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  • Gold (GLD +0.9%) continues its comeback tour, with a big move in the last 30 minutes pushing the metal into the green for the session and up to $1,344/ounce.  Technician Mark Newton calls this bounce the beginning of a longer-term bottoming process, and sees the metal back at $1,500 before October. The miners (GDX +2.5%) also continue a big move, inducing the blow-up of another triple-leveraged ETF, the DUST (DUST -7.2%), now off about 60% in less than a month.  [View news story]
    DUST to DUST-it giveth on the way up, and on the way down. It will be interesting to see if NUGT/DUST reach what I call a 'convergence' zone.
    Jul 23, 2013. 06:52 PM | Likes Like |Link to Comment
  • VIX Shorts, Have A Little Patience  [View article]
    Look at selling the DEC 13 @3.80 and buying 2 of the DEC 19 @1.70, for net credit of .40.
    combine with selling short DEC 17 put @3.35 and buying 2 of the DEC 11 puts @.36.
    These are what I call 'dueling ratio backspreads'- Strategy recognizes that the following must happen:
    (a) not much
    (b) a lot
    (c) somewhere in the middle, as in 'clowns on the left, jokers on the right, stuck in the middle with you'
    If the market has an autumn tantrum, the call ratio backspread will spike, and the two long calls plus the short put will generate a profit.
    If nothing (not much) happens, both positions will expire worthless and I'll pocket the premium.
    Somewhere in the middle is the difficult part, but netting both sides against each other will still have a canceling bias-although this opens up modifications which, if managed properly, will add a net plus to the activity.
    Note that Ill establish several spreads, I just used one to illustrate.
    I'm also looking at SVXY to modify or hedge previous short 90 puts which were assigned during the last tantrum (recall SVXY dropped below 80 just a couple of weeks or so ago, and I had some short 90's in play). But, may just sell the 96 AUG calls, as they are 7.10 currently, meaning SVXY will have to get to 103 and change (and stay there until Aug. expiration).
    My dog is in my lap, and we're studying the option chains together. Two heads are better than one, particularly when one is so agreeable.
    Jul 22, 2013. 12:08 PM | Likes Like |Link to Comment
  • Top Performing Portfolios Using Just 3 ETFs  [View article]
    But what about correlation of asset classes? What happens during an extended time of 'risk-on'/'risk-off.? Do you not want at least one of the sets (ETFs) contra to the other two-and in what ratio? People that were 'diversified' in the traditional sense were clobbered in 2008. And, looking in the rear-view window to extrapolate future moves assumes a lot.
    However, the concept-perhaps modified to create a long-short component, does seem superior to indexing-especially where options strategies are utilized in tandem. Also, the extraordinary liquidity era has created a situation where one could short volatility. Changing perceptions about China created short opportunities, and manipulation of the futures markets allowed one to short precious metals.
    If you want to look at stellar returns, just look at the areas I referenced. I know, because I've been short volatility, gold and emerging markets-mostly China (and mostly Chinese internet stocks). There are ETFs to facilitate these 'unique era' events-SVXY and DUST are examples. But, for most market participants, perhaps a fourth ETF or a "contra ETF" might be utilized for the expected duration of an extraordinary event or set of events. The amount of allocation to a 'contra ETF' would be a function of exposure generated by the core ETFs, and the degree of variance anticipated.
    As someone noted above, a long or short only directional strategy will always be suboptimal. Assuming, of course, that one is precluded from a limitless ability to martingale.
    Jul 21, 2013. 11:18 PM | Likes Like |Link to Comment
  • A Nasty Game Of Chicken - Wall Street Style  [View article]
    Yes, public homebuilders accounted for small fraction of all building historically. This is a different industry than soft drinks, cars and internet search. The macro play, based on ambiguous focus points, which relates to the generic idea of 'improving real estate market' provides the homebuilder impetus. It creates a unique short opportunity, which plays over and over and over again. I have shorted homebuilders successfully for many years. It's not that one can't make money by riding the 'up' wave, it's just that the inevitable collapse allows for a more optimal use of money. In 'short', I can make a much greater return via shorting because I simply wait for the water to come to a boil. If you look at the charts over the years, you will see that this record gets played repeatedly.
    Jul 19, 2013. 09:06 PM | 2 Likes Like |Link to Comment
  • VIX Shorts, Have A Little Patience  [View article]
    Michael, you might consider both strategies. For instance, there will be another drop. I recall SVXY at 78 just a couple of weeks ago or so. The 90/80 would incur the full paper loss under that scenario, but then you sell the 70 put, with an eventual average much lower than where it's at currently. Of course, one never knows when the next sell-off occurs.
    Any put assignment can be rolled out-but short volatility is an assignment I would take. You can always sell calls against your interest. I don't know (and can't know) the single or unique optimal play, as my time machine is still in the conceptual stage. I do know though that it's always a 'when' issue, not an 'if.'
    The rather unique thing is that playing volatility is like playing the weather. It will never file bankruptcy, lose a patent case, have a lousy earnings announcement, fail an FDA test, etc. Thus it is always possible to balance one's equation. Provided that one never takes an extreme position-putting their money in a holding pattern- making money is quite simple.
    Not to dwell on this, but I'll sometimes take a purely random position, see what happens, and then devise appropriate counter-moves-if needed. After all, "We are all just prisoners here, of our own device."
    Jul 18, 2013. 04:09 PM | 1 Like Like |Link to Comment
  • Whirlpool Is Doing Well Today And That Makes It A Good Short  [View article]
    Way to go Michael! I'm going to stalk you (excuse me, 'follow' you) henceforth. I like the way you play the game.
    Jul 18, 2013. 09:38 AM | 1 Like Like |Link to Comment
  • VIX Shorts, Have A Little Patience  [View article]
    SVXY still below 52 wk high-but not much. One can pick a comfortable point by selling puts on SVXY, and perhaps hedge with cheap OTM VXX calls. But then again, it's hard to beat a stock trader with a hot hand. I don't make directional day trades anymore-except during rain delays.
    Jul 18, 2013. 09:34 AM | 1 Like Like |Link to Comment
  • Gold Will Drop After Bernanke  [View article]
    'entropy' should check spelling before hitting publish-
    Jul 18, 2013. 09:19 AM | Likes Like |Link to Comment
  • Gold Will Drop After Bernanke  [View article]
    An assortment of iron condors on NUGT, DUST and UUP. Just sprinle in a large dose of forked-tongue, double-speak, media niwits, fools away from, fractal observations, Bayes, Nash and, oh yeah, humanity. (Honorable mention to K. Arrow and that perpetual 'cloud of uncertainty', and to R. Clausius, who made it clear that entrophy is the only certainty).
    Jul 18, 2013. 09:16 AM | Likes Like |Link to Comment
  • Whirlpool Is Doing Well Today And That Makes It A Good Short  [View article]
    Like your call-although the short entry point could have been higher. I tend to use bear call spreads, and will adjust (add) if I am off the mark by some percentage. This is strictly a mean regression play. There are several stocks like this, i.e. linked to perceptions of 'recovery' where pullbacks are, more often than not, exponentially faster than build-ups.
    Jul 18, 2013. 08:46 AM | 1 Like Like |Link to Comment
  • Think It's Time To Get Back Into Gold? Think Again  [View article]
    I looked to the heavens this morning, and my vision was obscured. Goldbugs everywhere-like millions of locusts descending upon the planet.
    What to make of it? A sign of some sort?
    Jul 16, 2013. 11:39 AM | 1 Like Like |Link to Comment
  • Coca-Cola Earnings Preview: Q2 2013  [View article]
    It's taking a hit pre-market. One idea to play the downdraft is to sell a LEAP put, use the premium to buy a LEAP call-and then sell a short-term call against the LEAP call.
    BUT, do this in steps: (1)sell the LEAP put, buy the LEAP call, (2) wait for an uptick in the stock, and sell a short-term call. The worst that can happen is that you might own KO stock 2 yrs from now at a much lower basis.
    Note:this is a long-term strategy requiring a lot of patience-long-haired traders needn't apply-
    Jul 16, 2013. 09:34 AM | 1 Like Like |Link to Comment
  • Lit up bright red on an otherwise quiet day are the homebuilders (XHB -1%). Lennar's (LEN -4.1%) big move puts it down 8% YTD as the benign interest rate scenario of the past many months/years becomes less so. Others: Pulte (PHM -3.3%), Toll (TOL -2.2%), Ryland (RYL -2.6%), D.R. Horton (DHI -4.6%).  [View news story]
    Wall Street has long had a love/hate approach to homebuilders. Don't bother searching for 'logical' explanations. A lot of traders will slowly build short positions in homebuilders, and simply wait for the inevitable pullback. History shows that it's one of the all time safest shorts out there. Why? Prices and profitability are always constrained by the most obvious macro indicators. If mortgage rates go up, fewer people buy houses. If median income goes down, fewer people buy houses. If homebuilders become extremely busy, their costs rise, and generally their pricing power is limited in the short-run. So, the cycle of hot/cold is relatively easy to game. And, shorts generally get quick payoffs, cover, and wait for the game to resume. I've been shorting homebuilders (and airlines) for many years. I sometimes think that the universe created homebuilders for shortsellers. (Yes, they also go up, but that's just a necessary precondition).
    Jul 16, 2013. 08:59 AM | Likes Like |Link to Comment
  • Interesting Times For All Commodities And Investments!! Chapter 25............  [View instapost]
    COST began same practice several months ago. I sometimes use a couple of their 'employees' for misc projects, so I get the scoop. Pathetic how COST is often lauded, but hard to find a traditional, full-time employee. Yes, I know they have to respond to their environment.
    Is this a short-term response or just another evidentiary exhibit to prove the new normal is becoming simply the norm. What sociological repercussions a decade from now? Does anybody really know what time it is? Does anybody really care?
    Jul 16, 2013. 08:39 AM | 2 Likes Like |Link to Comment
  • Hedging Strategy For The Rest Of The Year  [View article]
    Igor, in reading and commenting on SA for the last couple of years, it's become obvious to me that most folks are born with an anti-short gene. I suspect most would be more comfortable buying small positions in inverse ETFs. However, using options to collar positions is optimal as it allows one to specifically craft strategies to deal with very specific risks. Unfortunately, there is an anti-option gene that also inhibits optimal decision-making.
    Yet, it does appear that several have discovered the use of options, and they seem quite pleased. Thus, if a few souls can enhance their well-being by learning a new skill, that's what it's all about.
    Let's assume, arguendo (lawyers seem to like that word), that everyone is capable of both shorting and utilizing options. Shorting does require that we tie up resources, and perhaps pay the cost of dividends. Options are substantially more effective and efficient. I'm reminded of what a college professor said once upon a time: "one can effectively kill a fly with a sledgehammer, but it's not very efficient."
    Jul 16, 2013. 08:06 AM | 3 Likes Like |Link to Comment