I just have to chime in with my two cents here folks.
I dislike the feds and everything they stand for. I dislike how they were created and what their function is.
They cause problems by sticking their greedy hands into the arena and then plead for tax payers to bail out any mistakes.
I have never seen them give any profits to the taxpayers always the bailout.
Now we are witnessing the gov. succumding to more fed powers to control more. As usual they cause the problem and then rush for tighter regulations. Does anyone really think that Mr. bubbles (Greenspan) artificially dropping interest rates could not have foreseen the equity bubble? I mean really it was textbook economics. Now we have scare going around and how to solve the problem. As I see it, there is no problem. Greedy banks got caught now they want a bailout. Greedy home owners buying more than they could really afford want a bailout. Who is going to bail them out? Taxpayers that will have assets to bail them out. I say let them lose everything and we as traders will scoop up the ruins for pennies on the dollar.
I try not to get political but you have to. You need to understand what is really going on. A companies quarterly filings will never tell you the truth. Anyone that trades off this is asking for losses. If you dont believe it, just go back 8 years to Enron, Qwest, et al.
Now the same holds true for the gov, they will not tell you the truth. Sorry if this upsets anyone but the reality is they have an agenda just as a company does and they will massage the numbers to make their agenda look rosey. Just 8 months ago we were assured that the subprime would be contained. If you beleived that you are hurting right now. If you believed as I did it was more lies, you have profited handsomely.
Politicians are not about to let the fed go, why? Because they can spend without you knowing it. If you had to pay 100% taxes you would revolt. By the slight of hand, they tax future generations with debt loads they will never be able to repay. That is the truth. The honest blunt truth. Now go out there and trade off of this.
Election time and I see only one candidate that unsderstands this. The rest talk as if this glorious feds will save the American citizen when in reality the feds are just burdening the American citizen with debts he cannot repay.
I will step down off my soap box now, but seriously folks if you want to make serious money, you need to get rid of your college educated ideas about the feds and realize exactly what they are. Knowing this you can make some great trades.
Long natural resources (even better now with the correction under way) short the dollar. Same old mantra until the feds tip their hand of what they will do next.
Monday, March 31, 2008
Saturday, March 29, 2008
Weekend thoughts
As I read through the many hours of material, it is obvious that the housing crisis is far from over. We got a good reading this week and the spin doctors were all over it proclaiming the bottom of the Real Estate is in.
Nothing of the sort. But then this is what you would expect from the industry that makes money when you buy what they are selling.
I noticed some pundit from CITI calling for a 15% jump in the S&P by year end. What would you expect the cheerleaders to be saying? It reminds me of Abbey from Goldman Sachs calling for the dow 15,000 as it was tanking in 2000.
This and other reasons are why I try to refrain from making such calls. It really puts egg on your face.
Anyways, the root of todays credit problems that are now looming for the consumer which in return will crimp companies earnings thereby continuing the drop in stocks, is directly related to the housing boom to bust. It is important to understand this to form a basis to move forward on what will perform and what will not.
Election year or not, we have become increasingly hooked on the idea that the feds will save us. So the feds attempt to save us. What happens is increased flooding of currency to attempt to prop up the economy.
What twisted remains will rise from these attempts will make or break every investor. So having written all of this, it boils down to 1) Do you believe the housing has bottomed? If so then load up on financial and home builders. 2) Do you believe the bottom is no where in sight? Then load up on tangibles because the feds are coming with more boat loads of cash than we have seen on our lifetime through various "rescue" packages.
Just more resolute to go long any and all pullbacks on natural resources and short the dollar on any and all rallies.
Once again my favorite way to play all of this is to take a long term option and then sell the shorter term options. Your ideas of how bullish or bearish you want to become will dictate this being either the same strikes (calendars) or different strikes (diagonals) Calendars are less directional and are very good despite many who dislike the 20/20 hindsight of woulda coulda. Many times the corrections can wipe out any strategy even when the long trend is still intact. It makes more sense to use diagonals if you are getting in at good timing, fine example is DBA, while grains should continue for some time to move up wards, we have had a very nice sell off. Entering a diagonal would be my choice, but what if we enter the trade and the sell off is more pronounced? Then the calendar traders would be smiling more than me.
There are no set absolutes, and that is what makes trading never dull.
Nothing of the sort. But then this is what you would expect from the industry that makes money when you buy what they are selling.
I noticed some pundit from CITI calling for a 15% jump in the S&P by year end. What would you expect the cheerleaders to be saying? It reminds me of Abbey from Goldman Sachs calling for the dow 15,000 as it was tanking in 2000.
This and other reasons are why I try to refrain from making such calls. It really puts egg on your face.
Anyways, the root of todays credit problems that are now looming for the consumer which in return will crimp companies earnings thereby continuing the drop in stocks, is directly related to the housing boom to bust. It is important to understand this to form a basis to move forward on what will perform and what will not.
Election year or not, we have become increasingly hooked on the idea that the feds will save us. So the feds attempt to save us. What happens is increased flooding of currency to attempt to prop up the economy.
What twisted remains will rise from these attempts will make or break every investor. So having written all of this, it boils down to 1) Do you believe the housing has bottomed? If so then load up on financial and home builders. 2) Do you believe the bottom is no where in sight? Then load up on tangibles because the feds are coming with more boat loads of cash than we have seen on our lifetime through various "rescue" packages.
Just more resolute to go long any and all pullbacks on natural resources and short the dollar on any and all rallies.
Once again my favorite way to play all of this is to take a long term option and then sell the shorter term options. Your ideas of how bullish or bearish you want to become will dictate this being either the same strikes (calendars) or different strikes (diagonals) Calendars are less directional and are very good despite many who dislike the 20/20 hindsight of woulda coulda. Many times the corrections can wipe out any strategy even when the long trend is still intact. It makes more sense to use diagonals if you are getting in at good timing, fine example is DBA, while grains should continue for some time to move up wards, we have had a very nice sell off. Entering a diagonal would be my choice, but what if we enter the trade and the sell off is more pronounced? Then the calendar traders would be smiling more than me.
There are no set absolutes, and that is what makes trading never dull.
Friday, March 28, 2008
Bonds
Bonds are in a difficult position now. Bonds have not seen a bear market since '71-'80. That was the last great bear market in bonds.
http://www.mrci.com/pdf/us.pdf
While at the same time commodities were at their peak.
http://www.mrci.com/pdf/cr.pdf
We are talking major shifts coming up. U.S. treasuries that have long been held by pensions and insurance for annuities etc. are now paying such low interest that investors are seeking other means i.e. other country bonds for higher yields.
In order for the debt of the U.S. to be financed by way of treasuries, the yields will have to be higher to attract investment money. As the yield goes up, the price goes down.
If you agree with the assessment of lower bond prices in the future, one way to trade this other than the futures market is to buy puts on a number of bond ETF's such as TLT. Now as with any investment there are bound to be swings. So buying puts takes good timing. If you are like me and cannot time very well, then take the diagonal spread approach.
This drop in bond prices will be a slow process and will take years. Plenty of time for the buy and hold to participate. It will not be a pretty picture since so much is at stake with borrowing to fund gov projects and retirements etc. But it is setting up to be this way. Many will razz me about the about links to charts, since I am so much of a fundamental trader, but those charts speak volumes.
http://www.mrci.com/pdf/us.pdf
While at the same time commodities were at their peak.
http://www.mrci.com/pdf/cr.pdf
We are talking major shifts coming up. U.S. treasuries that have long been held by pensions and insurance for annuities etc. are now paying such low interest that investors are seeking other means i.e. other country bonds for higher yields.
In order for the debt of the U.S. to be financed by way of treasuries, the yields will have to be higher to attract investment money. As the yield goes up, the price goes down.
If you agree with the assessment of lower bond prices in the future, one way to trade this other than the futures market is to buy puts on a number of bond ETF's such as TLT. Now as with any investment there are bound to be swings. So buying puts takes good timing. If you are like me and cannot time very well, then take the diagonal spread approach.
This drop in bond prices will be a slow process and will take years. Plenty of time for the buy and hold to participate. It will not be a pretty picture since so much is at stake with borrowing to fund gov projects and retirements etc. But it is setting up to be this way. Many will razz me about the about links to charts, since I am so much of a fundamental trader, but those charts speak volumes.
Thursday, March 27, 2008
More Fed money
Any questions or fears anyone had about the correction in the natural resources these past weeks should give a sigh of relief that we are still on the right side of this inflation.
The feds announced another 75 billion of toxic mortgages magically transformed into gov. obligations (cute way of saying taxpayers will pay for this).
Once again the feds are sending clear message that inflation is secondary to stopping the banking hemmorhage. So I myself am more confident of the long natural resources and short the dollar mantra for the time being.
The feds announced another 75 billion of toxic mortgages magically transformed into gov. obligations (cute way of saying taxpayers will pay for this).
Once again the feds are sending clear message that inflation is secondary to stopping the banking hemmorhage. So I myself am more confident of the long natural resources and short the dollar mantra for the time being.
Wednesday, March 26, 2008
XLF, Talking Heads
XLF has moved significantly. It is time in my opinion to unwind the trade. Buy back the 21 put we sold and hang onto the 20.
Now about talking heads. I was not amused but rather disturbed watching a talking head show last night. Either these pundits are very ignorant, or they want you as an investor ignorant. Both are terrible.
The question was asked why if there are 10's of millions of homes and only 1 maybe 2 million are in foreclosure why is this causing such a ruckus? The answer the pundit gave was exasperating. So much so that it was bulljive!
Let me explain since many of you will need to understand this. It is called leverage. Just as you an options trader need to understand leverage.
99.9% (my guess here not facts to back it up) of options traders figure they have a crystal ball or a chart or something that tells them where things will be in the future. So they speculate on a direction and buy a put or call and hope for the best.
Some are good at tight stop losses and so can have several wrong guesses and still make money.
Here is how it goes, the stock market always goes up (remember that mantra?) so we take Citigroup, it has been hit lately and rightly so. Now on average the market moves up 8%. So "C" being of the average kind will move up 8%. I use my math to calculate that "C" at 20 and add 8% puts it at 21.60 by the end of the year. So I put 10,000 dollars into a call position at the strike of 20. Should the stock move to 21 (and it will because my calculations are sound) then my 10,000 investment should be worth 15,000 (because once again my options pricer says so and it is based on math)
If the stock does not move (which it wont because remember stocks always go up) then my 10,000 investment is worthless due to time decay. But we will get out before that happens, if the stock drops 8% (which it wont cuz remember stocks always go up) then my 10,000 investment is only worth 5,000. So a simple 8% drop and I am down 50%.
This is what is going on in the mortgage security arena. By all sound calculations homes never go down, home mortgages are packaged as AAA sold to pensions and what not. The ones selling them have put that AAA rating to sell them. So if only 8% of the mortgages default (remember the figures bantered around are 10%) the firm or the pension or who ever owns this toxic stuff is now down 50%.
Ahh leverage aint it good!!
As options traders we need to watch this unfold and make sure we are not so leveraged that we cannot withstand the impossible to happen from happening. Homes do go down in value and so does the stock market.
Enough ramblings just wanted folks to have a bit of understanding as to why a few home owners walking away from their home is causing such scare.
Now about talking heads. I was not amused but rather disturbed watching a talking head show last night. Either these pundits are very ignorant, or they want you as an investor ignorant. Both are terrible.
The question was asked why if there are 10's of millions of homes and only 1 maybe 2 million are in foreclosure why is this causing such a ruckus? The answer the pundit gave was exasperating. So much so that it was bulljive!
Let me explain since many of you will need to understand this. It is called leverage. Just as you an options trader need to understand leverage.
99.9% (my guess here not facts to back it up) of options traders figure they have a crystal ball or a chart or something that tells them where things will be in the future. So they speculate on a direction and buy a put or call and hope for the best.
Some are good at tight stop losses and so can have several wrong guesses and still make money.
Here is how it goes, the stock market always goes up (remember that mantra?) so we take Citigroup, it has been hit lately and rightly so. Now on average the market moves up 8%. So "C" being of the average kind will move up 8%. I use my math to calculate that "C" at 20 and add 8% puts it at 21.60 by the end of the year. So I put 10,000 dollars into a call position at the strike of 20. Should the stock move to 21 (and it will because my calculations are sound) then my 10,000 investment should be worth 15,000 (because once again my options pricer says so and it is based on math)
If the stock does not move (which it wont because remember stocks always go up) then my 10,000 investment is worthless due to time decay. But we will get out before that happens, if the stock drops 8% (which it wont cuz remember stocks always go up) then my 10,000 investment is only worth 5,000. So a simple 8% drop and I am down 50%.
This is what is going on in the mortgage security arena. By all sound calculations homes never go down, home mortgages are packaged as AAA sold to pensions and what not. The ones selling them have put that AAA rating to sell them. So if only 8% of the mortgages default (remember the figures bantered around are 10%) the firm or the pension or who ever owns this toxic stuff is now down 50%.
Ahh leverage aint it good!!
As options traders we need to watch this unfold and make sure we are not so leveraged that we cannot withstand the impossible to happen from happening. Homes do go down in value and so does the stock market.
Enough ramblings just wanted folks to have a bit of understanding as to why a few home owners walking away from their home is causing such scare.
Tuesday, March 25, 2008
Investing cycles
1) Smart money gets in
2) Institutions get in with large positions forcing wild swings as they buy on dips
3) Common man gets hyped and just has to be part of the action
4) Bubble phase which is just about the same time as the common man climbing on board.
The 4 is the easiest to see. It is the hysteria, sleeping over night to be the first in line to buy. This is where I begin my exit. If we do our homework, we should get in about 2) stage.
Right now the natural resources are at 2) the large institutions are forcing wild swings as they take postions. This is the stage that using long options will gain, but then to eliminate the time decay we sell short months to offset this decay. Calendars and diagonals are used in this stage.
3)&4) You use straight puts as we just saw in the mortgage business. This stage is very tricky. Plenty of hindsight but not much of seeing a Bear Stearns or a Countrywide until after the fact.
2) Institutions get in with large positions forcing wild swings as they buy on dips
3) Common man gets hyped and just has to be part of the action
4) Bubble phase which is just about the same time as the common man climbing on board.
The 4 is the easiest to see. It is the hysteria, sleeping over night to be the first in line to buy. This is where I begin my exit. If we do our homework, we should get in about 2) stage.
Right now the natural resources are at 2) the large institutions are forcing wild swings as they take postions. This is the stage that using long options will gain, but then to eliminate the time decay we sell short months to offset this decay. Calendars and diagonals are used in this stage.
3)&4) You use straight puts as we just saw in the mortgage business. This stage is very tricky. Plenty of hindsight but not much of seeing a Bear Stearns or a Countrywide until after the fact.
Monday, March 24, 2008
The blog
Over the course of the last few weeks, many have commented on the color of the blog. Usually I get "pink?". Yes it was intended to be pink, but then maybe it should not be. I was accused at one time of being of the female persuasion when I visited a commodity chat site several years ago. A few there had bets on that so when my wife and I showed up at a Vegas get together it was realized I was not. I digress here.
Well I thought maybe we could vote on this. So what color would be best? Let me know and we can change it. I thought pink was soothing and would make everyone pay more attention to the content. But hey I am open to ideas here. This is your blog and if certain links you would like or whatever let me know.
Back to the market. You are going to see many so called pundits come out about the end of the commodities bull run. While I cannot see the future, past history tells me that a flooding of fiat currency onto the markets is inflationary. Inflation makes "things" go up. Therefore "things" will rise.
This past week if anyone paid attention was the largest push of money into the market in the feds existence. Not only are they bailing out companies that should go out of business, they are accepting toxic mortgages as collateral for treasuries. Now I wrote about this a few days back how the magic would turn these toxic loans into good treasuries for the earnings reports and look what happened last week.
When the 28 days are over, will these toxic loans be back on the books of the investment bankers? We are witnessing a bounce in the bank sector, fine we were hoping for this. Will it continue? Who knows how long the propping can go. But for now we will position ourselves for the same old boring "buy "natural resources sell the dollar" These dips just make better opportunities.
Side note here, I use Optionsxpress and Saturday I got assigned my FXY sold option so they immediately sold my long option. For a net gain on the spread. Just thought I would mention this since many get scared at ex date. What was happening was that this was a 1 point spread but never traded the full one point. I let it reach ex date to get the full spread value.
I could not agree with this assessment more. It is about time real media spoke out. Just my political jab. See it here
http://seekingalpha.com/article/69607-john-hussman-fed-s-jpmorgan-bear-
stearns-deal-is-unpalatable?source=yahoo
Once again If you would like some features on this site let me know.
Well I thought maybe we could vote on this. So what color would be best? Let me know and we can change it. I thought pink was soothing and would make everyone pay more attention to the content. But hey I am open to ideas here. This is your blog and if certain links you would like or whatever let me know.
Back to the market. You are going to see many so called pundits come out about the end of the commodities bull run. While I cannot see the future, past history tells me that a flooding of fiat currency onto the markets is inflationary. Inflation makes "things" go up. Therefore "things" will rise.
This past week if anyone paid attention was the largest push of money into the market in the feds existence. Not only are they bailing out companies that should go out of business, they are accepting toxic mortgages as collateral for treasuries. Now I wrote about this a few days back how the magic would turn these toxic loans into good treasuries for the earnings reports and look what happened last week.
When the 28 days are over, will these toxic loans be back on the books of the investment bankers? We are witnessing a bounce in the bank sector, fine we were hoping for this. Will it continue? Who knows how long the propping can go. But for now we will position ourselves for the same old boring "buy "natural resources sell the dollar" These dips just make better opportunities.
Side note here, I use Optionsxpress and Saturday I got assigned my FXY sold option so they immediately sold my long option. For a net gain on the spread. Just thought I would mention this since many get scared at ex date. What was happening was that this was a 1 point spread but never traded the full one point. I let it reach ex date to get the full spread value.
I could not agree with this assessment more. It is about time real media spoke out. Just my political jab. See it here
http://seekingalpha.com/article/69607-john-hussman-fed-s-jpmorgan-bear-
stearns-deal-is-unpalatable?source=yahoo
Once again If you would like some features on this site let me know.
Wednesday, March 19, 2008
Follow up on GDX
Since most reading my rantings are wanting to learn I felt this interesting to post.
I posted about not getting any premium for GDX since it was so far into the money. I posted about how to unwind the trade. I posted that I could not get more than 40 cents to roll therefore it was not worth the trade.
Well I left my GTC of .85 and guess what? Today it filled. Just 2 1/2 days before ex date and it filled. But guess what? I could have rolled for maybe 1.00 go figure.
Such is the life of a trader. Hopefully many will gain insight by reading actual things going on and not some theory.
Stay tuned as the saga continues
I posted about not getting any premium for GDX since it was so far into the money. I posted about how to unwind the trade. I posted that I could not get more than 40 cents to roll therefore it was not worth the trade.
Well I left my GTC of .85 and guess what? Today it filled. Just 2 1/2 days before ex date and it filled. But guess what? I could have rolled for maybe 1.00 go figure.
Such is the life of a trader. Hopefully many will gain insight by reading actual things going on and not some theory.
Stay tuned as the saga continues
Commodities
Quick note here, the feds just enacted new policies to quicken the inflow of cash into the economy. This is certainly inflationary. This with the heightened demand from developing nations is putting extreme pressure on natural resources. One would be wise to consider in their portfolio commodity ETF's such as DBA or SLD or USO etc.
How I would play these is going to make many sit up and ask why the different style of trading. My answer is because these are going to go through the roof and you will want to take the most off the table. So here it is.
Take long positions(LEAPS) then calculate the time decay lost each month and sell the strike in the short month to take in enough premium to cover the time decay. This is a diagonal but with large spreads. These ETF's are going to spike and then slide back as we work our way much much higher. Anyone wanting to time these swings I say best of luck. Not my style. It can be done but I prefer to take a position and let it run.
This once again is for educational purposes folks trade with your own advisor etc.
How I would play these is going to make many sit up and ask why the different style of trading. My answer is because these are going to go through the roof and you will want to take the most off the table. So here it is.
Take long positions(LEAPS) then calculate the time decay lost each month and sell the strike in the short month to take in enough premium to cover the time decay. This is a diagonal but with large spreads. These ETF's are going to spike and then slide back as we work our way much much higher. Anyone wanting to time these swings I say best of luck. Not my style. It can be done but I prefer to take a position and let it run.
This once again is for educational purposes folks trade with your own advisor etc.
Tuesday, March 18, 2008
XLF
It is better to be lucky than good.
With this massive upward movement, XLF spread is looking very good indeed.
We may have bad news still to come, but the feds have done a good job of masking the problems. Investors will go nuts buying into this for a few more days maybe even weeks. Stay on top of this.
Currencies also dropped against the dollar today, even with the rate cut. If you are not short the dollar, this could be a good time. Some times the logic of traders is missing. 3/4 rate cut and the dollar rallies. Go figure. This is why fundamentals are sometimes called funnymentals. This is where I bow out of the technical fundamental argument. But then I don't know many that called this from the technical side either.
With this massive upward movement, XLF spread is looking very good indeed.
We may have bad news still to come, but the feds have done a good job of masking the problems. Investors will go nuts buying into this for a few more days maybe even weeks. Stay on top of this.
Currencies also dropped against the dollar today, even with the rate cut. If you are not short the dollar, this could be a good time. Some times the logic of traders is missing. 3/4 rate cut and the dollar rallies. Go figure. This is why fundamentals are sometimes called funnymentals. This is where I bow out of the technical fundamental argument. But then I don't know many that called this from the technical side either.
Saturday, March 15, 2008
Rate cut
If you look at the yields out there, the feds are going to drop 1/2 to 1 full point to match the yields. (yes folks contrary to what you are told, the feds are usually behind the curve).
My expectations are .75, they cant drop too fast or there wont be any more to drop. Japan went to zero and it didn't help.
What you are seeing now since the feds know their rate cuts are not getting the response they want, the rate cuts are now touchy feel good for the mom and pops to go out and buy. What we have here is the pushing on the string that we were so worried about last spring.
Instead the feds are now changing the rules (again no level playing field). They are taking the overnight loans and extending them to 28 days. They are allowing the toxic mess to be used as collateral for Solid treasury purchases.
Bear Stearns is just the beginning. This is going to take a long time to work its way through.
We should have the worst behind us come summer time. Now when I say the worst, I mean the blow ups, the write offs, etc. It does not mean we will have happy times are here again. This could be several years. Not until the average S&P p/e is around 11 (currently around 20 or so) will there be a significant equity bull market again. This could come from either stocks falling to that level or sideways until earnings reach that level. I am of the opinion that it will be the sideways action. So if this recession gets more sore, it could take even longer for the P/E's to get where we can say the bull in equities is back and buy the S&P and go away and retire.
Now just because the S&P will be bearish, does not mean there will be no opportunities.
As a trader we need to look out to see where the opportunities lie. If the sideways happens, premiums will dry up and the selling game on options will be lean. If we drop to the level fast, then we are back in the game with leaps and selling short months.
We are talking of course about the broad market, the one every ones retirements are in. Within the broad market we plan to exploit many opportunities as they come along. Such as short the dollar and long natural resources. Once this game slows, there will be another one. Who knows, maybe this time next year we can sell puts on our favorite banks and investment house stocks as they reach into the teens.
My expectations are .75, they cant drop too fast or there wont be any more to drop. Japan went to zero and it didn't help.
What you are seeing now since the feds know their rate cuts are not getting the response they want, the rate cuts are now touchy feel good for the mom and pops to go out and buy. What we have here is the pushing on the string that we were so worried about last spring.
Instead the feds are now changing the rules (again no level playing field). They are taking the overnight loans and extending them to 28 days. They are allowing the toxic mess to be used as collateral for Solid treasury purchases.
Bear Stearns is just the beginning. This is going to take a long time to work its way through.
We should have the worst behind us come summer time. Now when I say the worst, I mean the blow ups, the write offs, etc. It does not mean we will have happy times are here again. This could be several years. Not until the average S&P p/e is around 11 (currently around 20 or so) will there be a significant equity bull market again. This could come from either stocks falling to that level or sideways until earnings reach that level. I am of the opinion that it will be the sideways action. So if this recession gets more sore, it could take even longer for the P/E's to get where we can say the bull in equities is back and buy the S&P and go away and retire.
Now just because the S&P will be bearish, does not mean there will be no opportunities.
As a trader we need to look out to see where the opportunities lie. If the sideways happens, premiums will dry up and the selling game on options will be lean. If we drop to the level fast, then we are back in the game with leaps and selling short months.
We are talking of course about the broad market, the one every ones retirements are in. Within the broad market we plan to exploit many opportunities as they come along. Such as short the dollar and long natural resources. Once this game slows, there will be another one. Who knows, maybe this time next year we can sell puts on our favorite banks and investment house stocks as they reach into the teens.
Thursday, March 13, 2008
Fed stimulus
It appears the 400 plus rally has faded. As I write this Asian markets tumbled, Europe is dropping and we are set to open way down (150 plus).
The dollar touched under 100 Yen today. Reminiscing, as a young trader a 3000 yen to the dollar. They have certainly devalued the dollar. It seems a race between countries who can drop the currency the fastest.
So what do we do? Load up more on the natural resource stocks (we may get a good correction here).
Short the dollar, use the Philadelphia exchange traded etf's on currencies to go long those currencies against the dollar i.e the Aussie, Brazil etc. As everyone knows, I like to use calendars, but at these times with the rapid deterioration of the dollar, diagonals may be my preference
Stay safe, today should be wild.
The dollar touched under 100 Yen today. Reminiscing, as a young trader a 3000 yen to the dollar. They have certainly devalued the dollar. It seems a race between countries who can drop the currency the fastest.
So what do we do? Load up more on the natural resource stocks (we may get a good correction here).
Short the dollar, use the Philadelphia exchange traded etf's on currencies to go long those currencies against the dollar i.e the Aussie, Brazil etc. As everyone knows, I like to use calendars, but at these times with the rapid deterioration of the dollar, diagonals may be my preference
Stay safe, today should be wild.
Wednesday, March 12, 2008
The "Greeks"
I am going to get plenty of email about this. I know what is taught and what we are supposed to know concerning the "Greeks", but the inventors of these things had their own fund blow up in 1998 following their mathematical formulas.
I get many questions concerning these Greeks every time the markets pick up the volatility. So let me be straight here and go out on a limb and have everyone a chance to argue with me about this subject.
The Greeks can be helpful, I do not pay much attention to them. There I said it!
Several reasons for this statement. The way I trade makes it okay to pay for high priced options because I get to then sell high priced options. If I buy low priced options then I get to sell low priced options.
One of my learning lessons in life was when I was trying to sell a car to a used car salesman and was quoting "blue book" values. He simply said then sell it to blue book. Well sell (or buy) your options to theo.....
Your takes on this are welcomed
I get many questions concerning these Greeks every time the markets pick up the volatility. So let me be straight here and go out on a limb and have everyone a chance to argue with me about this subject.
The Greeks can be helpful, I do not pay much attention to them. There I said it!
Several reasons for this statement. The way I trade makes it okay to pay for high priced options because I get to then sell high priced options. If I buy low priced options then I get to sell low priced options.
One of my learning lessons in life was when I was trying to sell a car to a used car salesman and was quoting "blue book" values. He simply said then sell it to blue book. Well sell (or buy) your options to theo.....
Your takes on this are welcomed
Tuesday, March 11, 2008
Make no mistake
Today's action should answer any questions on the argument.
The feds will do any and all things to avoid deflation. Higher inflation here we come. Do not let today's action throw you off. See March 8 post. XLF ran wild today.
Just typical games at the feds. If it is you or I that made bad investments, too bad. But if you are Citibank, then bail them out at our expense.
Never was and never will be a level playing field. Understanding this helps you to make serious money off these moronic moves. Keep your head down because the last thing owners of these bad stocks want to hear is how well you are doing. Bragging it up will just be asking for more regulations.
History repeats itself, just not exactly. Anyone that traded in the 70's can smell a similar stench. Same games, just different players.
The feds will do any and all things to avoid deflation. Higher inflation here we come. Do not let today's action throw you off. See March 8 post. XLF ran wild today.
Just typical games at the feds. If it is you or I that made bad investments, too bad. But if you are Citibank, then bail them out at our expense.
Never was and never will be a level playing field. Understanding this helps you to make serious money off these moronic moves. Keep your head down because the last thing owners of these bad stocks want to hear is how well you are doing. Bragging it up will just be asking for more regulations.
History repeats itself, just not exactly. Anyone that traded in the 70's can smell a similar stench. Same games, just different players.
Monday, March 10, 2008
Why most options taders lose
Today's action is a classic as to why most do not make money trading options.
Last week I ran a post here about not able to roll the GDX because of so far in the money. Well if anyone seriously could have predicted today's drop in gold, give me a heads up. Seriously, while nothing goes straight up (or down), gold is in as much of a bull as you will see yet we have a correction. To an investor this is time to acquire more, as an option trader this is killing because now you have to have the underlying move back up all the while time is eating away at your premium. You may have the direction eventually but lose to time decay.
This is why over the years I have decided to trade the way I do. Still getting the leverage, while not too concerned about each and every tick. All the while collecting premiums from those that still think they can time the markets short swings. To them I say good luck and I will keep rooting for you. Meanwhile will you buy my options on the 5 min cross over?
Last week I ran a post here about not able to roll the GDX because of so far in the money. Well if anyone seriously could have predicted today's drop in gold, give me a heads up. Seriously, while nothing goes straight up (or down), gold is in as much of a bull as you will see yet we have a correction. To an investor this is time to acquire more, as an option trader this is killing because now you have to have the underlying move back up all the while time is eating away at your premium. You may have the direction eventually but lose to time decay.
This is why over the years I have decided to trade the way I do. Still getting the leverage, while not too concerned about each and every tick. All the while collecting premiums from those that still think they can time the markets short swings. To them I say good luck and I will keep rooting for you. Meanwhile will you buy my options on the 5 min cross over?
Saturday, March 8, 2008
Inflation vs. Deflation
While the arguments go back and forth, inflation is definitely the winner for now. So while we get these signs of things going up, you might want to take shorter positions.
The latter part of the year could see the slowdown cause things to change. We just may see certain sectors react differently. If that is the case, we certainly will want to jump ship and reverse our thinking.
Still long natural resources and short the dollar until otherwise.
If you like calendars and diagonals, you may want to only go out 4-6 months on the long side. This will take much more diligence to follow, but it may help if the environment changes.
For those that like to be there first, selling put spreads 6 months out and 10% below market price on the financials may be a good gamble. Please remember that when you do these credit spreads, use an ETF. Many individual stocks may not be around and you may end up holding the bag. Whenever you use the 10% 6 month rule use baskets of stocks. Individual stocks can and do run up or down much more than 10%. The sectors usually do not.
The latter part of the year could see the slowdown cause things to change. We just may see certain sectors react differently. If that is the case, we certainly will want to jump ship and reverse our thinking.
Still long natural resources and short the dollar until otherwise.
If you like calendars and diagonals, you may want to only go out 4-6 months on the long side. This will take much more diligence to follow, but it may help if the environment changes.
For those that like to be there first, selling put spreads 6 months out and 10% below market price on the financials may be a good gamble. Please remember that when you do these credit spreads, use an ETF. Many individual stocks may not be around and you may end up holding the bag. Whenever you use the 10% 6 month rule use baskets of stocks. Individual stocks can and do run up or down much more than 10%. The sectors usually do not.
Friday, March 7, 2008
More fed money
Let us be clear here folks. The reason we are in this mess is because of easy money. Liquidity sloshing around begging for laxed rules to be given away. Now we are faced with the realities of this liquidity.
So rather than bite the bullet and let free (I use that term lightly) markets act as they should, the feds today are offering up more and more easy money. The terms of the acution today for one.
This will only force more dollar plunging thus causing more commodity running. Simple here folks, If I have a dollar in my pocket and now the feds print more dollars, this dollar in my pocket is worth less now. If I have to buy something it will take more dollars to buy it. So almost everything I buy costs more.
By now you are so sick the the same story however rich it is making you, "Short the dollar and long the natural resources". This should be every investors mantra for the forseeable future. If not, then you suffer the consequences.
So rather than bite the bullet and let free (I use that term lightly) markets act as they should, the feds today are offering up more and more easy money. The terms of the acution today for one.
This will only force more dollar plunging thus causing more commodity running. Simple here folks, If I have a dollar in my pocket and now the feds print more dollars, this dollar in my pocket is worth less now. If I have to buy something it will take more dollars to buy it. So almost everything I buy costs more.
By now you are so sick the the same story however rich it is making you, "Short the dollar and long the natural resources". This should be every investors mantra for the forseeable future. If not, then you suffer the consequences.
Thursday, March 6, 2008
Unwinding Calendars
I get this question many times so I thought it good to address here.
You are in a calendar or diagonal that has gone way into the money for the short side. Because of this you cannot roll out to the next month and get any preimium. What do you do?
Let us walk through a live example. Back in Oct I went long GDX Jan 09 (a leap) 44. I then sold the Nov 45. Rolled the Nov to Dec and again to Jan, Feb and once more to Mar. I was gaining about 1.00 for each roll (now some months less and some months more).
As we all know gold (GDX is gold stocks) has gone throught the roof. So I am deep in the money on my Mar short as well as my '09 Jan long. Today if I were to roll to the next month I would get .40 Not worth it. So I have some decisions to make.
#1 Buy back the 45 and sell a higher option. This is not good since I will be buying the short option for a loss and then selling the higher one for not as much, but then I will be at a higher strike price for my long option.
#2 Is my preference. Let the short option get assigned, now I am short GDX, buy it back to close which is basically a transaction the same day. And I am out the comission. Now I can sell the next month higher strike.
Word of caution here, if the stocks should rise dramatically from Mondays open, I would lose on the short shares, however I still have the long option that would cover this.
Just thought this would be helpful. I am still very bullish gold and want to stay in the game.
You are in a calendar or diagonal that has gone way into the money for the short side. Because of this you cannot roll out to the next month and get any preimium. What do you do?
Let us walk through a live example. Back in Oct I went long GDX Jan 09 (a leap) 44. I then sold the Nov 45. Rolled the Nov to Dec and again to Jan, Feb and once more to Mar. I was gaining about 1.00 for each roll (now some months less and some months more).
As we all know gold (GDX is gold stocks) has gone throught the roof. So I am deep in the money on my Mar short as well as my '09 Jan long. Today if I were to roll to the next month I would get .40 Not worth it. So I have some decisions to make.
#1 Buy back the 45 and sell a higher option. This is not good since I will be buying the short option for a loss and then selling the higher one for not as much, but then I will be at a higher strike price for my long option.
#2 Is my preference. Let the short option get assigned, now I am short GDX, buy it back to close which is basically a transaction the same day. And I am out the comission. Now I can sell the next month higher strike.
Word of caution here, if the stocks should rise dramatically from Mondays open, I would lose on the short shares, however I still have the long option that would cover this.
Just thought this would be helpful. I am still very bullish gold and want to stay in the game.
Wednesday, March 5, 2008
Commodity ETF's
There are some very new and great ETF's that have come out. These ETF's allow the average investor the opportunity to take advantage of the raging bull in commodities while avoiding the usual problems associated with them.
Look into powershares and Ipath. They are continually adding new ETF's that you can buy at your regualr broker. As to offering options on these, you will need to look into this and see if the volume is prohibitive or not. But for now just the chance to buy wheat and energy without the usual futures account is exceptional. Now the average investor can participate in the commodities bull market.
If you would like more discussion on this, leave a comment on the blog and we can talk it over.
Look into powershares and Ipath. They are continually adding new ETF's that you can buy at your regualr broker. As to offering options on these, you will need to look into this and see if the volume is prohibitive or not. But for now just the chance to buy wheat and energy without the usual futures account is exceptional. Now the average investor can participate in the commodities bull market.
If you would like more discussion on this, leave a comment on the blog and we can talk it over.
Subscribe to:
Posts (Atom)