We know the bailout of the 3 dinosaurs will happen. We just wish it would happen already and see what morphed animal it takes on. Tax payers are on the hook we know this already, please put us out of our misery and quickly.
Diagonal puts have been good to us these past few months. We can ignore the sucker rallies and stay the course.
Many were using iron condors and I think they see just how those investments can blow up on you. I am sure there those that have had both side taken out on a single day.
Iron condors are best used in volatile markets that increase the premiums on both sides. then have the volatility subside. Theory anyways practice? You get hammered on both sides and if there is not enough volatility, then you get not premium to make it worth your time.
My opinion only. I get responses from long time option traders that criticize my criticism, but then that is what makes markets.
Monday, December 15, 2008
Friday, December 12, 2008
Bailouts
We are not even going to get into the fact that these things are unconstitutional. What is that paper anyways.
We are going to get into the fact that emotions are running high...These bailouts while sound good short term, eventually prolong the inevitable. Capitalism (the way I understand it anyways) if to allow each and every individual the opportunity to succeed or FAIL! as they choose. Isn't that why the constitution allows for bankruptcy? Take away the chance to succeed or fail takes away risk. without risk, we go stagnant. Take away short selling or requiring to file when taking a short position does the opposite of what it is intended to do.
So now that we are officially a nationalized nation, where is the risk and the reward?
Off my soap box...as traders we need to understand human behavior since the markets are basically swung from fear to greed and back. We see the auto bail out fail. The market is in a tailspin. The fear is rampant as I write this. But wait...is there anyone reading this posting that really thinks the auto industry is going in the dumpster while central planners are at the helm? How soon we forget only a month or so ago this same play on the nation stage only it was 700 billion. Remember?
If you have a gambling bone, buy calls on GM. If you are conservative like I am, buy into the soon to be rally after this fallout today is over. Remember who is calling the shots. After another round of appeals, the bailout will happen.
My question looking past next weeks massive rally is then what?
Looking to take off the long side on my calendars and diagonals and waiting for the bounce and then buying the long side once again. If this is a bit too complex for you, then just get out of the short SPY and then re-enter next week after the hoopla Detroit is saved mantra wears off and then short the SPY once again.
We are going to get into the fact that emotions are running high...These bailouts while sound good short term, eventually prolong the inevitable. Capitalism (the way I understand it anyways) if to allow each and every individual the opportunity to succeed or FAIL! as they choose. Isn't that why the constitution allows for bankruptcy? Take away the chance to succeed or fail takes away risk. without risk, we go stagnant. Take away short selling or requiring to file when taking a short position does the opposite of what it is intended to do.
So now that we are officially a nationalized nation, where is the risk and the reward?
Off my soap box...as traders we need to understand human behavior since the markets are basically swung from fear to greed and back. We see the auto bail out fail. The market is in a tailspin. The fear is rampant as I write this. But wait...is there anyone reading this posting that really thinks the auto industry is going in the dumpster while central planners are at the helm? How soon we forget only a month or so ago this same play on the nation stage only it was 700 billion. Remember?
If you have a gambling bone, buy calls on GM. If you are conservative like I am, buy into the soon to be rally after this fallout today is over. Remember who is calling the shots. After another round of appeals, the bailout will happen.
My question looking past next weeks massive rally is then what?
Looking to take off the long side on my calendars and diagonals and waiting for the bounce and then buying the long side once again. If this is a bit too complex for you, then just get out of the short SPY and then re-enter next week after the hoopla Detroit is saved mantra wears off and then short the SPY once again.
Wednesday, December 10, 2008
Bear market rallies
Sometimes the rally witnessed in a bear market can really be convincing that the bottom is in and time to go long equities once again. However, fundamentals are decaying around us on a daily basis. News media cannot stop predicting the bottom and investors touting things like the January effect etc. lead me to believe there has not been enough "blood letting" so to speak to have reached the bottom. If the bottom were truly in, I would expect to hear much different tales from the media.
So how does one keep their assets intact? If we stay out of the market, we get "ZERO" yield (anyone notice this yesterday on the t-bills?) if we stay in the market we will get whipsawed even if we are right on the markets continued slide we cannot hold out with the rally we are witnessing. So what is an investor or trader to do?
If you do not like my approach of buying long puts and selling short puts against the long thereby smoothing out the swings, then you can be an aggressive trader and get long on the rallies expecting full well to have sharp drops for which you will need to be short then once again long etc. Problem with this is 1) you need to be in front of a computer during trading hours and 2)You need to be good at timing.
If you want to trade the latter way, then make sure for sake of your sanity to have tight stops in place.
So how does one keep their assets intact? If we stay out of the market, we get "ZERO" yield (anyone notice this yesterday on the t-bills?) if we stay in the market we will get whipsawed even if we are right on the markets continued slide we cannot hold out with the rally we are witnessing. So what is an investor or trader to do?
If you do not like my approach of buying long puts and selling short puts against the long thereby smoothing out the swings, then you can be an aggressive trader and get long on the rallies expecting full well to have sharp drops for which you will need to be short then once again long etc. Problem with this is 1) you need to be in front of a computer during trading hours and 2)You need to be good at timing.
If you want to trade the latter way, then make sure for sake of your sanity to have tight stops in place.
Wednesday, December 3, 2008
Wild swings
These markets are just plain crazy. Having never lived through a depression before, I can only read history and make assumptions.
Looking at history, '29-'32 saw a 90% top to bottom. However, there were many large rallies along the way. Each intervention from the government lead to hopes of the bottom in only to be dashed again. Once the bottom was truly in so many had lost faith in equities that it took 20 years to gain back the glory.
This is why we are not at a bottom yet. We still have pundits predicting the bottom is in. That probably wont happen until no one claims the bottom. Until then these are very wild times. Swings from euphoria to depressed are happening on a daily basis.
Even the fed chairman and his books on the depression fails to see what is before him (at least he wont admit it publicly). What sets this financial tsunami from the 30's is the massive debt load. In the '30's we were a creditor nation and borrowed our way out of the mess. Today we are so far in debt that we are pushing on a string.
When JP Morgan goes on the ropes, it will be much larger than any of the other bailouts we have witnessed. That should take the markets down much more. As noted before, I expect around a 5,000 DOW maybe even more.
If you do not have the skills to trade these wild swings, then go to cash and wait the great buying opportunities that are coming up in businesses that fail, Real Estate on the cheap and stocks that will be at generational lows. (Those that survive)
For now, I am long puts on just about anything and selling the closer month. When we get a rally, I buy back the short side wait for the next large drop and then sell it again over and over.
Later
Looking at history, '29-'32 saw a 90% top to bottom. However, there were many large rallies along the way. Each intervention from the government lead to hopes of the bottom in only to be dashed again. Once the bottom was truly in so many had lost faith in equities that it took 20 years to gain back the glory.
This is why we are not at a bottom yet. We still have pundits predicting the bottom is in. That probably wont happen until no one claims the bottom. Until then these are very wild times. Swings from euphoria to depressed are happening on a daily basis.
Even the fed chairman and his books on the depression fails to see what is before him (at least he wont admit it publicly). What sets this financial tsunami from the 30's is the massive debt load. In the '30's we were a creditor nation and borrowed our way out of the mess. Today we are so far in debt that we are pushing on a string.
When JP Morgan goes on the ropes, it will be much larger than any of the other bailouts we have witnessed. That should take the markets down much more. As noted before, I expect around a 5,000 DOW maybe even more.
If you do not have the skills to trade these wild swings, then go to cash and wait the great buying opportunities that are coming up in businesses that fail, Real Estate on the cheap and stocks that will be at generational lows. (Those that survive)
For now, I am long puts on just about anything and selling the closer month. When we get a rally, I buy back the short side wait for the next large drop and then sell it again over and over.
Later
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