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Well, there's two scenarios then. Because we bought it at $46.87 and sold the $45 call for $2.85, there's a .98 spread there in our favor ($45 strike + $2.85 = $47.85 - $46.87 cost). So, we can play it as a covered call and just let it expire and get called out for the $.98 profit. But that leaves us with a loss on the puts.
Let's say it moves to $50 with no signs of letting up. What I would probably do then is 'roll up' the call. That means covering for a loss on the short call - which would be probably around $2.40 or so assuming the call would be around $5.20, then re-short a $50 strike. That would offset the loss a bit.
Now, we're playing the odds of that not happening here. That's why you have to be on top of charting. HAL is not GOOG. So the likelyhood of that happening are slim. But since all these oil stocks are now the bubble stocks of our time, anything is possible. Would I would do at $50 is probably turn it into a bear call spread.
Cover the $45 for a loss and add that loss to our net investment. Re-short the $50s and then buy a couple of $55s for protection if the trend looks strong. Actually, if the chart looked right as it does now, I'd probably short the $47.50s and buy the $52.50s as a bear call spread using the net credit to cover the loss on the short $45s we had to cover.
But all these things are decisions you make when the time comes. The point is there's a way out of any scenario.
It's also the reason I picked HAL over many others because it's not a momo stock. I think it wants to make that $48 trade to complete that inverse H&S pattern. $48 also is the 1.38% fibo extension target. So, you have two resistance points right at $48. Once this oil momentum trade breaks, it should break hard and fast and all these stocks will fall back to earth. And funny thing is we actually make more money when they go down since we short the calls and are long the puts.
I'll keep the trades up to date and you'll all know what I do and when and why. These types of trades allow you to sleep at night because you're not on edge all the time. You're always covered in both directions.
How do you know when to close your sold call if the underlying goes against you. HAL obviously looks like a good move down like you show, but suppose it goes up 5$ from here into the may OPEX. You would have to close your call for a loss, correct?
-alero
Here's what I think is going to happen based on the cycle stuff I read --
We get a pullback here because of the run to resistance (S&P).
BUY around 1350ish. Then, we run through 1400 with a target of the 200 day MA around 1430 to 1450.
Now this is where it gets interesting. A solid move north of 1450 could mean this entire correction is over. Believe that? That could mean new highs if you can stand it.
But I don't think so. That actually could be the area to short the sh!t out of. 1450 is your eventual major decision point.
Nasdaq looks like 2500 to 2600.
However, 2009 should be a very bad year in the market with the eventual resumption starting late 2009 early 2010.
Yeah, it works. But you have to be very carefull rolling this that way because you're basically stuck selling calls that are outside your cost + basis on the LEAPS. Otherwise if the thing moves on you, you're screwed.
It just gets a bit too risky and requires alot of attention to stay on top of it if you're doing it with LEAPS rather than the stock. The stock is just easier. It's almost a 'set it and forget it' trade.
S2,
Suppose you wanted to buy DITM calls rather than buying it outright in case you don't have all that money to put up. With your example of HAL, if I bought some Jan 09 or Jan 10 30 calls would I buy a 30 put, or still buy a 50 put? Then obviously short calls every month. If you can explain, why or why not with each one.
Thanks,
-alero
S2,
Well the SPX has poked it's head back up into the channel drawn on the front page. I'm afraid that 'they' won't let it stay there though. That AROON thingy would be nice to see it move back green. I'm kinda surprised that it has stood red with the market movement of late. Thinking that it could at least have a neutral area.
The way it works is this --
Because the market right now is so unpredictable and possibly could go either way - both with justification - the way to play it is to 'roll' a collar. This is how I first got into MRVL because I wasn't sure about the stock price and saw the head and shoulders pattern setting up. But at the same time I liked the story and potential of it.
So, what do you do? The best way to play something like this is to first get into a stock when it's hitting highs. Why? Because you actually want it to fall! But you are covered no matter what. And, it's also better to do this on a stock that pays dividens because you're actually going to want to hold the stock for a long time as you trade around it.
You see, the goal here is to use just one or two stocks to play with. Becuase you're protected, you never have a fear of getting into trouble. But you do go into the trade upside down with your immediate goal in trying to cancel out that number and then any subsequent trades pure profit.
I'm using HAL right now mainly because it trades pretty much in a range between the $30s and now probably high $40s or even $50ish tops.
So you know your limits. Great! It's such a profitable and widely held stock that you never have to worry about it becoming 'dead' money like MRVL has become where it trades now between $10 and $11. That makes it very hard to profit on. You need a stock with staying power and ranges. HAL is perfect.
First, take a look at the chart ---
Now, you can clearly see the stock is waaaay overbought. So, why buy it now? Well, when you do this, it really doesn't matter where your entry is.
Let' say you buy the stock right now at $45.15. We are then going to buy 1 put contract per 100 shares. In this case, the further in the money we buy, the better our protection and the lower our overall risk. But we don't want to go too far out into the money because it starts to defeat the purpose.
So, since we need time for our insurance, we're going to go out at least to Jan 2009. That gives us 7 months. So, let's go with the Jan 2009 $50 puts. I see they are $7.40 ask. So, because we are paying for that, that actually becomes part of our entire investment.
So,
100 shares HAL stock $45.13
1 Jan 2009 $50 put $ 7.40
Total investment $52.53
Now, that is what our total investment is into this trade. But, since we own the $50 put, that gives us the right, should we ever decide to use it, to short 100 shares of HAL at a basis of $50. So, because the least amount we could ever sell the stock for is at $50, the put strike, our total risk is actually only the difference between our total investment and the put strike, or $2.53.
Now, with that trade entered, we are technically trapped into a $2.53 loss up front. If for some reason we had to get to that money and had to close out the position, we'd have to take that $2.53 loss, the absolute MAX loss we could have.
But notice something? There's no max on how much we could make if the stock shoots up. Once the stock breaks north of $52.53, our total investment, the put becomes worthless but our stock keeps going up forever. So, you have limited downside and unlimited upside.
Now technically it's the exact same thing as just buying a call option. Your risk is limited to the cost of the option with unlimited upside.
But the difference is that our trade with the protective put is that we have no time risk, other than the put expiration in which if we never did anything, we'd just add to our cost basis by buying another one.
Now that you understand that, what makes it a collar is when we start shorting calls against it. The goal being to erase that $2.53. You see what happens? If you erase that $2.53 you actually have a trade in which you can never lose money!
But our goal is to make money. The way to do it is to short calls against the stock always having the put to offset any downside. That means we actually make MORE money when the stock goes down.
Now, looking at that chart of HAL above, I think it's making a rising wedge that when breaks, could fall back to to inverse H&S level of $40. I'm convinced it's going to retest that level in the near future.
So, by feeling that way, you'd want to short the May $40 calls here to try and recoup that $2.53 as fast as possible. How? Shorting the $40 calls rather than the $45s or $50s. Why? Because if you think it's falling that much that fast, you'll get easily $4+ out of that when it does fall. And it should happen within the next few weeks which means you'd short the May's because you want time decay ASAP.
The May $40 calls are $5.50 bid. So, you'd look like this:
HAL stock $45.15
Put option $7.40
Short May calls $<5.50>
Now ideally HAL falls back below $40 and you keep the entire $5.50 call premium. Then you're already up over $2.50.
If you want to play it safe, just short the $45s or $50s and do that slowly month after month.
Eventually HAL could rise north of $50. What then? Simple. You roll up the put. What happens? Well, at $50 the put premium is all time value because it's no longer in the money, right? So, you'd want to sell it immediately to get as much back as possible. You'd then sell just 1 strike north of that. What happens? You're protection goes up and you actually get PAID to do it! That's also another way to play that.
What I do is everyday I trade the stock in and out. I try to capture at least $.20. So, by buying it at $45.15, tomorrow I'll try to sell it for a $.20 profit or if it just goes down, sell it for a loss, but buy it back .20 less. If it trades down for example I'd sell it for $44.90 and then buy it back for $44.70. Even if it kept going down I'd just keep doing that. It's really that simple.
Sounds easier than it is. But once you get in sync with the stock you can get pretty good at it. Soon you're up $10k, $20k etc and are always protected from any downside risk.
S2:Please explain one more time about HAL option...
Thanks!
It's not that simple (the MRVL trade).
The idea is to sleep at night knowing you're getting 5% a month. The idea on the MO trade is NOT to expect the decay in the short option like you normally do! The idea is to use the short call as protection on the long call. The stock isn't going anywhere like a MRVL did from $36 to $11. So, you know you're safe in terms of overall downside risk.
The idea is to get into a situation here where you win if the stock goes up or down. If it goes down, you cover the short call for a profit of 5% or more, then ride the long call back up when it cycles back up. Then either re-sell a call and do it over again.
Or, if it goes up, the delta effect enables you to profit that 5% or more on the combination of the two. The delta is the amount the call will increase in dollar terms compared to the stock itself. The stock has a delta of 1, meaning it moves dollar for dollar. (duh). The LEAPS call you buy long will always have a delta of at least 2 times that of the short call. So, if the stock moves up, the long call LEAPS will increase faster than the short call. This way, although the short call will lose you money, the long call makes up for it plus.
These are managed trades.
Now, what I do see as a perfect setup is another rolling collar on MRVL. I think that whole sector is busting out and MRVL just needs a move over $12 to confirm itself. Now's the time to buy the stock, buy the Jan 2009 $15 puts limiting yout total risk to under 4%, and then ride up the stock as it breaks up and then sell $15 calls on it or even $17.50s negating the entire risk because those calls will pay for the put.
I'm going to do it tomorrow.
S2: Thank you very much for showing us your Friday's option trading record. However, I have few Qs as follows:
1. You talking about 5%+ gain on each...but you have to consider the time period too,right?
Such as MO, why you don't sell Sept.08 $25 call for $0.30... that will be three months early?
But you didn't, you picked up Jan. 09, why?
2. I sold ADP Jan 15 2010 $40 call on Friday. I bought less than three month (paid $4.40, sold $7.60)
But, if I follow your leaps sample, instead to sell the Jan 15 2010 $40.00 call, I hold them ...then,sell Jan. 09 $50.00 call for $1.25...what do you think? I am too gready?
3. Again,5% gain is the target, do you think if you play day trading, say buy 1000 shares MRVL, just watch for SMA 5 cross with SMA 20...buy/sell for $.10 ONCE a day, ... total 5% per week...or three times within two weeks,then 5% per month...even once a month, you get 5% gain in 6 month... is it better than your leaps... have to wait for 9 months?
Have nothing to do but talking about IF....
TIA
These are three leaps spreads I did on Friday
http://spreadsheets.google.com/pub?key=pc5kZIK3Af_wlGTAOjBvgZg
The key here is to make 5%+ on each. Check each day for updates on the trades. ADM is breaking out and I think I'll have to cover the short Sep $50 call for a small loss. Then, put a GTC sell on the long Jan 2010 $40 calls for $9.70
I got it! Thank you very much, S2!
Talk with you later...
Thank you again!
You see the news on RVBD? Something is up with the call action out of the blue today. Rumors of a buyout coming which was always expected by CSCO.
Rumors have always been that the stock would have to be put down (from $50) to a level that makes sense. Hedge funds jammed it up expecting a buyout, but the price never made sense.
Now at $14, a small premium around $20 makes sense.
But these rumors are always out there for every stock. What makes this different is the way the options are being bought going out through all next three months.
So, whatever happens will happen soon.
You bought the ADP calls for $4.40? SELL THEM AT OPEN TOMORROW.
RVBD just sit on for now. Interesting stuff coming out about it with the spike in call activity. Something about rumors of buyout coming with CSCO. Watch the call premiums spike for clues.
HOG, if it gets over $42, it's gonna run. With the market back in mojo mode, I think you get at least your money back. Sell for breakeven there because I just don't know what's going to happen.
For tomorrow (Thursday), for daytrades, look to short ADP for a buck or two and another I'm watching for a short is CMCO for a short because of a clear rising wedge.
You are right.
May dip and touch even below the 52-week low, then quickly bounce back about 50C above... it is the time to... if you have the courage... to buy because the option order tell you some story there...
http://www.reuters.com/article/marketsNews/idUKN0222160920080402?rpc=44
Do you think that RVBD will pause when it gets to it's all time low of $13.60? TIA
RVBD and DIVX are diving now!
No hope for both of them in the near future...
S2, please take a look the Options below:
ADP Jan15, 2010 40 Call (4.40 paid)
HOG May 16, 2008 45 Call (1.60 paid)
RVBD Jun 20, 2008 25 Call (2.27 paid)
Base on today's closing price, what is the best play in this week for all of abov?
Thanks!
Hmmmm...makes a lot of sense. With that being the case, is it no coincidence that the dollar has been so badly beaten down?
So why do you anticipate some turbulence in June/July?
You're referring to the prez cycle. That's different. This is an election year. Election years are typically very good in the end and magically right around that Oct timeframe.
I wonder why.
But here's a conspiracy theory for you --- why the removal of the uptick rule a year before an election and 5 or so years into a bull market and 70 something years after it's been in play?
Think hard...
Again, just conspiracy chatter out there -- but here it goes - the idea is that this country desperately needs at least one of the 3 major asset classes 'working' at any given time with at least two of them (real estate and stocks) rising forever over the long run. Why? Because that's where everyone's wealth is created. Without them, this country is dead in the water. Face it, most people don't make enough money working to pay for anything. The big money for retirement comes from investments. And since Social Security is gonna run dry due to too many living longer than the program was designed for back then, this country REALLY needs an alternate source of income for folks.
You just can't raise taxes all the time.
So, you basically need Wall Street working for you here. But 'they've' been bidding up the market now since 2003. Now it's time to allow them to get some quick money in their pockets before jaming the market up again. How? Let them short the holy hell out of the market before it collapses. The removal of the uptick rule is required for that because they play with too much money. The timing is perfect. The rule gets removed in June, then less than 5 months later they pull the bid in the market after setting up major short positions. How do you know? Because the commercial 'commitment of traders' was running at records SHORT. Those are not the guys that lose money gambling. They move the market. The only problem is that that statistic being public just tells you what they're doing, not telling you what will happen and when.
Well, here we are now. The market needs some juice and with record cash on the sidelines, it does seem poised to move up big. Richard Band is out calling for DOW 16k within 12 months. He's been fairly good overall. We'll see. But believe me when I tell you this stuff is for real. The truth of what is about to happen and why is probably somewhere in the middle of that story I just told. Don't believe for a second anything of magnitude in the market happens without reason or wasn't predestined ahead of time.
So, if the market does jam up big to new highs from here, you can basically assume that idea is true and 'they' were allowed to squeeze out the weak hands for the sole purpose of lining their pockets for new ammo to then run the market up again.
Thanks S2--so, let me see if I follow you...DOW hit a major cycle low and we can expect a bounce, however in June/July market may turn south before a probable rally into late fall? Does the fact we'll have a new administration in Wash play into that? For example the new pres gets to be the hero by orchestrating a dramatic turnaround in the economy?
Thanks again dude--glad to see you posting again--
I personally think it's a long overdo thing they do this. It basically prevents the need for government regulation by putting the Fed on police patrol with full enforcement powers to step in and actually raid these firms anytime they feel the need and open the books to expose whatever problems they see. This way next time - and there will always be a next time - we won't have to be drawn out in this seemingly never ending routine of waiting for 'what's still out there' BS. The Fed will be able to just go in and see it.
What will the futures think? Read my last post. The market has made a cycle low and a major one. So, I wouldn't be focused anymore on shorting them and consider any major down moves of 100 points or more on the DOW or 10 or more on the ES/SPX to be buying ops for scalps. I think 10 points a week on the ES should be easy looking forward to the long side on any pullbacks.
But that is only until June/July.
I've come to believe that because these cycle turns are so frighteningly accurate as you say, the news of the day seems to be the justification for the market moves and not the cause.
So, with that in mind, don't buy too much into the idea of all these credit stuff really being behind what's going on with the market moves. I think the extreme volitility has more to do with the uptick rule ending and not some new paradigm as so many I see on TV say who obviously have no biz managing money.
The thing about credit crisis - which come every 10 years or so - is that they get resolved very quickly. Think about it - it was just Oct the market was at new highs on both the SPX and DOW. What are we now? 4 months? 5 months? and it's as if we're in a depression because of a couple large investment banks made bad bets that carried over to money center banks who are all going to be just fine in the end?
They can only have so much invested in this crap and as the billions grow on the write off amounts, you have to beleive they are going to end this this year.
That said, what no one talks about is the fact that commoditiy cycles also are out there and run in 20 year cycles. What happened? Well, the last commodity boom was in the early 1980s and guess what? 20 years later is right about now. The problem is that it turned with this credit bubble busting at the same time and those two are tough to deal with at the same time. But we're about there.
Overall, the longer term cycles all work out for us to have a rally actually going into mid to late 2009 off this low. The Nasdaq actually though seems to be in need of one leg lower with the DOW and SPX having already made thiers. So, if it works that way, expect those two to wiggle around down here not really going up or down in any big way, but the Nasdaq potentially drifting a bid lower into early April. Then a big rally comes into June/July.
Remember the old phrase, 'sell in May and go away'? Well, probably June/July things get dicey again. But late fall could be a very very nice rally into 2009.
So, now is not the time to get negative and don't buy into the news of financial crisis taking down the world.
Look at that SPX weekly chart at the top of the page. You can clearly count 5 waves down. But that's off the highs made in Oct. That means this entire 5 wave move down is 1 large impulse corrective wave, or a wave 'A'. So, this next rally will most likely be a wave 'B'. 1450 being the best case scenario. Then a wave 'C' pulls the SPX down to a final low possibly this year. That means DOW 11k's and SPX 1100's.
Keep that in mind before any large positions are taken.
Covered calls after June/july should be with $10 in the money options.
S2--how do you think the market will react to the govt's proposal to expand FED powers? Specifically for emini traders--do you anticipate futures rising Sun night w/ a rally at Monday's open or do you believe the market will shrug it off w/ all of general gloom hanging about? Also, in the longer term, what do you make of whole plan?
Thanks!
S2, Both of your business cycles calls were right on. Uncannily accurate. The Dec 17 turn was stopped at Christmas...unfortunately, and the Mar 22/23 was another turn. So on the date that it certainly reinforces and supports your reasons for getting excited. I wish there wasn't this financial crap tethered to the markets to shunt them in the swing. But Mr Market doesn't want to make it easy, does he? When does the next cycles come about? As we start yet another ¼ of earnings and with so much of the S&P weighted with financials, I think that we'll have some more pull back. Hopefully not as severe as the last one, and 100 X the hope that they get the write downs done with. I'm afraid that they'll linger these write downs all year. With the scope of the credit swap crap, I think they may take a long time. I'd sure like to just flip long side shares and maybe even hold them and make some profit.
Reading on that Mish's blog about LEH having $600M in debt depreciation to cut $489M profit this ¼ and GS moving 1%($87B) from level 2 to level 3 to produce these 'great' ERs that were ½ of last year's same ¼. WooHoo, That sure got the market moving ....for a couple days. I think "the boy's" will be wanting back in ahead of the turn and we might have higher lows.
Wishful think?
Yes, I read that. I pointed out that follow the money should have been within that list. The problem is the unwind of leverage isn't putting money elsewhere as of yet. It may not. As 'the boys' lower their risk with some actual management they just might not run their credit cards up. The consumer seems to be entering that phase and that should have a sobering affect on the financials, and their risk stress tests. They are over exposed, period. The numbers that they are dealing with today dwarf the LTCM fiasco. It's much bigger than us here in the US as well. The Marianas are near 60% in foreclosure. BoE has nationalized Northern Rock. Several Euro countries are sweating it. I've read where Ackermann(Deutsche Bank) had just made a global pass and was finding that China, Singapore and Middle East SovereignWealth were becoming much less receptive to these bail outs supporting our dollar and the EURO. They are some of the foundation cards that this house of cards was built upon. S&P feels that GS and LEH could shed 20/30% from what they just posted of ½ of year ago earnings. Bove is calling to buy financials, and he just posted to expect another $6/7B writedown from BOA, yet all of the headlines keep touting how we are getting ready to run with a post-Bear rally with what seems to be some dismal numbers coming this week all weekend. We may very well. We should take note of the drastic measures that the FED is inventing to wrestle this problem and not under estimate it's severity.
http://blogs.wsj.com/deals/2008/03/18/the-us-markets-where-confidence-seems-to-have-vanished/?mod=googlenews_wsj
Mr. Ackermann also warned that he had recently spent three weeks on a tour of Singapore, China and the Middle East, and that the government investment funds there now seem less excited about continuing to inject capital into U.S. and European banks. “Their readiness to continue making large investments that can quickly lead to large losses is not what it once was. I believe the readiness to make investments for the sake of saving the Western system and to forgo investments in their own country has clearly been reduced,” he said.
Didn't you read that article I sent out about the comparison to 1998's Long Term Capital event that is almost erily similar to now?
Wait until you see my email with the statistics. You don't want to be short.
Yes, I had seen that had made it to MarketWatch. This second link might be what that story was possibly based on. It shows the slow steady increase, but also notes that the Feb numbers are preliminary and less than a year ago. What caught my eye was the ranking chart in the first link. QCOM and nVidia both showed some strength. Not like Sony and Toshiba though. Take note that MRVL increased whereas BRCM declined.
Outside of the memory segment
Looking outside the memory segment, iSuppli’s tone on the year was much cheerier, with the research company reporting that “several companies and product categories posted impressive performances.”
http://www.semiconductor.net/article/CA6542487.html
The three-month average of worldwide bookings in February 2008 was $1.23 billion. The bookings figure is about eight percent greater than the final January 2008 level of $1.14 billion, but 12 percent less than the $1.40 billion in orders posted in February 2007.
http://wps2a.semi.org/wps/portal/_pagr/103/_pa.103/248?dFormat=application/msword&docName=P043568
There are a few companies that need bought at these prices, but could be really on sale next week or again the middle of April. Citi has had me paranoid. Charles Manson stated that paranoia was 'acute awareness'. The world wants to be dumb and clueless as to what these guys have been doing until it could not be done anymore. Some of what I'm finding on JPM stuff looks worse, and that's before Bear. This filing from the end of '07 doesn't reflect the huge numbers that were reported to have been filed by Citi on Feb 22. It does have some numbers on JPM that could make you stop and think. They match what was posted about JPM in that same source as the Citi info. Drop on down to the final pages of this .pdf and look at these guys derivatives volumes and how they are covering each other in case(s) of default.
BSC was too big to let fail?
We lose one of the top 5 banks and.........
We ain't seen nothing, yet.
http://www.occ.treas.gov/ftp/release/2007-137a.pdf
Can we say OMG, if there is a run on even one of them?
You read this???
http://www.marketwatch.com/news/story/semi-data-show-signs-life/story.aspx?guid=%7B7FC438DE%2DC122%2D475E%2DA006%2DA941D2B90FF4%7D&siteid=yhoof
I never thought of that. Looking good...
They might take the DOW back close to 13000 for MF and 401K ¼ close to try and keep some of that money invested. That would be a good rally in very short time and then start another round of reports. Somehow with the job loss, credit reign in(unless you're on the FED's list) we might not be seeing such stellar ERs. I'm looking to flip QLD and QID, and might nibble some small positions. There's a lot of stuff on sale now a days.
But this may very well be a spring rally and again I'll just be late to the party. I don't think it's the turn in the market that we are seeking.
Yes, Those are some good points, but shouldn't follow the money have been listed near the top? I've been wondering as to where it was heading to build a replacement bubble. With 'THE BOYS' being leverage as deep as they are, the unwinding of that leverage position will have visible effects and may not reappear in yet another bubble. At least not right away. It seems that 'they' might be trying to pull their nads off the chopping block. Unwinding their leverage, FFI exposure, yen carry trade, etc, etc. This will cut earnings for quite some time. While GS, MS & LEH go to the new FED window and 'TEST' the new facility or to demonstrate leadership. Wasn't their last ERs better than expected with all sorts of liquidity, but something to the tune of a cut in half? Why are they going to the FED window for $29B as it opens? In this latest report GS took some level 2 to level 3. Why, and how much?
Goldman's so-called Level 3 assets, which are the hardest to value, rose to about 8 percent of the firm's total assets from about 7 percent in the prior quarter, Viniar told analysts. The increase was largely related to commercial real estate loans that were moved from Level 2, where assets are valued in part using market prices, to Level 3.
Goldman has $873 billion in assets. That means Goldman moved $8.73 billion in commercial real estate loans from Level 2 "Mark To Matrix" to Level 3 "Mark To Fantasy". Something tells me Goldman did not like the answer their matrix model was giving them.
As over leveraged players attempt to get out of various carry trades here are two more dreaded words: "No Bid". This has been the case in bond and currency markets. I read at Yahoo the other day US travelers visiting Amsterdam were unable to sell dollars without going downtown to the main banks. I don't think that correlates to LTC or S&L eras.
12 month yen
Read this article about the correlation between now and 1998 with Long Term Capital which almost was a carbon copy of today's problems.
http://www.tradingmarkets.com/.site/stocks/how_to/articles/-75869.cfm
S2, I sure wish it was just the cycle low and off we go! I'm afraid that the credit crap is going to screw us for much longer. It's trade season and will last until the next big scary headline. S&P is working on Good Friday. They just posted on GS, LEH and NCC. Reiterated MS and MER and watching PMI. Looks like they are setting a stage for Monday. With the run on Thursday, will Monday continue? I'm not sure of my trust. If we were to keep having 200/400 pt swings up then down it would be too easy. The volatility has been good this past week, but sure reminds me of when drastic things have occurred in the past. Bove posted at MarketWatch to buy financials, it's a gift that only happens every 20 years! But, I keep having problems with what hasn't been written down being so much bigger than what we've seen or can hardly believe. That chart on the main page here still looks painful. I'm afraid this might take a lot longer than hoped. The recovery might well have been faster if Ben didn't open to the brokers. Painful, but faster. Are they going to the window and getting $29B to prep for a short?
This is from that web site that you posted the other day:
Citi's real leverage is 41.6 and total tangible assets of 2.3%?
http://www.financialsense.com/editorials/turk/2008/0317.html
Citi may continue operating because it is liquid, but it would be operating as an insolvent.
The question therefore becomes, what are Citi’s assets worth? As explained above, we can’t accurately answer that question, but here is some information to ponder.
(1) Citi has $133.4 billion of Level 3 assets. Here’s how MarketWatch recently described this category when reporting Citi’s Level 3 assets: “Level 3 assets are holdings that are so illiquid, or trade so infrequently, that they have no reliable price, so their valuations are based on management's best guess.” In an analysis of Bear Stearns, Barron’s prudently observes: “Of particular concern are Bear's so-called Level Three assets, which stood at $28 billion as of November and by definition are illiquid and valued on the basis only of the firm's own estimates. Any buyer might be worried about the need to mark down the value of these assets, and the value of Bear's large book of financial derivatives.” What’s more, Bear’s so-called “large book” of derivatives pales in comparison to the size of Citi’s book. According to the Comptroller of the Currency, Citi is counterparty to financial derivatives with a notional value of $34.0 trillion (sic).
Seems we got it right.
They're a blast at that age. The learning new things accelerates big time. They are absolute sponges. Just wait until you have two teenage girls with cars! My heart goes out to you, man. I don't know what I would do if faced with that task. I guess to do the best I could, but OMG. I'm spoiled with one boy. You might try to find a good support group, like play a lot of golf.
I think that you're newsletter 10K call might be a tad early. The market might rally on the size of the cut and close back down because of why the cut. Most every headline is negative. Add in LEH and GS, which might offset each other or combine to push up or down. MS on Thursday, I think. Market seems to have a way of selling the news at FOMC. That might have been some of the afternoon strength today. The market took BCS posting write downs last ER a lot worse than going kaput? Go figure. We're Southbound for probably another week, IMO. I'll probably just be late to the party.
We got them bikes and my sister got them remote control electric ATVs.
I thought twin girls was hard enough. Imagine 2 year old twin girls with cars.
Putting wheels on 'em short people makes them faster! They can be a handful and you've a double dose. Keep them out of the street.
With the rate cut coming, hopefully we get a run until the financials report. Then we'll probably get another with another run. I think that this whipsaw action could continue for quite some time. I just wish it was longer in betweens.
They got new bikes. As for the financials, BSC's news today is actually going to turn out I think to be a good thing because it forces the Fed to do something dramatic as I suggested like actually focus on the banks' problems as a whole rather than just cutting rates.
But you gotta love the market the way it's acting. Very strong and even on such large selling volume.
Next week is that cycle low (Sat/Sun), so expect a potential major low to come in next week (or even we might have had it). April looking great for us.
I was wondering about that S&P news. The problem is that with what I've ran across that the financials aren't even ½ way done. I don't know where S&P gets their numbers, but there's still an estimated $400B+ in those FFIs. One would think that with a write down of a couple hundred $B that that would have made a headline somewhere. Not all of them are worthless, but I don't see how they can say that it's almost over. Are the mortgages through resetting? I bet we hear some big write offs at BSC and LEH coming in a couple weeks. Citi had $320B by themselves in the Feb22 filing. They'll float it some where and if the market doesn't care, I guess it's not an issue....until?
The FED 28 day plan isn't new money. It's shuffling the books just like the financials were until that new bank law last Nov came into effect making them expose more of their books. Since the financials would not be solvent.....let us put it on Ben's books. For how long? Your tax dollars at work.............
Just dropped off my brother's B-day present myself.
Don't spoil Daddy's girls too much today!
Sorry for the delay in posting. Just been busy. I know you remember what today is for me -- twin birthdays. Big old 2 year olds now. Wow.
I think we're at an end to this write down stuff finally. It looks like FHA is going to start actually buying mortgages rather than just insuring them. So, basically the government is going into the landlord biz. It's RTC all over again.
But hey, they have to. It is what it is. The market I think is finding its bottom here and this month could mark at least a 6 to 9 month low. 2009 could get very ugly. But who cares about that now?
S2, Thx for the chart update.
Do you read Mish's trend page? If you like scary crap that will make you cuss what these financials have done, try this:
http://globaleconomicanalysis.blogspot.com/
That blogspot has become a daily for me. I know that it'll pass, but good Lord! You'd think a lot of it would be illegal. They'd haul me off if I did ½% of what these guys have done.
Hey grizz, Point taken. If you remember this board was started just as an S2 board. He wanted something besides or different from MRVL. It started with TXN, moved to RVBD, then ventured off to DIVX. That DIVX could make you some profit. That Stage6 stuff wasn't the heart of the matter, but it hurt and the market has hurt everything additionally. I'm keeping an eye on it and RVBD myself, but am not holding until things change and it's too small to flip any volume, IMO. I don't know how long you've been around his boards. Are you on the board's mailing list? Link is on this home page, if you're not. He's sent some, but hasn't been that active considering what the market has been doing. I'm sure he has been working, but the kind of trades that have the time to post may not be there. I hope that he is making something somewhere. With a wife, kids and that new mansion just off the beach.....it costs. But the market hasn't really been all that great. I've had a lot of good days working QID during this mess and it's not as dangerous if the bottom falls out. Plus the shares are expensive enough that I can't get myself into to much trouble. It has so much volume that it's moving all the time. With no wait for a buyer.
Here's a link just sent today that's about as scary as some that I've been reading:
http://www.financialsense.com/Market/wrapup.htm
But you are correct in starting a board and then when we come to see what he's up to ...... roaring silence!
S2?
Thanks for your perspective.
I just think that someone who starts a board to tout a stock, should have some responsibility to occasionally return to that board and identify his current views. Even if it is to admit that he was totally wrong and ask for an apology. I don't expect perfection, just accountability.
We should take responsibility for our own trades. I own only a small amount of DIVX and accept responsibility for my poor decision to buy it. (Stupid me) If I had started a board about DIVX touting it, I would return and try to explain what happened.
S2, Could you remove just the balloon on the index chart? It's been interesting to watch how the chart has tracked the channel in a just below violation and seems to want to hang close to it. I guess I could make my own, but your's as a banner here is great.
OT: Hey tomorrow is a special day! Do you have everything ready? Have fun.
grizz, There's been a few changes to DIVX, RVBD, TXN and the market since this board's creation. The Stage6 show at DIVX was a surprise to all, including the management of. S2 has caught enough flak from whatever stock he mentions not turning to gold that it doesn't surprise me that he shares less of his time with either board. The Stage6 news was way after DIVX getting posted here. In his board's newsletter he's mentioned not being in anything and to let this bloodletting play out. Waiting for Mar 22/23 cycle lows. I've been day flipping QID and a few others, but returning to cash, not holding squat. I was thinking the Mar 18 FOMC to be the low. S2 is watching cycles. The new FED socializing/nationalizing fraud in mortgage venue with a 28 day FED overnite/overmonth program has caused a significant bump in this correction. I don't think it will be enough. There's too much FFIs at level 3 within the financials not marked to market. The taxpayers would need to buy a much larger chunk of fraudulent loans/MBS, but that'll probably be coming on down the road.
In short, to err is human and in this market, calling on anything long has been trashed except the Sun coming up tomorrow, and that's not guaranteed. Finding fault with anything and everything that everybody posts is someone else's job on the other board. Do we need it here?
It sure seems to me that S2 realizes that he promoted another turkey in DIVX, and hasn't returned to the board he started. Now I wonder what the reason could be?
Article about Hedge Funds / Margin Calls and Liquidation from Bloomberg
This seems to be the same issue(s) S2 is discussing in his last update. My topic for discussion is could this cause a collapse in the Hedge Fund industry? and wouldn't this prolong any rise in the markets if the Hedge Funds cannot secure capital to get back into the markets? I've got to think that Investor capital is sitting on the sidelines not going into the Funds? Especially with all the losses they are taking from the margin calls?
Hedge Funds Reel From Margin Calls Even on Treasuries (Update1)
By Tom Cahill and Katherine Burton
March 10 (Bloomberg) -- The hedge-fund industry is reeling from its worst crisis in a decade as banks are now demanding more money pledged to support outstanding loans even when the investment is backed by the full faith and credit of the United States.
Since Feb. 15, at least six hedge funds, totaling more than $5.4 billion, have been forced to liquidate or sell holdings because their lenders -- staggered by almost $190 billion of asset writedowns and credit losses caused by the collapse of the subprime-mortgage market -- raised borrowing rates by as much as 10-fold with new claims for extra collateral.
While lenders are most unsettled by credit consisting of real estate and consumer debt, bankers are now attempting to raise the rates they charge on Treasuries, considered the world's safest securities, because of the price fluctuations in the bond market.
``If you have leverage, you're stuffed,'' said Alex Allen, chief investment officer of London-based Eddington Capital Management Ltd., which has $195 million invested in hedge funds for clients. He likens the crisis to a bank panic turned upside down with bankers, not depositors, concerned they won't get their money back.
The lending crackdown is the worst to hit the $1.9 trillion hedge-fund industry since Russia's debt default in 1998 roiled global credit markets and required the U.S. Federal Reserve to pressure the securities industry to arrange a $3.6 billion bailout of Greenwich, Connecticut-based Long-Term Capital Management LP. Today, hedge funds are being forced to sell assets to meet banks' margin calls, resulting in the dissolution of the funds.
``There has to be more in the next weeks,'' Allen said. ``There are people who have been hanging on by their fingernails who can't hold on much, much longer.''
`Mercy of Counterparties'
Ivan Ross, founder of Westport, Connecticut-based hedge fund Tequesta Capital Advisors, received a call from his bankers on Feb. 22 demanding he put up more money or risk losing his loans. Ross was unable to meet the margin call as the market for mortgage- backed debt seized up, preventing him from selling securities to raise the cash. Four days later, lenders liquidated his $150 million fund.
``Because it's impossible in this environment to move among dealers, you're at the mercy of counterparties,'' said the 45-year- old Ross, who has managed hedge funds for 13 years, including a stint handling mortgage-backed debt for billionaire George Soros. ``To the extent they want to shut you down, they can.''
The demise of Tequesta revealed the deathtrap for hedge funds caught in the credit maelstrom of banks selling mortgage-backed bonds as fast as they can while demanding more collateral from clients who use the securities to back loans.
Carlyle Fund
On Feb. 24, London-based Peloton Partners LLP gave up a ``night and day'' effort to stave off demands from banks, including Goldman Sachs Group Inc. and UBS AG, for as much as 25 percent collateral for securities that once required 10 percent, according to investors in the fund. Peloton, run by former Goldman partners Ron Beller and Geoff Grant, liquidated the $1.8 billion ABS Fund, its largest.
The same day, about 5,000 miles (7,770 kilometers) away in Santa Fe, New Mexico, JPMorgan Chase & Co. told Thornburg Mortgage Inc. that it had defaulted on a $320 million loan because it couldn't meet a $28 million margin call, according to U.S. regulatory filings.
Thornburg, the home lender that lost 93 percent of its market value in the past year, was near collapse March 7 after it failed to meet $610 million of margin calls. Chief Executive Officer Larry Goldstone said in a statement the company fell victim to a ``panic that has gripped the mortgage financing industry.''
Repo Agreements
Carlyle Capital Corp., the debt-investment fund started by private-equity firm Carlyle Group of Washington, was suspended from trading in Amsterdam on March 7 after it couldn't meet margin calls, and its banks seized and sold assets.
``Banks are reducing exposure anywhere they can and the shortest way to do that is to cut leverage,'' said John Godden, chief executive officer of London-based hedge-fund consultant IGS AIS LLP.
Hedge funds are mostly private pools of capital whose managers participate substantially in the profits from their speculation on whether the price of assets will rise or fall.
The managers that trade fixed-income securities generally borrow money through repurchase agreements, or repos. In a repo, the security itself is used as collateral, just as a homeowner puts up the house as collateral for a mortgage.
Collateral `Haircuts'
Banks usually limit their risk on repos by lending less than the value of the securities used as collateral. Tequesta was able to borrow $95 on $100 worth of AAA rated jumbo prime mortgages in early 2007, meaning the bank took a $5, or 5 percent so-called haircut. By last month, the amount required had risen to as much as 30 percent, Ross said. Jumbo mortgages are loans of more than $417,000, typically used to finance more expensive homes.
The losses started in mid-2007, when prices of subprime loans, those to homeowners with bad credit histories, started tumbling because of a surge in delinquencies. The contagion spread to other credit markets, including bonds backed by student loans and credit cards and now mortgages backed by federal agencies, which have an implied guarantee from the U.S. government.
Prices keep falling, with yields on mortgage-backed debt issued by agencies such as Fannie Mae rising last week to the highest level relative to U.S. Treasuries since 1986. Costs to protect corporate bonds from default are close to a record high.
Under such circumstances, lenders have no choice but to ask clients to put up more cash. For AAA rated residential mortgage backed securities, banks have raised haircuts 10-fold in the past year to 20 percent, according to estimates from Citigroup credit analyst Hans Peter Lorenzen in London.
Treasury Swings
On AAA asset-backed securities, banks are demanding a 15 percent haircut, up from 3 percent last summer. Corporate bond haircuts have gone to 10 percent from 5 percent, bankers said.
At least one bank has raised Treasury haircuts, which range from 0.25 percent to 3 percent, depending on the length of the loan and the creditworthiness of the borrower, said bankers, who declined to be identified. They said they wouldn't be surprised if the practice becomes more widespread, not because they expect the U.S. government to default, but rather because there have been bigger price swings in the Treasury market, which affects value.
Some banks may have been late to raise haircuts for their biggest hedge funds because they are lucrative clients, said Jochen Felsenheimer, head of credit strategy at Milan-based UniCredit SpA, Italy's biggest bank.
``Until now, hedge funds have been the big winners of the crisis and this could be as well due to banks not having yet drawn down their margin,'' Felsenheimer said.
Survival of Fittest
Carlyle said in a March 6 statement that margin prices requested for securities weren't ``representative of the underlying recoverable value'' of its securities. Lenders started to liquidate its portfolio of $22 billion of AAA rated mortgage debt issued by Fannie Mae and Freddie Mac.
``It's not a question of prime brokers deciding which firms live and which don't,'' said Odi Lahav, head of the European Alternate Investment Group at Moody's Investors Service in London. ``They're trying to manage their own risk. There's a Darwinian aspect to survivorship in this industry.''
Some managers set themselves up for a stumble by taking on too much leverage and not anticipating that terms could change, said Christopher Cruden, CEO of Lugano, Switzerland-based Insch Capital Management, which oversees $150 million for clients.
``If you're going to dance with the devil, there comes a time when your toes are going to be stepped on,'' Cruden said. ``Prime brokers are there to do business, not be your friend.''
To contact the reporter on this story: Tom Cahill in London at tcahill@bloomberg.net; Katherine Burton in New York at kburton@bloomberg.net
Last Updated: March 10, 2008 05:47 ED
http://www.bloomberg.com/apps/news?pid=20601109&sid=aqcXY9R7AbkY&refer=home
Correction on the "rec"
I think they made a boo-boo? I think the rec was for $9 not $19
Well, whatever....
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