Thursday, December 18, 2008
Sunday, November 30, 2008
The Great Crash
Here is a comparison (for entertainment only) between the crash of 1929 and 2008. Note how the first leg down so far in 08 bear similarity to 29' in that both crashed about 50% from its high at this point in the calendar year.
In 29' the weekly chart shown climbed back up to the 50% fib level b4 failing again in Apr. of 1930.
The 50% retrace level for modern day dow chart to the right would be about 10800, right at one of the weekly resistant points.
I am also recommending The Great Crash, by John Kenneth Galbraith.
If you are lazy like me, look for the audio version of the book.
In 29' the weekly chart shown climbed back up to the 50% fib level b4 failing again in Apr. of 1930.
The 50% retrace level for modern day dow chart to the right would be about 10800, right at one of the weekly resistant points.
I am also recommending The Great Crash, by John Kenneth Galbraith.
If you are lazy like me, look for the audio version of the book.
Wednesday, November 26, 2008
A tale of a S**tibank employee
Saw this posted in a chat room
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The youthful and enthusiastic Chuck moved to Texas and bought a donkey from a farmer for $100. The farmer agreed to deliver the donkey the next day. The next day the farmer drove up and said, Sorry son, but I have some bad news: "the donkey died".
Chuck replied, Well, then just give me my money back. The farmer then said, Can't do that; I have spent it already. Chuck added, Ok, then just bring me the dead donkey. The farmer then asked, What ya gonna do with him? Chuck replied, I'm going to raffle him off. The farmer said, You can't raffle off a dead donkey! Chuck countered, Sure I can. Watch me. I just won't tell anybody he's dead.
A month later, the farmer met up with Chuck and asked, What happened with that dead donkey? Chuck said - I raffled him off. I sold 500 tickets at two dollars apiece and made a profit of $998 while recovering my initial investment of $100.
The farmer asked, Didn't anyone complain? Chuck replied, Just the guy who won. So I gave him his two dollars back.
Chuck went on to work for S**tibank's investment banking unit where he designed and sold packaged product investments including S&P triple-A rated collateralized mortgage obligations, CDOs and CMBSs. They were easy to sell to Morgan Stanley and especially easy to dump at Wachovia and Lehman Brothers. It was all a huge success while it lasted.
--------------------------------------
The youthful and enthusiastic Chuck moved to Texas and bought a donkey from a farmer for $100. The farmer agreed to deliver the donkey the next day. The next day the farmer drove up and said, Sorry son, but I have some bad news: "the donkey died".
Chuck replied, Well, then just give me my money back. The farmer then said, Can't do that; I have spent it already. Chuck added, Ok, then just bring me the dead donkey. The farmer then asked, What ya gonna do with him? Chuck replied, I'm going to raffle him off. The farmer said, You can't raffle off a dead donkey! Chuck countered, Sure I can. Watch me. I just won't tell anybody he's dead.
A month later, the farmer met up with Chuck and asked, What happened with that dead donkey? Chuck said - I raffled him off. I sold 500 tickets at two dollars apiece and made a profit of $998 while recovering my initial investment of $100.
The farmer asked, Didn't anyone complain? Chuck replied, Just the guy who won. So I gave him his two dollars back.
Chuck went on to work for S**tibank's investment banking unit where he designed and sold packaged product investments including S&P triple-A rated collateralized mortgage obligations, CDOs and CMBSs. They were easy to sell to Morgan Stanley and especially easy to dump at Wachovia and Lehman Brothers. It was all a huge success while it lasted.
Saturday, July 05, 2008
IV behavior observation
Text book implied volatility behavior states:
Stock down, IV up.
Stock up, IV down.
From personal experience, this behavior is more fitting for broad mkt indices
and does not necessarily apply to individual stock options.
Here is an example, RIMM post earnings (earnings out 6/25).
News out, stock gapped down and continued down, yet IV going down.
I see this behavior quite often after any kind of news out on stock options. Even tho stock is down or tanking, the uncertainty and interest in them options fade quickly. Astute traders may be able to pickup some back month vol if this fade is overdone towards buy levels, for a quick vega play.
Stock down, IV up.
Stock up, IV down.
From personal experience, this behavior is more fitting for broad mkt indices
and does not necessarily apply to individual stock options.
Here is an example, RIMM post earnings (earnings out 6/25).
News out, stock gapped down and continued down, yet IV going down.
I see this behavior quite often after any kind of news out on stock options. Even tho stock is down or tanking, the uncertainty and interest in them options fade quickly. Astute traders may be able to pickup some back month vol if this fade is overdone towards buy levels, for a quick vega play.
Monday, June 30, 2008
Wednesday, June 04, 2008
The Giant Pool of Money
This from one of my favorite radio shows. This is THE BEST show describing what the hell the current Credit Crisis is about. (1 hour audio podcast) Enjoy!!
http://www.thislife.org/Radio_Episode.aspx?sched=1242
http://www.thislife.org/Radio_Episode.aspx?sched=1242
Sunday, May 18, 2008
Don't freak out over assignment
18:54 chatter: I have a dumb question when do you have to sell options? Is the second to last thursday of the month?
18:54 junky: you can sell options at any time.
18:55 chatter: I meant by when do you have to?
18:55 junky: u mean by expiration,
18:56 chatter: Yes
18:56 junky: even at expiration there are no requirements that you HAVE TO sell an option.
18:56 chatter: wont it expire if I dont?
18:56 junky: if its in the money at expiration and you do nothing you will just receive long or short stock come monday morning.
18:57 junky: if its out of the money, they will expire worthless. and no further action required.
18:57 chatter: ok but for this month experation I have till this thursday?
18:58 junky: what stock?
18:58 chatter: pot
18:59 junky: you had till Friday close.
18:59 junky: how much in the money (ITM) was it.
18:59 chatter: so since it was in the money then I jusr recieved the money so to speak?
19:00 junky: was it calls?
19:00 chatter: yes
19:00 junky: and did it finish ITM?
19:00 junky: what strike was it.
19:01 junky: holder of calls, have the right to buy stock at the strike price.
19:01 chatter: 190 or 195
19:01 junky: so at expiration, if the holder of itm calls do nothing, u are basically indicating that you would like to have stock delivered at the strike price.
19:02 junky: so come monday morning x number of long stock will appear in your account.
19:02 chatter: so now what do i do?
19:02 junky: how many calls
19:02 chatter: 5 contracts
19:02 junky: so 500 shares of pot.
19:03 chatter: yes
19:03 junky: you have 98k in acct to hold the stock?
19:03 chatter: no
19:03 junky: then just sell it after mkt opens.
19:03 junky: so you dont have to meet margin call.
19:04 chatter: ok so then everything is ok?
19:04 junky: you may want to contact the trade desk b4 the mkt opens, and I emphisize B4.
19:04 junky: bec. your acct will say something to the effect of insufficient funds come monday morning.
19:04 junky: dont freak out.
19:04 junky: just work with the desk.
19:05 chatter: ok it already does
19:05 junky: oh ok.
19:05 chatter: thats what freaked me out
19:07 chatter: I wont lose any money on this will I?
19:07 junky: depends.
19:07 junky: your stock cost basis is the strike price + whatever u paid for the calls.
19:07 junky: so it depends on where the stock opens monday morning.
19:08 chatter: got it. So I may loose a little depending on where it opens
19:08 junky: right.
19:08 chatter: got it thanks for the help.
18:54 junky: you can sell options at any time.
18:55 chatter: I meant by when do you have to?
18:55 junky: u mean by expiration,
18:56 chatter: Yes
18:56 junky: even at expiration there are no requirements that you HAVE TO sell an option.
18:56 chatter: wont it expire if I dont?
18:56 junky: if its in the money at expiration and you do nothing you will just receive long or short stock come monday morning.
18:57 junky: if its out of the money, they will expire worthless. and no further action required.
18:57 chatter: ok but for this month experation I have till this thursday?
18:58 junky: what stock?
18:58 chatter: pot
18:59 junky: you had till Friday close.
18:59 junky: how much in the money (ITM) was it.
18:59 chatter: so since it was in the money then I jusr recieved the money so to speak?
19:00 junky: was it calls?
19:00 chatter: yes
19:00 junky: and did it finish ITM?
19:00 junky: what strike was it.
19:01 junky: holder of calls, have the right to buy stock at the strike price.
19:01 chatter: 190 or 195
19:01 junky: so at expiration, if the holder of itm calls do nothing, u are basically indicating that you would like to have stock delivered at the strike price.
19:02 junky: so come monday morning x number of long stock will appear in your account.
19:02 chatter: so now what do i do?
19:02 junky: how many calls
19:02 chatter: 5 contracts
19:02 junky: so 500 shares of pot.
19:03 chatter: yes
19:03 junky: you have 98k in acct to hold the stock?
19:03 chatter: no
19:03 junky: then just sell it after mkt opens.
19:03 junky: so you dont have to meet margin call.
19:04 chatter: ok so then everything is ok?
19:04 junky: you may want to contact the trade desk b4 the mkt opens, and I emphisize B4.
19:04 junky: bec. your acct will say something to the effect of insufficient funds come monday morning.
19:04 junky: dont freak out.
19:04 junky: just work with the desk.
19:05 chatter: ok it already does
19:05 junky: oh ok.
19:05 chatter: thats what freaked me out
19:07 chatter: I wont lose any money on this will I?
19:07 junky: depends.
19:07 junky: your stock cost basis is the strike price + whatever u paid for the calls.
19:07 junky: so it depends on where the stock opens monday morning.
19:08 chatter: got it. So I may loose a little depending on where it opens
19:08 junky: right.
19:08 chatter: got it thanks for the help.
Sunday, February 03, 2008
The jokes are on us
I frequently see folks talk about TV personalities mention that they are long xyz stock or own ABC options, as part of a fair disclosure.
Lets take a deeper look at the so called fair disclosure.
If the screen caption flashes that he owns ABC options, what does that mean?
Does it mean he is long calls? (bullish)
Does it mean he is long puts? (bearish)
Does it mean he is long both? (neutual, expeting big move either way or long IV)
Does it mean he is short options naked? (calls or puts, cant tell the sentiment)
Does it mean he owns options of some kind, can be long or short, against the underlying? (could be any kind of sentiment)
Do you see the endless possibilities of that singular disclosure now?
Alright, lets pick on the caption flashing he owns xyz stock presumably long:
Does it mean he owns no options against the stock? Bec. if he is also long puts then he synthetically have long calls on xyz, not long stock. Alright, maybe he has collared the stock with long puts and short calls against the stock, now he is not as bullish as the caption says, is it.
Or,
Maybe the long xyz is part of a pairs trade against another correlated stock, or another basket of stocks. Or do they short a sector ETF hedging against the long stock? Do they also have index futures hedging against the pairs basket? Is the long stock simply a tiny position of a larger agenda, with a complete different goal than relying on xyz to go "up" to profit?
We don't know do we.......
The jokes are on us retail viewers, try not to get sucked into it.
Lets take a deeper look at the so called fair disclosure.
If the screen caption flashes that he owns ABC options, what does that mean?
Does it mean he is long calls? (bullish)
Does it mean he is long puts? (bearish)
Does it mean he is long both? (neutual, expeting big move either way or long IV)
Does it mean he is short options naked? (calls or puts, cant tell the sentiment)
Does it mean he owns options of some kind, can be long or short, against the underlying? (could be any kind of sentiment)
Do you see the endless possibilities of that singular disclosure now?
Alright, lets pick on the caption flashing he owns xyz stock presumably long:
Does it mean he owns no options against the stock? Bec. if he is also long puts then he synthetically have long calls on xyz, not long stock. Alright, maybe he has collared the stock with long puts and short calls against the stock, now he is not as bullish as the caption says, is it.
Or,
Maybe the long xyz is part of a pairs trade against another correlated stock, or another basket of stocks. Or do they short a sector ETF hedging against the long stock? Do they also have index futures hedging against the pairs basket? Is the long stock simply a tiny position of a larger agenda, with a complete different goal than relying on xyz to go "up" to profit?
We don't know do we.......
The jokes are on us retail viewers, try not to get sucked into it.
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