless TSLA goes out of business? How much can you lower your basis? That's what you want to think about. If you let those red lights upset you, turn them off-or just walk away for a few days. Now, after the dust settles, you own 200 shares-at a lower basis. Suppose you bought one beach front rental for $500,000, and a duplicate property next door for $250,000 after a real estate crash. You can rent these properties for $5,000/mo. Your ROI metrics now look pretty good PLUS you've got potential appreciation. With the stock, you can now sell two calls for more premium, because of your basis management.
    My point is that hedging is not just about a momentary or one-off tactic to cushion a downdraft-it can be a very useful longer-term tool.
    Nov 20, 2014. 11:20 AM | 2 Likes Like |Link to Comment
  • BlackBerry Down 5% On Morgan Stanley Downgrade - Gift Of A Dip? [View article]
    My LEAP short put spreads (now paying off in Dec) took a hit-but still profitable. However, they took a larger hit a few weeks ago during the risk-off party.
    So, I'm adding more of the DEC 11 PUTS (short), using very old JAN 8 long puts as a crash hedge.
    If the stock does nothing over the next 3-4 weeks, the short puts will expire worthless- and I'll collect the premium.
    Nov 19, 2014. 12:43 PM | Likes Like |Link to Comment
  • Let Them Eat iPads: Why Wage Suppression Is Key To The Market Puzzle [View article]
    Thanks jrajohn-maybe you could go back to college with Todd and I-to improve our writing skills, of course.
    Nov 19, 2014. 10:20 AM | 1 Like Like |Link to Comment
  • Let Them Eat iPads: Why Wage Suppression Is Key To The Market Puzzle [View article]
    Todd, I suppose we could go back to college and take a few writing classes. I'll check with my wife. If you don't hear back from me, just assume I encountered a wee bit of opposition.
    Nov 19, 2014. 10:16 AM | 1 Like Like |Link to Comment
  • Let Them Eat iPads: Why Wage Suppression Is Key To The Market Puzzle [View article]
    In conceptualizing history and seeking to apply lessons therefrom to our time, it's quite difficult to 'cut to the chase.' No doubt I could have polished and edited my comments, but time is always a constraint.
    I do make very specific (and brief) strategy suggestions on the stocktalk format.
    Nov 19, 2014. 10:06 AM | 1 Like Like |Link to Comment
  • Let Them Eat iPads: Why Wage Suppression Is Key To The Market Puzzle [View article]
    I commented yesterday that returns to capital greatly exceed returns to wages-unless one is a high-paid athlete or rock star. But then, returns to capital (or power), have historically trumped wages. The reasons for this are varied and complicated, and there are times where we find certain geographical advantages, as well as a confluence of random events.
    Just to mention one example, the years leading to the "Black Death" in Europe reveals generation upon generation of menial subsistence. The vast majority of people were illiterate, disease-ridden and superstitious. But, for those surviving the pandemic that wiped out one-third of European population, returns to labor were never better.
    If you study the history of English common law, you can't help but be struck by the extraordinary degree of pseudo-penal 'employment' that became woven within the economic and social fabric of the time. The law of master-servant, landlord-tenant, etc. permeated all that was-and to some extent-remains with us today.
    It is noteworthy that these institutions and structured relationships not only survived the Industrial Revolution, they simply yawned and turned the page- adapting a bit here and there, of course-but without meaningful change until the advent of child labor laws. And, do we not have that problem today-in this the 21st century?
    Yes, one can readily point to the New Deal legislation, the NLRB, social security and a plethora of more modern laws designed to protect the safety and dignity of the wage earner. Yet, is there a relative historical dividend, which has accrued to all of society-at this very moment? Will Durant (The History of Civilization) made an apt comparison in discussing the Middle Ages vs the Renaissance- "While the Middle Ages said 'NO' to life, the Renaissance resounded with a loud 'YES.'"
    So, a case can be made that any person (with reasonable intelligence), is better equipped to advance his own, unique position than at any time in recent history. Centuries ago, the odds are that I would have been grooming horses or digging roots out of the ground-with little or no hope of real advancement. Today, I can marvel at the sheer amount of money to be made simply by viewing the market as nothing but a game-and applying simple game theory strategies. So, I'll take this world as it is, without too much consternation, and, like Hume, give it a shrug of the shoulders and a wry grin.

    Nov 18, 2014. 04:19 PM | 7 Likes Like |Link to Comment
  • U.S. Economy: The Disconnect Between Reality And Perception [View article]
    We live in an age where return to capital vastly exceeds return to labor. Unless one is an elite NFL quaterback, rock star or hedge fund manager, labors claim to returns will continue to diminish. It seems that this rather simple observation gets lost in parsing unemployment numbers. The fact that there are more underemployed and underutilized souls is attributable to accelerating productivity, and the socio-political systems which are beholden to capital.
    The 'recession' lifted the veil on this little secret-but had nothing to do with a trend already deeply entrenched. Yes, there is a definite economic 'outcome'-which is somewhat measurable-but the 'gap' relates more to losses in net worth attributable to home equity, than anything else.
    Think about this alternative universe: What if median income before the so-called 'great recession' had been 25% higher (with a history of sustained pay increases)-would so many people have been infatuated with flipping real estate? Would there have been a proliferation of 'no money down' seminars?
    Nope. I submit the majority of folks would have been quite content to collect a paycheck, expressing little to no interest in becoming real estate tycoons.
    So, what I throw out for discussion is simply a sort of 'substitution' effect. At this juncture, the average wage earner has no shot at being anything but a wage slave. But, this has been the plight of most humans since recorded history. The societies have different names, and different methods of governing have come and gone.
    Nov 17, 2014. 06:52 PM | 7 Likes Like |Link to Comment
  • Hot Potato: Playing Chicken With The VIX [View article]
    One way to play the skew is to utilize a spread, BUT one sells the longer-dated option, while buying the shorter-dated option. This is opposite the normal calendar/diagonal approach. But, the hedge is there-if needed.
    Even if the spread moves against you: (a) your risk is quantified, and (b) averaging tactics are easily applied.
    HINT: I will normally start with a strike objective that has some reasonable probability of getting hit-i.e. I try to sell the call first, and make a quick gain BEFORE I add the hedge. If you can stomach not having a hedge, selling more calls will EVENTUALLY work (assuming, of course, that the world doesn't end).
    If you're uncertain about the dynamics, just chart hypothetical positions, and imaginary adjustments.
    It's certainly possible to use put spreads as well, but I don't like debit spreads (as a general rule). Some of you with quick insight might be thinking that you could hedge expanded call credit spreads with debit call spreads. That's true. On the other hand, we have to weigh those fancy hedges with the present value of all alternative strategies. Too much hedging is a tax that diminishes long term results.
    Nov 17, 2014. 06:24 PM | Likes Like |Link to Comment
  • What Is Tax Loss Harvesting And Why Should I Care? [View article]
    I assume most brokers utilize FIFO, so you automatically dump the most loss. In other words, if you have a net gain IF you closed your total position, averaging in over the year might show that the first 100 lot purchase has the biggest loss.
    One can synthetically replace a position by selling puts and buying calls. There are various rules on options-for tax purposes.
    Nov 13, 2014. 12:20 PM | Likes Like |Link to Comment
  • Good Riddance To QE: It Was Just Plain Financial Fraud [View article]
    The 'repressed cap rate' concept is rather interesting. For those that don't know, the 'capitalization rate' is a key component in appraising or determining value. For example, if my $10M business was actually more profitable in 2007, a lower cap rate might actually put me in a better position currently.
    However, I'm not so sure that, at least at the levels of the 'real' economy, lower cap rates have created a ripple effect. I've actually been in meetings where an owner was making the case for a certain value based on the cap rate. It almost seemed that a potential buyer struggled with valuation, i.e.. by noting a decrease in NOI relative to prior years.
    But, if LIBOR and international currency moves can be manipulated....
    Well, hopefully the college football selection committee will be above reproach.
    Nov 13, 2014. 10:54 AM | Likes Like |Link to Comment
  • These Two Things Will Not Help The Homebuilders [View article]
    It seems to me that scrody is absolutely correct-if we're assuming that the middle class values and demographics, last seen in 'Leave It To Beaver', are still viable.
    No doubt there is a segment of the population that incorporates those characteristics. But, it's a splintered segment in the early going of the 21st century. Other segments have materialized, and they appear vastly different than good ol' Ward and June. For instance, what is the ratio of incarcerated people, people on probation and repeat offenders (since 2000) to first-time homebuyers?
    Nov 11, 2014. 10:44 AM | Likes Like |Link to Comment