Something Spooky About the Way This Rally Is Unfolding [View article]
IT, covered calls can be rolled up and out, for an indefinite period. I've read an article where a trader rolled up and out for 21/2 years, and supplied the paper trail to prove the transactions. He finally prevailed. Also, I don't know that covered calls are really utilized that much, even though a lot of ink is devoted to the subject. And, in commodities futures, covered calls are generally not favored at all. Those traders would rather utilize naked calls and puts. But, where I think you're on to something is that it may be that uncovered equity calls fell victim to the early days of QE2. Naked equity calls written last April would have made an extraordinary amount of money, and that would have continued well past the flash-crash. As we moved from the flash-crash, the market was still somewhat unstable for, I think, two reasons:(1)No one had experienced a flash-crash, and most market participants were alarmed to recognize that 70% of daily transactions were sophisticated, high-frequency algorithms; and (2)the market was still vulnerable to after-shocks, which were continuously triggered by international events of all sorts. The greatest mountains are never scaled exactly the same way, and by the same people, but there is always a base camp. TBTF, TARP, HAMP, cash for clunkers, real estate tax credits, unemployment extensions, tax cuts, change in accounting rules, and QE2, all established a "base camp" or de facto put. Recall that the real impact of QE2 can approach $6Trillion due to 10:1 leverage. Superimposed on all of this is that The Financial Panic of 1907, or any of the prior financial panics, is a better historical template by which to put 2008 in perspective, as opposed to The Great Depression, or the post-WWll bear markets. Once the financial panic was mediated by appropriate intervention, the market realized that corporate financial structures were not at issue. Nonetheless, the events, and the way they unfolded, devastated many individuals. These folks are still reeling from the bomb that exploded their retirement plans and their home equity. The demographics makes the situation worse. Everyone knows that scenario. Rather than covered calls, think about puts. To the extent that put protection becomes cheaper, market participants will insure a greater dollar amount of their risk. At some point, insuring a $100,000 portfolio is just as cheap, perhaps cheaper, than insuring a brand new $100,000 sports car. Perhaps you don't even concern yourself with the deductible anymore. There are a lot of assumptions that go into this premise, and certainly market intelligence is paramount. Increasing sophistication, in other words, may yield an optimal risk protocol, that didn't exist just a few months ago. If a sufficient number of participants buy puts, there are many others that enjoy implicit coverage. Further, if sophisticated bots are prowling for large areas of an unprotected region, that region will repeatedly be attacked until the appropritae response has been "learned."
Staying Diverse With Emerging Market ETFs [View article]
You mentioned both risk and volatility. Risk is derived from the rate of change in price relative to time or relative to volume. Volatility is proportional to the sqare root of time and volume. One of the weaknesses with the classical version of portfolio theory is a failure to undrestand that "time" itself is a diversification ingredient. The longer one holds a risky asset the greater the probability of loss. The longer one is lost in the wilderness, the greater the odds that he will not survive. Even more important, is the failure of older models to include non-correlative asset classes. If memory serves me correct, I think all equity markets tanked in 2008. So, diversification had all the efficacy of moving your deck chair from the main dining room of the Titanic, to the uppermost deck. All one did was postpone the inevitable. The reason that virtually everyone ended up on the wrong side of the market in 2008 was a lack of REAL OR NON-CORRELATIVE DIVERSIFICATION. Even now, it would seem that people still don't understand the modern world and world-wide market risk. "No man is an island..." John Donne noted. So it is with market reaction in the modern era. Simply thinking that equities in Sweden or Singapore will will shock-proof your small caps in the U.S. will lead to tears.
Shorting the Dollar, Via These Three Multinationals [View article]
You mentioned FXE, and currency ETFs generally, and briefly noted some of the typical negatives. I had hoped that you might present one or more strategies utilizing these ETFs, although you correctly note that a number of multinationals are, to a greater or lesser extent, a de facto currency play. There are a number of strategies that allow one to utilize these ETFs without the cost or maintenance exposure. For example, I'm sure you realize that the FXE will have its range defined (and contained), within the Euro movement itself. By selling bear call spreads at the resistance point, and selling puts at support, one collects option premium. Or, another strategy is to sell a 6 month bear call spread, and "amortize/hedge" the known downside by selling 30 day put spreads. You will uneqivocably win on one side or the other-you don't really care. For instance, if you sell a bear call spread, 6 months out, and limit your downside to $400, and create a $1200 upside, and assume the call spread initially moves against you, the bull put spread will pay off. AT THE POINT WHERE THE MAXIMUM DOWNSIDE IS FULLY AMORTIZED, THE ONLY REMAINING POSSIBILITY IS (A)NO GAIN OR LOSS, OR (2)A GAIN UP TO $1200. Now, you can overlay this strategy by reversing the process. In other words, one could establish a miror-image strategy, where the bull put spread is established as the longer play, and the bear call spread becomes the shorter-run play. By selling options, you know exactly what your costs are, as well as all of the permutations, and the gain/loss associated with each tick of the clock.
Cramer's Mad Money - Big Pharma Is One Big Graveyard for Stocks (2/17/11) [View article]
But some of the large pharma stocks have an entertainment component. The market has only been open for 15 minutes and PFE is approaching a volume of 8 million shares. It still sports a 4.15 yield, and if you're basis is no worse than $16 bucks or so, sell the 17 or 18 strike. Doing that on a monthly basis will goose your return into the double digits. Granted, that's not as much fun as trading our beloved NFLX, but it's a steady, low-risk play that will consistently pay for your out-of-pocket, non-reimbursable drugs.
Netflix: Short the Stock, Hedge Your Timing to Avoid Getting Squeezed [View article]
The option chain on a stock like NFLX allows for multiple strategies. I've shorted the stock many different ways over the past several months, but, in a way, it would be more accurate to say that I sold time premium. The bear call spread is the best play for a one-dimensional move. That way, you always know the upside and downside. But, one can always roll-out or martingale a position. Selling puts, as you indicate, is also a hedge. But, it is also a probability play that the stock will not drop so far as to risk assignment, where that risk exceeds gain on the bear call spread. To me, the lesson here is that any strategy seems to work at a given point in time. It's a classic spike fishing rodeo where you sell the upside and buy the downside. Of course, it's entirely unpredicatable-although mean reversion will always have the final say. Additionally, there is no need to rush a spike in either direction. Selling 90 day options, or more, generates a lot of premium, and allows for the inevitable ebb and flow of the market. What a great stock. I find myself in total agreement with every damn one of the astute analysts.
Way Down Yonder: Cotton Prices Hitting All-Time Highs [View article]
Good info. When I looked at the bid-ask spreads I was horrified, mortified, stupified that such nonsense would be allowed. Of course, the volume was in direct proportion to the sheer lunancy.
Thoughts on Options Expiration, Vertical Charts and Market Crashes [View article]
bigazul, did you not notice the "Pacific Tide" today? The moon has a profound impact on ocean tides, and the weather. The weather has an impact on crops.
The Future of Finance Is Getting Closer [View article]
John, in a few sentences, you have demonstrated a unique insight that far too many people will gloss over. Until, as usual, it's too late. My dog and I will start watching you rather closely. Of course, I'm stuck with being the interpreter.
The Future of Finance Is Getting Closer [View article]
The greatest threat of unpredicatble behavior comes from computers that learn from experience. The reason is that these programs will "logically" avoid what they are supposed to do, and will do what they have "learned" to do. IBM has been at this for longer than most people realize. One of the first machines, an IBM 704, began to play checkers in the late 1950's. It was capable of assessing its performance and making improvements. Norbert Weiner expressed concern about fast-paced computers engaged in a sinister game-theory protocol, moving at speeds that would be incomprehensible to the human brain. I find it very interesting that the public has already dismissed the flash-crash situation. But, there is precedence for such a short-sighted perspective. Back in 1960, Mikhail Botvinnik, the Russian chess grandmaster stated that the day would come when a computer could compete at the elite levels. An american expert wrote, in "The American Chess Quarterly," that such an idea was "nonsense." Well, we all know the rest of the story.
Strayer Education: Time for the Shorts to Sweat [View article]
Is it your opinion that STRA is "best of breed?" I've always thought that the concept made a lot of sense. Many years ago, before these colleges came about, I taught some evening accounting courses at a major university. They were packed. I couldn't believe all the people taking evening courses. The students were totally different from "normal" college students. They were typically older, and were working. So, all these many years later, it appears to be a viable concept. I remember seeing the CEO on CNBC a couple of years ago, and thought that he passed the "sniff test." I don't know that I would buy this for our fund, but I might own it personally. Appreciate any input-seems like you know this stock quite well.
Thoughts on Options Expiration, Vertical Charts and Market Crashes [View article]
I normally hold court with some retired execs, and discuss strategy with one of my partners-an ex GS risk manager. We like to harass brokers from some of the major banks that stop in for coffee. We have some lively conversations. SBUX is probably an iron condor play at this point. With price of coffee volatile, SBUX is probably at a near-term flatline.
Thoughts on Options Expiration, Vertical Charts and Market Crashes [View article]
Jeff, while waiting for SBUX to open this morning, I noticed the big orange moon. It reminded me of the old addage-buy the full moon and sell the new moon. As for Gann, I think he once stated: "when price meets time, a change is imminent." Like me, I suspect you would have liked to have been a fly on the wall, watching him put those strange charts together.
Something Spooky About the Way This Rally Is Unfolding [View article]
Something Spooky About the Way This Rally Is Unfolding [View article]
As we moved from the flash-crash, the market was still somewhat unstable for, I think, two reasons:(1)No one had experienced a flash-crash, and most market participants were alarmed to recognize that 70% of daily transactions were sophisticated, high-frequency algorithms; and (2)the market was still vulnerable to after-shocks, which were continuously triggered by international events of all sorts.
The greatest mountains are never scaled exactly the same way, and by the same people, but there is always a base camp. TBTF, TARP, HAMP, cash for clunkers, real estate tax credits, unemployment extensions, tax cuts, change in accounting rules, and QE2, all established a "base camp" or de facto put. Recall that the real impact of QE2 can approach $6Trillion due to 10:1 leverage.
Superimposed on all of this is that The Financial Panic of 1907, or any of the prior financial panics, is a better historical template by which to put 2008 in perspective, as opposed to The Great Depression, or the post-WWll bear markets. Once the financial panic was mediated by appropriate intervention, the market realized that corporate financial structures were not at issue.
Nonetheless, the events, and the way they unfolded, devastated many individuals. These folks are still reeling from the bomb that exploded their retirement plans and their home equity. The demographics makes the situation worse. Everyone knows that scenario.
Rather than covered calls, think about puts. To the extent that put protection becomes cheaper, market participants will insure a greater dollar amount of their risk. At some point, insuring a $100,000 portfolio is just as cheap, perhaps cheaper, than insuring a brand new $100,000 sports car. Perhaps you don't even concern yourself with the deductible anymore. There are a lot of assumptions that go into this premise, and certainly market intelligence is paramount. Increasing sophistication, in other words, may yield an optimal risk protocol, that didn't exist just a few months ago. If a sufficient number of participants buy puts, there are many others that enjoy implicit coverage. Further, if sophisticated bots are prowling for large areas of an unprotected region, that region will repeatedly be attacked until the appropritae response has been "learned."
Staying Diverse With Emerging Market ETFs [View article]
Even more important, is the failure of older models to include non-correlative asset classes. If memory serves me correct, I think all equity markets tanked in 2008. So, diversification had all the efficacy of moving your deck chair from the main dining room of the Titanic, to the uppermost deck. All one did was postpone the inevitable.
The reason that virtually everyone ended up on the wrong side of the market in 2008 was a lack of REAL OR NON-CORRELATIVE DIVERSIFICATION. Even now, it would seem that people still don't understand the modern world and world-wide market risk. "No man is an island..." John Donne noted. So it is with market reaction in the modern era. Simply thinking that equities in Sweden or Singapore will will shock-proof your small caps in the U.S. will lead to tears.
Shorting the Dollar, Via These Three Multinationals [View article]
There are a number of strategies that allow one to utilize these ETFs without the cost or maintenance exposure. For example, I'm sure you realize that the FXE will have its range defined (and contained), within the Euro movement itself. By selling bear call spreads at the resistance point, and selling puts at support, one collects option premium. Or, another strategy is to sell a 6 month bear call spread, and "amortize/hedge" the known downside by selling 30 day put spreads. You will uneqivocably win on one side or the other-you don't really care. For instance, if you sell a bear call spread, 6 months out, and limit your downside to $400, and create a $1200 upside, and assume the call spread initially moves against you, the bull put spread will pay off. AT THE POINT WHERE THE MAXIMUM DOWNSIDE IS FULLY AMORTIZED, THE ONLY REMAINING POSSIBILITY IS (A)NO GAIN OR LOSS, OR (2)A GAIN UP TO $1200. Now, you can overlay this strategy by reversing the process. In other words, one could establish a miror-image strategy, where the bull put spread is established as the longer play, and the bear call spread becomes the shorter-run play. By selling options, you know exactly what your costs are, as well as all of the permutations, and the gain/loss associated with each tick of the clock.
Cramer's Mad Money - Big Pharma Is One Big Graveyard for Stocks (2/17/11) [View article]
Netflix: Short the Stock, Hedge Your Timing to Avoid Getting Squeezed [View article]
To me, the lesson here is that any strategy seems to work at a given point in time. It's a classic spike fishing rodeo where you sell the upside and buy the downside. Of course, it's entirely unpredicatable-although mean reversion will always have the final say. Additionally, there is no need to rush a spike in either direction. Selling 90 day options, or more, generates a lot of premium, and allows for the inevitable ebb and flow of the market. What a great stock. I find myself in total agreement with every damn one of the astute analysts.
Way Down Yonder: Cotton Prices Hitting All-Time Highs [View article]
Thoughts on Options Expiration, Vertical Charts and Market Crashes [View article]
The Future of Finance Is Getting Closer [View article]
The Future of Finance Is Getting Closer [View article]
Norbert Weiner expressed concern about fast-paced computers engaged in a sinister game-theory protocol, moving at speeds that would be incomprehensible to the human brain. I find it very interesting that the public has already dismissed the flash-crash situation. But, there is precedence for such a short-sighted perspective. Back in 1960, Mikhail Botvinnik, the Russian chess grandmaster stated that the day would come when a computer could compete at the elite levels. An american expert wrote, in "The American Chess Quarterly," that such an idea was "nonsense."
Well, we all know the rest of the story.
Strayer Education: Time for the Shorts to Sweat [View article]
Why the Fed's QE2 Push Will Never Be Inflationary [View article]
Strayer Education: Time for the Shorts to Sweat [View article]
Thoughts on Options Expiration, Vertical Charts and Market Crashes [View article]
SBUX is probably an iron condor play at this point. With price of coffee volatile, SBUX is probably at a near-term flatline.
Thoughts on Options Expiration, Vertical Charts and Market Crashes [View article]