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convoluted

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  • Homebuilders slide amid downgrades, weak data [View news story]
    How many times have I said to short ITB at 25? This time around I did a 'triple lindy' at 26. There are moments in your life when the stars align, and all is right in the cosmos. Look at the charts for the last 700 years-this is a broken record that repeats and repeats.
    Mar 12 02:50 PM | 1 Like Like |Link to Comment
  • Why The Fed Won't Save You From The Next Bear Market [View article]
    The Fed has morphed, perhaps inadvertently, into a de facto police power. I sometimes think that there is an evolutionary connection between the agencies specifically chaterted to deal with 'domestic tranqulity', and the financial system. If one strips away the layers of pseudo intellectualism, we eventually get to the bedrock of ultimate reality. It's a fine line that we tend to ignore, but nature remains 'red in tooth and claw' and sustained socio-economic disruption leads to chaos, which leads to violence.
    Mar 11 12:29 PM | 2 Likes Like |Link to Comment
  • The S&P 500's Bumpy Road To Nowhere [View article]
    There will be an emotional imperative to crack 2000- shorts will be a little antsy- providing more fuel. This time though the liquidity variable will be the ultimate 'x' factor.
    Mar 5 01:35 PM | 1 Like Like |Link to Comment
  • Why Baidu Stands Out [View article]
    I've shorted the stock twice in the last 5 yrs or so-made a bundle. And, it's a stock that I've long used for condor strategies. (See my instaposts for details about trading iron condors using BIDU).
    Not sure what the company does, but thanks a 'million' for being a Chinese internet stock, for the 10:1 stock split, and for reasonable bid-ask option pricing. And, of course, thanks to the folks that hold hard opinions-one way or the other.
    Feb 26 08:45 PM | Likes Like |Link to Comment
  • Time To Short Natural Gas [View article]
    I've done very well shorting gold and volatility-never paid any attention to nat gas. Hell, there's only so many hours in the day, and there's golf, riding the pooch around, etc. BUT, if the front months are over-priced, and the back months under-priced as some have stated-why not sell put spreads on the outer months, and sell call spreads on the front months? The spreads unequivocally establish both the upside and downside. In fact, the longer-dated put spread premium can be set equal to the shorter dated call spread premium. The idea is to capture the premium-not pinpoint a price target. In other words, in selling options, I only care about where the price will not go. I win on the short call spreads if (1)the price goes down, (2) the price does nothing, or (3)the price goes up a little. And, I win on the short put spreads if (1)the price goes up, (2)the price does nothing, or (3)the price declines a small amount.
    IF we can accept the above statement by the 'pro' that the current months are over-priced and the later months are under-priced, then selecting a spread strategy should be easy. Nonetheless, the ever-present decision criterion is whether such a trade is the optimal use of our capital?
    Feb 26 12:12 AM | 1 Like Like |Link to Comment
  • Investor Jujitsu Part 1: The Volatility Dividend [View article]
    Hi Todd-I usually begin with 10, but will go much higher. Not sure how to explain my moves without the ability to illustrate. BUT, if you can visualize the typical diagrams used in certain sporting events like NCAA basketball, tennis, match play professional golf-I have something similar. So, these brackets 'play against' each other-by having a FAS bull put/bear call vs. a FAZ bull put/bear call. however, in my 'tournament' there is also a time component where a short position, intermediate position and long term position also compete. In some sense, there is a 'mirror image' result due to complimentary-yet opposite-structure.
    As to opening positions, I don't know that indicating my current positions would help-they are in various phases of decay-which is what I want. The best general tip I can provide is to sell puts on FAS on down days, and sell calls on FAZ. Do the opposite when financials are having an up spike. You might experiment with just one position-for each bracket-and double down once-if necessary. IF you hit the spike the first time, it's a matter of waiting for the return percentage you desire. This is a major component of selling options, and is totally oblivious to virtually all basic call writers-and to ETFs that blindly write calls at the beginning of an expiration cycle. The rogues and rascals of the world are never going to let lazy people off the hook that easy. Here's something you can try: on the Friday before the final week of expiration, try to sell a straddle on either FAS or FAZ. You now have 2 days of decay over the weekend, and you might catch a decent return for just a couple of days. You might also experiment with selling a straddle on the last day of expiration (sell in the morning, look to close around 3:30-maybe sooner). Caveat: don't do this before earnings announcements, as implied volatility will 'strong-arm' theta and keep the option price abnormally high.
    Hope this helps.
    Feb 25 11:49 PM | Likes Like |Link to Comment
  • Which VIX Spike Could Kill XIV? Here Are The Numbers. [View article]
    The political or regulatory hedges referenced above are just as real as any put in an option chain. No, it can't be quantified, and I wouldn't base strategy on same; nonetheless, there has been a continuous learning curve where politicians seek to mitigate pain via law. Some countries, rather than try to outwit the traders, just close the markets until it 'behaves' itself.
    As a society, we seem determined to limit volatility to 'appropriate' levels. This is true in many phases of society. It's part of a cultural evolution, demanded by a fragile populace, and the folks in power understand the dynamics quite well. We are close to a point in time where 'Big Brother' will intervene to protect the unwary and ill-prepared. I, for one, don't see another 1987. That kind of market behavior is deemed socially unacceptable. It will take an asteroid or nuclear attack to bring the market to its knees-then, as someone already suggested, you just kiss it goodbye.
    Feb 21 04:14 PM | 4 Likes Like |Link to Comment
  • Reversion To The Mean Phenomenon: Part II [View article]
    The idea of making inferences from sampled data didn't arise until the mid-1600's and early 1700s. Least squares fitting and the concept of probability distributions appeared around 1800. The practical use of statistical analysis began to increase rapidly in the 1960s and 1970s.
    Repeat after me: LIES, DAMNED LIES AND STATISTICS.
    The best example of mean reversion is when your cow comes home-or when the chickens come home to roost.
    (if a system is ergodic then it will visit all its possible states, and the vast majority of these will look random).
    Feb 21 01:24 PM | Likes Like |Link to Comment
  • Existing home sales hit 18-month low [View news story]
    As to taxes and insurance, it's entirely possible that one could make a reasonably large down payment on say a $150,000 property, and have taxes and insurance actually double the amount of the monthly payment.
    As to kata's comments, the reverse mortgage changes, which are not specified in national advertising, have essentially neutered the product. I actually took a look at the product, and found that it's limited to $615,000 (maximum property value), and that the mortgage insurance premium paid to the federal government is nothing short of usurious. The initial idea was to assist seniors-but the government has found a way to screw over the unwary. The national companies pushing the product hire people like Fred Thompson, Henry Winkler and Robert Wagner to participate in either false advertising or use of words and phrases that are calculated to mislead the elderly. As kata indicates above, the program incorporates a negative amortization center piece. The ideal program would contemplate a true equity-sharing arrangement, where a clearly defined structure allows seniors and their heirs to better understand the inner workings.
    So what was the solution to part of the housing problem-especially for seniors-has, as kata indicates, become a self-defeating debacle.
    But, as Gerald Ford noted, if the government got in the beer business, a six-pack would cost $50 bucks and taste like piss.
    Feb 21 12:51 PM | 2 Likes Like |Link to Comment
  • How Bad Is The Housing Market? A Forecast Update For 2014-2015 [View article]
    I tend to share Dave's macro perspective-that's why I continuously short ITB. But, I will agree that there is an inventory shortage in some areas. BUT, here's what the vast majority of pundits can't grasp: (1) How is 'shortage' quantified? E.g. is there a shortage of Mcmansions, second homes on the Florida beaches, upscale condos in Davenport, IA.? (2) once this 'shortage' is described such that we have an acceptable working hypothesis, what ancillary variables should be explored? E.g. interest rate fluctuations, available of mortgage money and so forth. (3) If there is a shortage that can be specifically calibrated, what inferences can we derive therefrom to create a run rate or extrapolation for future purposes?

    I've yet to see any so-called expert even approach these issues, much less put forth a cogent exposition. What seems to happen is that a real estate agent makes a comment about inventory shortages in lower Manhattan, and this 'nuanced' and impartial observation makes headlines.
    Feb 21 12:21 PM | 1 Like Like |Link to Comment
  • Investor Jujitsu Part 1: The Volatility Dividend [View article]
    Interesting. What if we hold volatility constant, or better yet, assume that through some strange cosmic phenomenon, all financial stocks became 'frozen.' Price activity just stopped-like a broken clock.
    What happens to the options? Well, the only greek that resumes its calculation is theta. If you are short options, you now know that you just hit paydirt. if you're long options, you know you lost all your premium.
    If you are short FAS/FAZ in a 1:1 proportion, you're screen is totally silent. Nothing happens-except that your legal obligations may result in a one-off charge for fees, etc. If the price freeze continues, the fees will eventually eat your total portfolio. The option seller will just continue selling options, and rolling in the cash. No fees-thank you.
    Some of you will quickly note that the option pricing formula will eventually determine that there is no volatility, and thus the option premium will be risk-adjusted down to zilch. Something similar would happen if all market participants had all information and equal ability to deploy strategies therefrom. This too forces the market into a kind of artificial intelligence/rationality where no advantage can be gained by doing anything.
    Well, it's all an academic exercise, by one with nothing to do-except smoke cigarettes and watch Captain Kangaroo. (Or play solitaire to dawn, with a deck of fifty-one).
    Feb 20 11:00 PM | Likes Like |Link to Comment
  • Investor Jujitsu Part 1: The Volatility Dividend [View article]
    Yes, the way I trade is borne of many years experience, and 99.9% of retail traders don't have a clue. But, as I've noted before, and supported by personal questions/observations from readers back to me, a greater understanding is sought by a few. And if I and some others can trigger that quest for knowledge-that's why I bother. The analogy is simple. The first year piano player watching a great concert pianist. A young golfer watching Jack Nicklaus or Tiger Woods. The longest journey begins with the first step.
    Feb 20 09:57 PM | Likes Like |Link to Comment
  • Investor Jujitsu Part 1: The Volatility Dividend [View article]
    Hi Todd-technically, the iron condor would specify an ATM short, with the wings one strike out. But, that definition is only a useful starting point, in my opinion. Also, the classic definition assumes that both sides are established at the same time.
    I've written before that the condors do not have to 'fly in formation.' It's certainly possible to have a bias, one way or the other. So, for example, I could sell 20 bull put spreads (perhaps spaced by time) and sell 10 bear call spreads (with some variance on strikes and expiration). I could take a proshares product and reverse with an i shares product. The goal is simply to catch as much expiring option premium as possible. Daily moves up/down/sideways are not really relevant.
    Feb 20 09:49 PM | Likes Like |Link to Comment
  • The Only Thing That Matters Now [View article]
    Well, I noticed today that such things as ACI, APC, FAZ, DUST and VXX were up. In fact, volatility seemed to spike for no discernible reason. I have this feeling that the rest of the week may set a more sustained tenor for what is called 'the market.' There's something a bit tenuous with the background music. Of course, I'm partial to the "Rhapsody in Blue Volatility"-one of Gershwin's great hits.
    Feb 19 10:21 PM | 1 Like Like |Link to Comment
  • If You Can't Retire At 30, Then How About 38? [View article]
    You couldn't possibly have played all the golf courses in that area in 5 days. I've retired twice now, but contemplating starting a new fund. If the Rolling Stones can keep touring, I guess I can take some drum lessons. The thing is, I say I'm retired, but I keep getting paid to resolve various portfolio issues. I suppose this will continue until the guys in the white suits and nets show up to take me away.
    Feb 19 10:03 PM | 1 Like Like |Link to Comment
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