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  • Why Covered Call Writing Is No Free Lunch [View article]
    I agree. I think putting decay on your side is the ultimate edge. I really believe that there is a Second Law of Thermodynamics which is applicable to options. In other words, x>0, which reflects that decay is not a zero-sum proposition. When one sells an option, there is always a way to roll-out, or hedge a prospective assignment, and morph the position. When the lights go out on your purchase-that's it. Nothing to show for it.
    Jul 5 02:42 PM | 1 Like Like |Link to Comment
  • Long Weekend Roundup: Barron's Is Dead Wrong on Oil [View article]
    I find the 'escape velocity' analogy rather intriguing. Surely we have the liquid (liquidity) fuel, but the rocket boosters and ignition system is lacking. It's almost like a hollowed-out Saturn V was filled to capacity with rocket fuel, and hauled to the launch ramp, absent gyroscopes, ignition systems, and, of course, pilots. Everyone is anxiously awaiting lift-off, yet the launch sequence can't begin. We have an endless series of postponements, while the mad scientists continue to tinker.
    Jul 5 12:06 PM | 1 Like Like |Link to Comment
  • 8 Reasons Chipotle Is a Short [View article]
    Shorting 100 shares of CMG (or any MOMO stock) is an inefficient allocation of capital. Even if you're right within a given time period, the margin requirements will eat up a lot of capital.
    I think a reasonable idea would be to buy intermediate put spreads, with an eye on a low volatility zone. This stock has already revisited any number of lower price points numerous times. Odds are strong that a reasonable dip will occur. There are more elaborate plays, of course, but with this stock, I think you can give vent to your directional bias-if you do it shrewdly.
    If you short the stock, I suggest that you utilize upside calls to define your downside. In addition, you might look at the inverse of what I suggested above with the long put spread. Use put credit spreads instead. This is where the cost of the options and the existence of a volatility skew might auger for one method vs. another.
    I truly understand the overwhelming desire to short fool's hill-but you've got to let all the fools climb as high as oxygen will allow before stepping in. One other idea is to look at put ratio backspreads. That methodology sets up a free lottery ticket, and requires minimal management.
    Jul 3 05:06 PM | 1 Like Like |Link to Comment
  • The median pay for top execs at 200 big firms jumped 23% in 2010 to $10.8M, in line with net profit increases. The median gain in shareholders’ total return was far lower at 16%, while the salary of the average American worker in late 2010 was just 0.5% higher than a year earlier - representing a fall in real terms.  [View news story]
    Yikes!!!!!!! Take the rest of the day off. Then I suggest "Medieval Civilization 400-1500" by Jacques Le Goff.
    Jul 3 03:47 PM | 2 Likes Like |Link to Comment
  • Why Covered Call Writing Is No Free Lunch [View article]
    Why would one limit their operating strategy to covered calls? Or selling puts? And why in the hell would anyone ever bother to reach conclusions based on such atrocities as buy-write ETFs? Zero-sum? Where does this pathetic dribble originate? Somebody called it right in their above comment (jozsica).
    I can make the case that covered calls are inherently inferior to "covered LEAPS." Yet covered calls can be a powerful strategy, not on some index, but with specific stocks. There is a time and place for everything. Why would one presume that any strategy is uniquely suitable for all time? The more relevant challenge is to design the optimal strategy, or strategy set, given the current environment. One should be prepared to use all the tools in the option toolbox-spreads, ratio spreads, backspreads, iron condors-to name a few. Would a professional golfer show up with three clubs in the bag, when the rules allow for fourteen?
    Jul 3 03:38 PM | Likes Like |Link to Comment
  • The median pay for top execs at 200 big firms jumped 23% in 2010 to $10.8M, in line with net profit increases. The median gain in shareholders’ total return was far lower at 16%, while the salary of the average American worker in late 2010 was just 0.5% higher than a year earlier - representing a fall in real terms.  [View news story]
    Surely your comments weren't a tacit slap at some excellent programs such as "Jerry Springer" or even more intellectual programs such as "Dr. Phil." Also,is it necessary for kids to be able to read Faulkner, or even spell? After all, they can now text each other in alien code-hundreds of times a day.
    Also, your comments fail to recognize that a certain entrepreneurial flair is needed to game the government programs. For instance, there is a progression that one must properly follow to access the full panoply of freebies. First, "cheaper by the dozen" is the mantra, and all the little ones are initially classified with attention deficit syndrome. After that classification, the next step is to get the 'oppositional defiance' diagnosis. Now, that's good for $500 per. And, of course, free government phones and phone service is provided-per kid.
    That's not all, of course. We haven't even counted the food stamp allotments. The silent and dwindling majority are too concerned about getting their social security checks to notice what's going on around them. WWll, victory gardens and a strong social fabric are now hazy memories. They would never, ever ask for a handout.
    But they do ask about the interest on their small CDs. It's a bit perplexing to them that food costs continue to go up, but the bank they were loyal to all their adult life, charges as much in fees as the amount of interest they earn. It's all their fault, of course. They just refused to borrow more money than they could pay back. Hhow short-sighted! They generally lived well below their means, so they could send their kids to college-without incurring more debt.
    They could have attended one of those no-money-down-set-up-a... courses. Clearly, it's once again their fault for being so "not with it." Couldn't they "get a clue" and get one of those 125% loans. Why in the world would they ever want to come back from WWll and start their own business. Wasn't anyone around to give them career advice? Surely, they would have all become hedge fund managers. Why, in heaven's name, would you get grease under your fingernails?
    Did they not hear the demands of the "me generation?" Did they not grasp that "now" is the only option? Music? Who was that Sinatra guy anyway? Literary classics? Hey dude, where are the pics so I can follow along?
    The contrived self reliance and pseudo intellectualism of the blogosphere-twitter group stands in stark contrast to the real and the genuine. It is something your grandfather knew and embraced without having to study Whitman:
    "I do not trouble my spirit to vindicate itself or be
    I see that the elementary laws never apologize,
    I reckon I behave no prouder than the level I plant my
    house by after all.
    I exist as I am, that is enough,
    If no other in the world is aware, and by far the largest to me, and that
    is myself,
    And whether I come to my own today or in ten thousand or
    ten million years,
    I can cheerfully take it now, or with equal cheerfulness I can wait."
    From "Song of Myself"-Walt Whitman
    Jul 3 12:15 PM | 6 Likes Like |Link to Comment
  • A 5-Day Rally Before the Holiday Weekend [View article]
    Definition required for the following: "some"/ "suggested"/ "all the same market"- E.g. "some"= a certain percentage of all economists sporting a phd; a random set of self-serving brokers that brush their teeth before appearing on CNBC; or your local bartender. "Suggestion" is a premise based on simulated possible events; a gametheory protocol which adapts minimax objectives; an off the cuff opinion of your golfing buddy. "All the same market" would encompass the entire set of all possible price configurations within a specific timeframe; only the US market; Chinese internet stocks only?
    I try to think about a set of 'energy' stocks that respond to a set of events, and extrapolate from that point. But, uncertainty can be hedged, or totally eliminated-it's a matter of defining parameters and designing probabilistic strategies. Increasingly, it may be helpful to think about the immune system, and the elaborate machinery the biological sysyem utilizes to overcome the most horrific pathogens. So, it's useful to think about antibodies, realizing that every adverse action can be completely countered by quickly replicating an immune response. But, every pathogen has to be carefully defined, down to its basic DNA, in order to mount a successful counter-attack. This is where, I think, most investors miss the mark.
    Jul 3 10:39 AM | Likes Like |Link to Comment
  • A 5-Day Rally Before the Holiday Weekend [View article]
    Sitting by the pool thinking about an assortment of 'what ifs.' But then, I think about a 'so-what' for every 'what-if.' Conclusion: there is an optimal strategy for every conceivable 'what-if,' which is answered by thinking thru the 'so-what' question.
    Jul 2 04:20 PM | Likes Like |Link to Comment
  • Why You Can't Hedge Tail Risk [View article]
    When it's all said and done, there is only one real risk-getting slammed by a meteor-or perhaps we launch a nuclear Armageddon. And, if that's the case, why bother calling your broker, or running to the nearest BAC branch. It really won't matter.
    If the system remains physically intact, the odds of recovery are extraordinarily high. In that case, it's a function of time and strategic rehab.
    In the darkest hours of 2008, a few funds were selling very deep in the money calls, as if to say, 'go ahead market, go down all you want-but you will pay me.' But, clients have to understand your strategy. There were far too many young managers, grossly over-leveraged, who were scared out of their diapers. Fear begat fear, and the market resembled one of those old Godzilla movies-hysterical people running and screaming in all directions.
    We all know the great success stories. The real poker players shrugged their shoulders and enjoyed the ride. I sold puts when I thought the fundamentals were absurd. But I didn't hesitate to both short and sell calls. It is always and forever more about human behavior and ergodicity. Until emotions are genetically altered, the human brain will be wired to repeat and repeat and repeat investment mistakes.
    Charles Darwin once stood in front of a glass cage, full of rattlesnakes, and tried not to recoil at the attempted strikes. He marveled at the fact that, even though he knew he was totally protected, he couldn't over-ride his instinctive response.
    Jul 2 03:39 PM | Likes Like |Link to Comment
  • Is It Time to Short First Solar? [View article]
    In addition to Jeff's excellent chart analysis, anyone playing this stock one way or the other should study the option chain. When I looked at it a couple of weeks ago, I noticed a layered/skip strike call position, much of which was entered on the day I checked. The shorts were massively hedged by selling DITM puts. This was primed to explode up or down-which it did-both ways in an incredible whip-saw fashion. This was, to some extent, attributed to DOE loans, but insiders already knew about that. Just days prior to that, solar was relegated to the dust bins of history. Because the negative news hit first, the short calls made an enormous amount of money. On the flip-side, the short puts added to the treasure trove. The question is whether advanced knowledge allowed such a play. Somebody is a damned good poker player, or they knew a bit too much.
    Jul 1 12:02 PM | Likes Like |Link to Comment
  • Norfolk Southern: Trains Maintain Price Advantage Over Trucks [View article]
    Agree. The acquisitions and mergers of the past 20 years have been successful. Only 4 major rails remain, which is a culmination of decades of history in this industry. The stock spiked on earnings last time around, and pullbacks to the lower 70's have generated buyers. If you don't own this stock, I think selling puts makes sense.
    Jul 1 09:19 AM | 1 Like Like |Link to Comment
  • 8 Reasons Chipotle Is a Short [View article]
    To those that got "burned" shorting, don't you scale in to your short positions? Further, you can sell bear call spreads and specifically limit the downside. And you don't have to go one way or the other. You can expand the range on your bear call spread by buying a minimum number of shares. The stock will move up and down. It's not a permanent binary proposition. If the stock goes up, cash out on the shares that you bought. If it goes down, collect on the bear call spread. Scaling allows you to "martingale" any position, but establishing brakes/cushions helps as well.
    I tend to counter-punch the momo players, because they will collect on the upside at some point, and the bots will dump the stock in a nanosecond. I also have reason to believe that very sophisticated AI programs look for short squeeze probabilities, and in a low volume market, a couple of large funds can readily move a stock. None of this has diddly to do with what CMG, or any other high-flyer does for a living.
    Jul 1 08:51 AM | 1 Like Like |Link to Comment
  • Monday Madness - Greece Is a Drop in the Bucket Compared With Us [View article]
    I almost forgot. Here's the tip of the day. If you're agnostic, establish iron condors via VXX. If you're bullish, sell bear call spreads. And, if bearish, sell put spreads. Because of weeklies, both calendar and diagonal spreads make sense. It's easy to adjust the losing side as well, due to numerous other VIX-like ETFs, although not all have options. In a real sense, one can take advantage of the published weaknesses of VXX and its ilk by selling premium.
    Jul 1 08:22 AM | 1 Like Like |Link to Comment
  • Monday Madness - Greece Is a Drop in the Bucket Compared With Us [View article]
    The debate underscores the need to get on with understanding the human genome, and inventing totally new systems of health care. Despite our advances, we're still a very fragile organism, and most medical advancements prolong life, without fundamentally enhancing the quality of life.
    To a great extent, it is the state of technology that represents both the hope and despair of our present system. In other words, we have a vista of the promised land, but cannot yet cross the divide.
    Society seeks an equilibrium in which all individuals are deemed worthy of some modicum of medical technology, and the need to amortize the costs of providing same.
    It is at present, a stubborn challenge. It seems though, that one challenge is to simply understand that many diseases operate much like compound interest. In other words, what we put in our mouth, or consume, is a management issue. That, in turn, requires personal responsibility. Just as many people are victimized by lousy financial advice, so it is with diet. The negatives compound over time, leading to rather predictable outcomes.
    Thus, society ends up discussing who should be thrown off the Titanic lifeboat, and precious little time allocated to preventing the shipwreck. Unfortunately, all political arguments seem to denigrate down to rearranging deck chairs. What if future diabetic problems could be curtailed, thereby allowing more resources for diseases that are fundamentally genetic, and beyond the individual's power to ameliorate?
    Would like to continue but gotta get to MCD for an egg mcmuffin.
    Jul 1 08:07 AM | 1 Like Like |Link to Comment
  • Monday Madness - Greece Is a Drop in the Bucket Compared With Us [View article]
    'I've looked at life from both sides now
    From win and lose and still somehow
    It's life's illusions I recall
    I really don't know life at all'

    "Both Sides Now"-Judy Collins
    Jun 30 04:36 PM | Likes Like |Link to Comment