Greece is resolved!
Well, sort of, maybe – who knows? The EU made some nice noises and it does seem there is an agreement which I detailed in my previous post so let’s move on and see what that’s going to do for us today. We’ve been playing for a resolution in Greece giving us a boost back to test 10,300 but yesterday’s market movement was, as they say at Wharton, LAME and we’re going to have a tough time punching through 10,058 and 10,165 on the way to 10,300 today (see yesterday’s Dow charts), even if the Dow were so inclined.
10,300 is 2.6% higher than yesterday’s 10,038 close but a little far away considering commerce is still shut down in about 1/3 of the US today as we sit under a massive amount of snow. This kind of weather is bad for most retail but good for HD and LOW, who sell salt and shovels and other fun snow stuff. Business people are stranded all over the country, moms are suddenly found unexpectedly with kids at home and people can’t park anywhere – a big problem when you have this much snow as you run out of places to push it to.
Another problem with snow is it’s an unavoidable cost, like disaster spending, that couldn’t be hitting cities at a worse time. Washington DC had already blown through their $6.2M snow budget for the year before yesterday’s storm, which may double the costs, adding to the city’s debt woes. 230,000 Federal employees are off for the 4th day in a row today, costing the US government $100M a day in lost productivity. Public transportation is down and over 6,000 flights were canceled with travelers being told "maybe Sunday" for flights they missed on Wednesday – Greece’s national strike is nothing compared to the economic impact of this storm!
Speaking of coming storms. We’ve been leery of getting back into SRS but I’m back to liking them (and the short IYR plays) as a report by the Congressional Oversight Panel shows nearly 3,000 small banks may have to dramatically cut lending as losses on commercial real-estate loans, which could reach as high as $200B-300B. Banks "are about to get hit by a tidal wave of commercial-loan failures." This should finally push an issue we’ve been discussing since last Fall onto the front pages, where we can make some money.
We’ve learned to be very cautious with SRS but I do like the July $6/8 bull call spread at $1.25, selling one Jan $10 put for $3 for each 3 of the bull spreads so your net entry is .25 per $2 spread if SRS hits the July target and expires over $10 in Jan for a nice 700% profit with a break/even at about $7.50 in July (now $8.50) as that would return $4.50 against the Jan $10 puts and you can net out of the trade.
A duller way to play is simply shorting IYR, now $42.48 or buying the June $40 puts for $2.40, which is nice as you can sell March $40 puts, now .90, while you wait. I’m torn on this one because I am trying to stay bullish on the markets but the possible collapse of CRE is one of the reasons I was bearish as the market went higher at the end of last year. Now, at least, we’ll get a chance to see how much of this is priced into our indexes but I do think it’s important to offset bearish bets like this with bullish bets on the financials, like our well-hedged XLF and UYG entries as no CRE collapse = stronger banks.
Speaking of strong banks – Our beloved Fed is now backstopping $25Tn in Credit Default Swaps with, of course, YOUR MONEY. You were obligated this week as the Fed approved an application by the Depository Trust & Clearing Corporation to operate "the Trade Information Warehouse (Warehouse) for over the-counter (OTC) credit derivatives." The new Fed-endorsed organization will settle CDS obligations in all currencies and process credit events. It will also include all OTC credit derivatives traded worldwide, and will be regulated by the Fed and the NY State Banking Department and will be overseen by other US and International regulators.
As Zero Hedge points out: "What all this implies is that basis spreads will likely compress very shortly, once counterparty risk becomes a thing of the past and all systemic risk in the biggest derivative market out there (ex IR swaps) is fully backstopped by the Federal Reserve. It will also guarantee the DTCC monopoly status when it comes to CDS trading as nobody will desire to transact and/or clear elsewhere. We shudder to think if the Fed grants DTCC with exclusive status for IR and FX swaps as well, and the associated $600 trillion notional outstanding." Oh come on, what can go wrong?
By eliminating step 3 entirely, the Fed/DTCC entity becomes the Freddie Mac of the CDS world and hedge funds are free to run out and write all sorts of nonsense papers knowing they have a rich sucker who will buy it all – no questions asked (except by Congress about 12 months AFTER it all falls apart). Yes, it’s your tax dollars at work or, rather, all the tax dollars you are likely to pay as a nation for the next decade now obligated to keep the CDS scam going rather than forcing it to scale back by simply NOT supporting it when it fails.
Speaking of kicking an explosive can down the road – CitiMortgage (C) announced that they will let some delinquent borrowers remain in their homes without making mortgage payments for six months if they voluntarily transfer ownership to the bank. "We are concerned that if there is a foreclosure glut at some point in the cycle it would have to have a negative impact on house prices, and Citi’s pilot program should help prevent a build-up in foreclosed homes," said Sanjiv Das, the chief executive of CitiMortgage.
The CitiMortgage pilot program provides incentives for more borrowers to use a procedure known as a "deed in lieu of foreclosure," in which the borrower voluntarily transfers ownership of the home to the lender, which then cancels the mortgage debt. Aside from letting such people stay in the homes for six months, CitiMortgage says it will give them at least $1,000 to cover relocation costs, an incentive sometimes dubbed "cash for keys."
Laurie Goodman, a senior managing director at mortgage-bond trader Amherst Securities Group LP, estimates 7.1 million of the 7.9 million households behind on their mortgage payments will lose their homes to foreclosure if nothing is done to improve current loan-modification programs. She believes banks should put much more emphasis on loan modifications that reduce the principal for people who are deeply under water. 315,716 brand new foreclosure notices were sent out in January, up 15% from last January, according to RealtyTrac. That’s a rate of 1 in 34 homes over the year. In Nevada, it was on in 95 homes, but that was for January ALONE – divide that by 12 and it’s one in 8 for the year.
So how about shorting that Real Estate market?!? OK then… Oops, out of time. Well the EU does NOT seem to have a definitive statement on Greece and may not until the weekend and that dropped us half a percent from what was looking like a nice open. Greek mythology will still drive the markets until this matter is resolved. Asia was up nicely this morning and Europe is mixed but also took a hit just now so we’ll have to wait and see – again – like we’ve been doing all week…
gucci & cwan,
Yup, cwan’s answer is correct. The margin on the ultras increased by 2x or 3x in December 2009, resulting in a lower return for short strangles on the ultras than in the 1x indices, so we stopped playing them. Those 3x ultras gets into trouble when the indices drops or gains 20%, which is 60% on the 3x, getting them to zero quickly and killing the short strangles.
Hey folks, I recently found out that TOS allows us to sell naked puts in IRA retirement accounts! Not naked calls, just puts. So if we see a good bottom, we can sell the puts on the ultras instead of on the regular indices, since the margin in IRAs is 100% anyway.
Just my gut feeling… I do not see any direct correlation between the problems in the Eurozone and our market valuations, certainly not long term. ( Dubai was just a short term glitch in the markets) My feeling is they, (Eurozone) a family of economic structures that have in common a common currency they share, will as, in most families, solve their family problems. If they do not, then they ALL will suffer. In the short term, they, as an entity sharing the same currency, will look at this risk and will swallow the immediate negativity, and will feel they dodged a fatal shot to the heart. Overall the entire currency will have to absorb the loss, but this loss is better than a domino effect that could be catestrophic for them all. The wayward countries who have debt problems are the smaller of the consortium, and this disparity in their debt ratios are able to be absorbed into the family. Geez, Greece was only 450 Bil upside down. All that is needed, is to have France sell a bunch of expensive wines to the buyers of Mercedes Benz automobiles in wealthier countries,in order to capture the revenue to bring the disparity into balance.
TOS allows you to sell puts in IRA, but you have to put up the full value of the puts as margin. That is, if you sell one contract of a put with strike $10, your buying power goes down $10 x 100 = $1000. Imagine if you want to sell puts on GOOG!
I believe that is the case. Correct me if I am wrong.
Hi, Peter, re IB: Months ago I was looking at various brokers. I think IB has a web based platform with much reduced functionality. You might want to give it a try.
I haven’t really tried IB yet. Do they have PM? What’s their minimum account balance for PM?
IB has PM – I think the minimum for PM is 100K –
The platform was designed for institutional trading – its trader workstation – it’s not bad to use – but – it’s really designed to be customized for institutional use –
i might move my retirement stuff to TOS for the tools that you get and I know everyone loves it –
but on a price alone basis IB cannot be beat – I did not negotiate any special deal and am paying $1 per contract –
For Emini options – I paid $3.62 for 2 contracts
5 TBT contracts – $3.57 (total or just 71 cents per contract)
DIA roll today on 5 contracts $7.14 – (ten contracts in total – buy five / sell five)
Unless you are trading huge volume – I really don’t think TOS can beat that
cwan & sam,
sam is correct on the 100k PM minimum for IB. Note that their fine prints said they will automatically liquidate the positions if the balance gets below 100k. This is rather dangerous. TOS has a person looks at it to see whether the reason is due to a software error in calculating the balance before giving us 1 day to meet the PM margin deficiency. With IB, imagine that we can find our short strangles got liquidated if we are unlucky to suffer a spike in the market. I could be wrong in my interpretation, and will call them some time to get clarification.
As with the rates, TOS gives me a great deal, and IB doesn’t beat it by much. With all the services and the nice trading platform, I have no complain, but I do need to put some eggs in other baskets.
Almost missed the naked put discussion. I’m just looking at the maximum percent return. For example, selling SPY Mar 108 put (ATM) nets us $3.07, which is about 2.8%, while selling TNA Mar 38 for $3.4 is 8.7%. These are maximum gain if we are correct. If we get it wrong, the loss is 3x as large in percentage term for the ultra as they move 3x as much. If we sell 10% OTM, i.e. SPY Mar 97 put and TNA 27 put, we get 0.6% and 1.5% maximum profit respectively. The loss is zero for approximately 10% move down in SPY. 1.5% for 6 weeks is not bad.
We can do iron condors to increase the profit percentage, but those are all or nothing play that we can loose it all if the market goes past the outter strikes. With naked puts, we keep rolling until the market comes back up.
Mocha – I missed 21.50 buys on HK this morning TWICE ! Arrggggh.
The 1st time I was screwed by an algo or MM that front ran my order that I placed at the ask. The instant I placed it they moved the stock up a nickel.
Mocha – I missed 21.50 buys on HK this morning TWICE ! Arrggggh.
The 1st time I was screwed by an algo or MM that front ran my order that I placed at the ask. The instant I placed it they moved the stock up a nickel.
Through the looking glass…..
Fidelity – 1 of my accounts is there. The other day a rep told me they have a downloadable options platform that would be useful for an active option trader like me. I have not tried it; but perhaps their platform has improved since some of you left. I don’t know.
Peter – naked puts in IRA’s must be cash covered. You need to have enough cash to cover an assignment.
E-Trade also allows naked cash covered put selling. I just moved some IRA money there. Tired of earning $1 per month on a 0.08% money market fund.
IB – I never used them. But over the past couple of years we have had several folks here tell horror stories about IB blowing out their accounts on no notice whatsover.
There is no way in hell I would recommend IB to anyone on that issue alone.
Peter – I have negotiated pretty decent deals at Schwab,Etrade and Fidelity. The bigger and more active you are, the more they will play ball. With all the firms now in a price war; I am planning to go back to the well and renegotiate even lower.
Hi, Peter, Samz & Cap,
I have accounts at TOS and I love them. But, like Peter, I am also looking for a 2nd broker. Not very many brokers have PM. I also asked TradeStation. They don’t have PM either. As far as IB, I also heard some not so good stories. But we may not have a whole lot of choices.
If IB’s platform is not easy to use, I hope that their web-based platform is good enough to place trades. All we care about are GTC, spreads and maybe several other trades. We can use TOS to get qoutes, do analysis, etc.
Your idea of selling SPY puts in IRA is interesting!
I tried SPY iron condor in my IRA once. The strikes had to be fairly close to market in order to get decent premiums. Scared the hell out of me! And as you said, no chance to roll.
I’ll give your SPY puts idea a try!
What kind of deal do you get at Schwab and how many contracts do you trade there in order to get that kind of deal?
China/Gel – I’m not saying anything but check out this video, Vitaliy is a very smart guy and just got back from China. The logic that China will inflate copper to make money on their investment in FCX is as if the US owned $40Bn (10%) of XOM and wanted to make $4Bn by driving up the price of oil $10. It sounds great in a bubble but US citizens consume 20M barrels of oil a day so it costs them $6Bn a month in extra oil costs for the government to make $4Bn on their investment (and that only works if they sell, otherwise it just costs the people money so the government can have a pretty portfolio to stare at). Over the year, it pushes the trade imbalance up by about $30Bn which impacts the country’s ability to borrow money as well. In short, it’s pretty far fetched to think that a government is going to drive up commodity prices so they can make money on stocks they bought but that is the story that they are pushing this week on all the commodity bull sites and it is working.
GS/Trad – I don’t like GS enough to buy calls. I like them enough to sell puts and let some other guy sweat out the expirations but I don’t see any great upside for them here, especially since that’s probably the last time they’ll take such "little" bonuses and drop that much of the GP to the bottom line.
CAKE/Jordan – They were actually pretty good earnings, just had a huge impairment charge and will be a nice put sale into any kind of panic dumping.
OIH/Roast – I see the OAU’s. It looks like they have an obligation of $20.63 per contract (100 shares), maybe there was some kind of dividend? Either way, I’d be inclined to exit and avoid the hassle. Oh and what TM said!
Eurozone/Cwan – Problems like that anywhere cause us to go down in sympathy. Look at what Brazil and Agentina did to global markets – and you would think they wouldn’t matter in the grand shceme of things. We’re all one globally interconnected mess now, kind of like a ball of rubber bands being batted around by a cat and the cat is Goldman Sachs. Pull one out and everyone feels it and the whole thing could fall apart if you pull the right string. The problem is most of us went to school when the world was a very different place and that goes for the economists too. You can’t "win" in global economics anymore because everyone is so damned interconnected it’s like trying to win a battle for food in your own house – you may get more but someone else will get less and your victory may last until you go to sleep at best.
We have to have rules now that you can’t say made in America unless 55% of the parts are from America – what does that tell you? I have a project running now with an Australian programmer who is coordinating teams in China and India to process data that was collected in New York and New Jersey that will be sold nationally over the web with telephone support from Israel. I’m doing this from a desk in New Jersey – what do you think the big boys are doing? People still think in terms of nations but they are fairly arbitrary distinctions, which is very sad, but true. If the US does some tax thing that messes me up in China, I’d be on the phone to India, Israel or wherever it may be favorable to switch to and my business would be moved in 24 hours. Maybe my work would be pulled from 100 Chinese employees and given to 100 people in the Philippines – what do I care as long as it’s done on schedule?
While people may have felt bad in the old day’s about laying people off and our direct investment in training and developing talent encouraged us to support our workforce during rough times, these days everyone and every thing is pretty much disposable and companies that don’t play that way are considered "inefficient." When I sold my old company the guys that bought me were drooling over the way they could "cut the fat" by switching to a lower-cost health care plan and cutting my 100% matching 401(k) contributions and not paying stock options plus bonuses each year and not letting people get any damn company car they want and limiting expense accounts etc…
Those were all cuts I would have had to make myself had I stuck it out through the market downturn, which is why I sold at the time – obviously, that’s not something I would have enjoyed but that’s global competition these days. Once the real estate bubble was popping we wouldn’t have the luxury of being generous with our employees and our competitors were already outsourcing everything to cut costs. You can compete by offering quality in a good market but not so much in a bad one so we got out rather than firing half our workforce and replacing them with Indians. Since our employees were all stockholders, they did very well but I’m sure that’s true about half the tens of millions of jobs we’ve shipped overseas – a nice severance and no future for America because the people at the top think they’re going to "win" somthing for themselves by screwing over American workers.
Sadly, this is the same thing that is happening everywhere else too as it all comes down to making a buck at the expense of everything else and everyone has gotten so short sighted that they are "shocked" when things start to fall apart. Gee, how could 30 years of slashing benefits and freezing wages have harmed the middle class? Who’d have thought? In 1960, 1/3 of American Workers worked in manufacturing and drew salaries with union benefits, pensions, health care etc that put them in the to 10% of global wage earners. Now it’s 10%. That’s about 40M high quality jobs lost over 50 years (not to mention none gained as the population grew) and, of course, it’s been accellerating the past 20. Then you think of the data jobs we sent out as well and you can see how we went from being thw world’s #1 exporter to a service economy with a permanent trade deficit.
I think it’s funny when they say the government shouldn’t interfere in business. 50 years of idiotic government policies are what got us into this mess. At any point it could have been stopped by simply making it less profitable (through taxation) to send jobs overseas. Now it seems "drastic" to try to change things because we’ve fallen 75% of the way off the cliff already, so why not just go splat then, is the logic I guess… I don’t want to get politcal but when a guy comes up and says "let’s spend our money building US infrastructure and developing US industry" and that can’t find bi-partisan support – then you know it’s over for this country. That’s why I’m island-shopping now – the major corporations have already moved out, all that’s left is their name on the door of some downtown office just for show but 75% of their workforce is already overseas and, like HAL, they are ready to cut and run any time.
Naked puts/Peter – Since you can sell naked puts in an IRA, perhaps we could design some market neutral plays short-selling puts in long and short ETFs simulataneously?
Jobs-overseas- I have often heard the lament over evil corporations having "shipped jobs overseas" which I find very amusing. It reminds me of the occasioinal confrontations with union thugs on job sights where their complaint was "Hey, that is OUR work". My response was always, "Well, last I looked, my name is on the contract for this job. I bid it and won it." The response was blank stares initially as I challenged their sense of entitlement so they resorted to threats and intimidation. Having been born and raised on the south side of Chicago I am well schooled in such measures so let’s just say that those tactics failed.
The point is the sense of entitlement. Neither the union nor the contractor for whom they worked "shipped" the job to me. I came and took it!. While this may be a micro-anecdote compared to the macro-issue the logic holds. To paraphrase George Washington Plunkett, "they seen the opportunities and tookem".
By what standard are we entitled to those so-called well paid manufacturing jobs? By what standard do we deny the rights of others to improve their lot in life?
In my business career, I have lost customers to competitors for a host of reasons. In all cases, it comes down to the other guy being able to better meet the customer’s needs. No different on a global scale.
Should government step in to protect the union’s entitlement vs. me? Should government step in to protect American’s entitlement vs. the Chinese or Malaysions or Vietnamese? By your logic, a tax on me would be justified to protect the union’s workers interests while denying my rights. By your logic , a tax on GE is justified while denying the rights of some Indonesian peasant?
Who is in charge of picking the winners and losers?
In my view, the government policies which are out of whack are those which promote entitlement which in turn promotes dependence. Rather than wallowing in victimhood and soothing our pain by longing for the good old days we would be far better served by a healthy dose of personal responsibility and more vigourous pursuit of self reliance.
Hmm, Pstas, I wonder if there is any way I can put this that you will not automatically naysay?
Let’s say you are a father and you have a wife and two children a son and a daughter. You married your wife because you found here fun or attractive and you had your children because you hoped they would learn to take over your business in the future.
You put them into school but it turns out your daughter isn’t quite the student your son is. You tell him to get a degree in engineering because that would be a perfect fit for your company and he joins your company as an engineer and your daughter ends up being a receptionist. Your wife, meanwhile, got old and needy and, frankly, a little annoying so obviously you cut her loose immediately – hiring the best attorney to make sure she never saw a dime. You taught your children well so they don’t waster their time visiting her in that crap-hole she lives in now.
With the invention of the internet you are able to cut you son loose and save $100,000 a year on his engineering salary, which more than makes up for the $250,000 you blew educating him. He’s not very good at management so you offer him his sister’s admin job at 1/4 his original pay and cut you daughter loose (she was dead weight anyway) but, sadly, she’s too old to work the pole and she ends up living with her pathetic, jobless Mom.
After a while you get a call from a company in India who can replace you son with a 24-hour a day concierge service for half the price so that’s a no-brainer. Your son does manage to go out and find work managing a fast food franchise and you are proud of yourself for pushing him out of the nest. He’s ashamed to tell you that he visits his Mom and Sister with leftover food sometimes and it causes a rift between you.
You make tons of money but die alone leaving nothing behind in this nation except a desk that connects to a chain of foreign outsourcers, who don’t even come to your funeral but eventually end up taking over the land of this nation, and your life’s work means as little to the next generation of Americans as the Hopii Indians do to you.
Slash and burn is a very profitable policy and you embrace the spirit of Ghengis Kahn well. You come and you take it until the next guy comes and takes it from you (if he can) and you owe nothing to no one which is why you have no need to take care of anyone else as they are all just leeches trying to get what’s yours and there’s no benefit to you in charity. After all, we didn’t sign up to build this country, if we can’t compete with those Chinese and their free education then let them come – I’m sure you’ll figure out how to make a Yuan or two off of them.
In the long run, what do any of them need us for? Sure you may be one of those exceptional individuals who will thrive no matter what the world throws at you but, for the vast majority of us, the next thing to be outsourced will be executives because they don’t need your fat ass sitting at a desk collecting 60% of the money while they do all the work. Don’t worry, they’ll find tons of people just like you to front for them, to be the American face of the foreign company, which is fine too as fooling the pathetic suckers in this country just means "they seen the opportunities and tookem".
The only arguement I could make for you is genetic as your genes will probably be wiped from the face of Earth or relegated to the same fate that happens to all conquered people who sit on land that a more powerful race wants. If that doesn’t bother you, I’ve got nothing but idealistic liberal crap and I’m not even going to bother to try with you.
So good luck with that vigourous pursuit of self-reliance, I guess I’ll be seeing you at the the top of the pyramid but choose your positon well for that final push because I plan to have the people below me acting as support, not just be some guy who’s face I just put my boot into as I climbed over him.
at present, I am paying $8.95 + 0.25 per contract; not bad; not great. Now w/ their lowered rates, the 8.95 seems too high; I will try to get that lowered. I think their standard per contract rate is 0.75 ? Makes a difference if you trade a lot of contracts. I trade a lot overall, but usually 1-10 at a time; although sometimes 40 or 50 at a time if w/ the indexes.
Naysay/Slash & Burn- Pretty good rant this morning. Sounds like you were channeling Ayn Rand. Too bad it is completely off point. Seems like, by your own admission, you left the slashing and burning of your sold firm to others? Still looking for the answer to who picks the winners and losers? You?