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TGIF – Four Witches Test the Market Highs

It's quad witching day!

The quarterly expiration of options and Futures contracts can cause a great deal of market volatility and, when your indexes are pushing all-time highs – down is a lot easier than up so we're still shorting the Dow (/YM) Futures below the 26,800 line which was good for 200 points yesterday and gains of $1,000 per contract and our Nasdaq (/NQ) Futures short call at 7,800 from yesterday's PSW Morning Report (subscribe here if you want to stop missing these calls) is good for more than 50 points so far – also gaining over $1,000 per contract (which is now the stop).  What a great way to finish the week! 

Futures are a very valuabale tool to have in your trading belt but can be dangerous.  Usually we play options, like Wednesday morning's call to go long on Gasoline (and you don't even want to know how much the Futures have made if you didn't play it), which is now at $1.85 due to a massive refinery fire in Philadelphia, where we had the following trade idea:

Speaking of justifications, OPEC is acquiescing to Russia's demands to move their meeting to July 1-2 in Vienna and OPEC will do ANYTHING to get the Russians to join them in cutting production – just in time to screw American drivers over the July 4th Holiday.  If you believe in OPEC+, you can play the September Gasoline Futures (/RBU19) long off the $1.65 line ($1.62 has been the lows so I'd plan to DD there for a $1.635 avg and stop below $1.60) or you can play the Gasoling ETF (UGA) and I'd go with:

  • Sell 10 UGA July $28 puts for $1.40 ($1,400) 
  • Buy 20 UGA July $27 calls for $1.70 ($3,400)
  • Sell 20 UGA July $29 calls for 0.75 ($1,500) 

That's net $500 on the $4,000 spread so $3,500 (700%) profit potential in just 30 days and your worst-case scenario is ending up long 1,000 shares of UGA at net $28.50 (assuming your spread is wiped out).  Trump wants the Dollar weaker, which is also good for Oil and Gasoline prices and OPEC certainly wants Oil higher and Tesla (TSLA) may collapse soon as Q2 deliveries end up disappointing people after all – all possible positives for UGA.

Our system is not very complicated – we are FUNDAMENTAL Investors who use options for leverage and for hedging and we like to read the news and find trade ideas that react to recent events as well as long-term trends.  In this case, we expected, in the very least, that OPEC would say or do things between now and their meeting to push the price of Oil (/CL) back towards $60 and Gasoline (/RBU19) was likely to follow it higher.  PLUS Gasoline usually spikes into the July 4th weekend PLUS Trump has been trying to weaken the Dollar.

That seemed like plenty of good reasons to play Gasoline long and /RBU19 is at $1.78 now and UGA is testing $30 this morning and we're well on our way to making the full 700% profit on July 19th (the day the optons expire) though we'll certainly take 500% or more ($3,000) off the table if it comes this week as there's no sense risking such spectacular gains if they come to us this quickly.  There are lots of other things we can make $1,000 on with $3,000 in cash – it's "only" 33%! 

Whether it's 30 days or 3 years, the logic is the same, we look for undervalued companies or commodities (overvalued ones too) and then we build options spreads to take advantage of the moves we see coming and we enhance our potential for positive outcomes by BEING THE HOUSE and selling more premium than we buy – as premium decay the only sure thing that exists in the market

Neither Gasoline (/RB) or Oil (/CL) may be done going up as Trump apparently gave the order to Bomb, Bomb, Bomb Iran yesterday but then changed his mind while the planes were in the air (allegedly after getting a call from Putin to stand down).  Trump, meanwhile, is getting crazier and crazier and now claims (since his polls are so bad he fired his pollsters) that "I can win reelection with just my base" which is, of course, completely untrue – but when has that ever stopped him?  

Trump may be losing his liquor license for his Washington DC for violating the morals requirements, which is funny but what's not funny is the ongoing investigations into collusion and obsruction of justice and a possible war with Iran (which is EXACTLY what Trump accused Obama would do to get re-elected) and while Trump's distraction campaign may be working to distract us from the underlying corruption issues, those issues aren't going away and the investigations are continuing.  

This country was attacked – by Russia – and the damage is still being done.  

All this tension will keep us in our heges into the weekend – despite the all-time highs.  I'm more fighting the urge to cash out than getting excited about breaking higher but the Fed says they will do whatever it takes to keep the rally going – so I guess we'll give them a chance to prove it over the next month.

Have a great weekend, 

- Phil


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  1. short /RB from 1.8610 with a tight tight stop. 

  2. Time to add new lines? But all time highs and the VIX at 15 – no everybody is convinced.

  3. Nothing that we should worry about I am sure – let's focus on a border wall instead:

    The group’s estimates show that to defend every coastal city, town, and hamlet in the U.S. with sea walls over the next 20 years could cost $416 billion under a fairly optimistic climate scenario. Some small communities would incur cost upwards of $1 million per resident while big cities would be looking at huge, multi-billion dollar projects.

    The findings reveal the uncomfortable truth that we likely won’t be able to save everything. That means in the coming decades communities will likely be forced to choose whose house is saved, whose is turned over to the rising tides, and who pays for those decisions.

  4. stopped out for a penny on the /RB short.

  5. Good Morning!

  6. Good morning!

    /RB/Dawg – It's a good spot but could go higher into the weekend so I'd stay away from shorting (and cash the longs).  

    Big Chart – Wow on the NYSE – that's a broad rally.  We'll see how they handle the 2.5% line at 13,100.

    Floods/StJ – That's the problem with ignoring the cost of NOT doing anything about climate change – those are costs we won't be able to pretend away.  

    Good job on quick money-taking Dawg.

    Gold right at $1,400.

  7. On /RB, $1.89 is the 5% move off $1.80 and we're up from $1.71 so call $1.89 a 10% move so look for 0.04 retraces to $1.85 as being significant (weak retrace) and $1.81 (strong retrace) would be a good spot to go long again – if we get there.  Above $1.85, it's more likely we're consolidating for a move up towards $2.

    /RTY just took a huge dive – don't know why but /YM stil 26,750 so I'd use that line for a short if you're not already!  

    2,955 on /ES and 7,750 on /NQ also good.

  8. 300,000 barrels a day in Philly is no joke – 10Mb/month of gasoline supply on fire!  Probably only half off-line as there are 2 units but both probably down for the moment and that other one isn't coming back for a long, long time.  


  9. CAT just got a downgrade (silly) but indexes popping back and it's quick stops over our lines as this market be CRAZY!   

  10. Palotay – Regarding VXX, I am currently short Sept 45, 50 and 55 calls as well as Dec 45 and 50. I keep on selling lower and further strikes to keep the premium reasonable. Might have to start selling the Dec 40's soon if we keep going up. And might close the Sept 55 when they cross below 0.20 to clear some margin.

  11. Existing home sales rise more than anticipated

    • May Existing Home Sales+2.5% to 5.340M vs. 5.280M consensus and 5.210M prior (revised).

    PMI composite flash loses momentum in June

    • June U.S. PMI Composite Flash50.6 vs. 50.9 consensus 50.9 prior.
    • Manufacturing PMI 50.1 vs. 50.4 consensus, 50.6 prior.
    • Services PMI 50.7 vs. 50.9 consensus, 50.9 prior.

    Don't forget below 50 is contraction, so we're right on the edge.  I think that's what tanked the Russell when it came out but other indexes are ignoring data at the moment.  RUT still down 1% so I still like those shorting lines if they cross.

  12. GBTC – At yearly high.  Sold more.  Keeping a small piece.

  13. I have a lunch meeting – back around 12:30.

  14. Don't want to complain about my (CDN) brokerage (TD) but I have an AAPL spread of 20 Jan ’21 140c paired with 20 Jun ’21 200c except TD will NOT pair this ‘calendar spread' and are holding almost $190k in mgn against the short calls (treating them as naked). They say they can’t pair them unless the expiry dates are the same or the shorts expire sooner than the longs.

    I tried Questrade but they have the same policy – they say the big CDN banks are bound by IIROC.


    However Interactive Brokers (US based) say they WOULD pair the spread and would only charge $6280 Mgn for this spread even though they also claim to be bound by IIROC. My reading of the IIROC page doesn't find any mention of a 'calendar spread' but seems to require same expiry dates for long & short calls or the shorts must be sooner. Can't get final confirmation on this but I’m thinking of moving my account to IB (after decades with TD).

    They also only charge $.67 per option trade with no minimum .. also much better than TD.


    Suppose I could roll the long Jan '21 $140calls to June '21 $160's to fix it (and trigger my cap gains)?


    But also have my 20 AAPL Jan '20 $150c which I would like to cover with maybe the June '21 $220c but this would trigger the same problem(s).



  15. Had a good meeting re. Trade Exchange, going to launch very soon.

    I see there was an extra-crazy spike up that faded.

    Rut still down a lot.

    Another chance to try the /YM short below 26,800.

    AAPL/Wing – That's a bit ridiculous.  It's so crazy how two brokers can require such different margins.  IB is way better than TD on margin.  Rather than roll the 2021 $140s and take a tax charge assuming it's not a wash on the new calls, why not roll the June 2021 $200s ($29) to 2021 $200s ($25.75) as that doesn't cost much and saves you all that margin?  

    As to the Jan $150s, those are $53 and, if it's about avoiding taking an early gain, then why not sell the $160s for $44 and just wait until Jan for the other $10 and then use that $44 to establish another position if you want that?

  16. Phil,  my view is that we will be in recession in 12-24 months, and I have been holding a decent allocation to 20 year treasuries in order to capture upside when the fed has to take rates back down to zero (or below).  (I have enhanced this strategy by selling VXX calls when volatility spikes in this account, to generate additional return).  My idea was to have fresh powder ready to bottom fish, once things started falling apart.  I caught a very good run, and have 8% gains in my 20 year treasuries already, just in the last 2.5 months.  My question, is that if my thesis is right, and the fed takes rates to zero, is it better to be in long dated or short dated bonds? I’m trying to resist the urge to trade around this position too much, I have plenty of trades in my PM account that is following the LTP/STP.  But I’m considering moving some of the money to shorter duration, like maybe 5-7 year.  I know this isn’t your specialty, but if you have any general guidelines about past recessions that would be helpful, I would appreciate it.


  17. STJ/VXX – I'm currently short 30 of the 2020 $50 VXX Calls.  Waiting for another vix spike to sell more.  I'm still working on fine-tuning my trading strategy.  I'd like to reliably make 5-10% a year with these sales, since it augments a lower risk passive strategy (ETFs or Treasuries) very nicely.  If you can reliably outperform the market by 5-10% per year, you will do very well.  The trick is selling enough premium to make a meaningful difference to your returns, without selling too much and having margin issues in a very bad downturn.  So far I've made about 1% return with my VXX sales in the last 2.5 months on my Treasury portfolio.  I took profits too early on half, but am confident we will get some other opportunities to sell before the end of the year.

  18. Recession/Palotay – If the Fed lowers rates, the better the rate you have the more you will gain.  If, for example, you have a 10-year that gets 2% and the Fed drops a point, then your 10-year is worth 10% more than the current 10-years.  So really 30-years give you the most leverage if rates go lower as you get 30x (or 29) the delta of the move in the bond market though, of course, they are slower to react. 

    A yield-to-maturity calculation is made by determining the interest rate (discount rate) that will make the sum of a bond's cash flows, plus accrued interest, equal to the current price of the bond. This calculation has two important assumptions: first, that the bond will be held until maturity, and second, that the bond's cash flows can be re-invested at the yield to maturity.


    A spot rate calculation is made by determining the interest rate (discount rate) that makes the present value of a zero-coupon bond equal to its price. A series of spot rates must be calculated to price a coupon paying bond – each cash flow must be discounted using the appropriate spot rate, such that the sum of the present values of each cash flow equals the price.

    We can make two observations here. First, the two rates move up and down somewhat together (the correlation for the period above is about 88%). Therefore, parallel shifts are common. Second, although long rates directionally follow short rates, they tend to lag in magnitude.


    More specifically, when short rates rise, the spread between 10-year and two-year yields tends to narrow (curve of the spread flattens) and when short rates fall, the spread widens (curve becomes steeper). In particular, the increase in rates from 1977 to 1981 was accompanied by a flattening and inversion of the curve (negative spread); the drop in rates from 1990 to 1993 created a steeper curve in the spread, and the marked drop in rates from March 2000 to the end of 2003 produced an equally steep curve by historical standards.

    I think the problem with your strategy though is that you are against my thesis that the real goal here is to spur hyper-inflation where the markets and bonds will fly higher.  Watch the CPI very closely – the Fed may come up with other ways to stimulate if what they really want to do is raise rates over time while letting inflation run hot to shrink the deficit (relatively).  It would also help them pay down their own $4.5Tn balance sheet. 

    Oops, by the way, don't forget you are getting paid back in devalued US dollars.  We just failed 96 and 95.75 – that's holding the indexes up – again.

  19. Thanks Phil.  Very helpful.

  20. Is the rise of /GC a reaction to the weaker dollar or is this a more of a bearish move ? With VIX going up too even on Index up days, would this be a sign of change in direction ?

  21. S&P/Pstas -Amazing! 

    Gold/Gardling – It's a reaction to the major central banks still easing AND signs of inflation rising around the World as well.  Gold had been priced with expectations that other countries would follow the Fed to tighter policies but it turns out the Fed was on its own and is now coming back down.  Trump has indicated that he would like to replace Powell with a bigger dove – not that I think Trump will be re-elected but certainly many people will think that and bet on an even more doveish Fed down the road. 

    Have a great weekend all, 

    - Phil

  22. Palotay- congrats on the Treasuries. I was looking at similar trades but could not bring myself to pull the trigger. Did you buy Treasuries or use ETF's?

  23. VXX / Palotay – Right now showing 3.5% using about less than 7% margin with another 1.5% in premium to be collected. So well on my way to make 10% of portfolio just with that trade with probably about 15% margin (maybe less). As I mentioned before, I think that it's possible to return 8-10% every single year (up or down) with this strategy and leave you plenty of margin for other stuff -  right now the VIX would need to spike over 60 for me to have to adjust for margin. Not impossible I guess if we start a war but this market might even go up then. In any case, if you play with futures and don't tie up margin more than a day, it's really perfect.

  24. VXX / STJ – Nice progress.  I'm assuming "adjusting for margin" entails rolling up (and maybe out for duration), and increasing contract size?  In my backtesting that looked like it would dramatically reduce margin requirements.

    I have two sizable accounts that I'm going to be running this strategy with, one that is 100% invested in treasuries, and the other that is 100% invested in a diversified passive ETF strategy, that uses trend following logic on a portion of the portfolio to reduce drawdown exposure.  I'm planning on being a bit more conservative in the ETF account, since volatility will lead to a drawdown in the ETF's, and therefore add to my margin pressure from the VXX shorts.  Volatility should help treasuries, or at least not impact them very much, so I can afford to get a bit more aggressive.

    How are you deciding on position sizing?  Initially I was leaving myself room to double down a couple times if the VIX kept going up, but that means that my initial entry had to be pretty small/conservative, because I need to assume my margin requirement can go up by at least 5-10x.  Now I'm thinking it makes more sense to start with a larger initial position up front.  For example, in early May I sold calls worth about 1.25% of my account value, which only used about 2% of my available margin.  Next time we see the VIX spike above 17.50-20 I'm thinking I should open an initial position that uses about 5% of my available margin, which should be about 4% of my account value in premium.  

  25. Pstas, I actually bought treasuries for the first time in my investing career.  TLT isn't marginable at Schwab until you have held it for 30 days, so I didn't want to deal with that restriction. 

  26. VXX / Palotay – If you roll early enough, I don't see margin expansion past 5x. This would require the type of move where you would actually have to back up the truck and load up on short calls. As I said, in my case, it would require VXX to be between 45 and 50 somewhere or close to double where it is today. That would mean more than a 4x move in the VIX or around 60. Not impossible but that has happened during one month in the last 20 years (Dec 2008). We invest in instruments that have more potential for issues than that all the time. And it's really manageable – the VIX jumped to 30, then 40 before it hit 60! I am not willing to go past 15% of my available margin though. But I am still conflicted on the best strategy – we had a spike of around 35 early this year – thinking back, I think that it would have made sense to go bigger in that one event rather than small every now and then. 

  27. And BTW, I am really thinking of making this trade my main focus in one of my account – getting 10% a year independent of the market is better than most funds can promise. Adding some occasional future trades could add another 2-5%. That's up there as far as performances. Not the 50% of some portfolios here – but little work and not much to worry about. And no worries at all about fundamentals or macro.

  28. VXX- STJ/Palotay- Since I now have lots of cash I am looking for some relatively safe ways to get some income over the available money market returns now available. The VXX trades look interesting. I know you guys have posted on this subject often in the past but I have not paid a lot of attention. Would be appreciated if you could provide a brief rundown of the strategy and how you play it? One question up front- is this practical for a non-PM account such as an IRA?


  29. Wingwalker. Can you share your thoughts on why you set your AAPL trade in the structure you did? Typical calendar speads we know have short month first. What do you think the benefit is by trading front month long verses short? Thanks for sharing.

  30. Pstas, it will not work in an IRA, since we are selling naked calls on VXX.  I have portfolio margin in every account that I'm doing the trade in.  

    The idea is pretty simple, VXX is an ETF that was created to facilitate trading increases and decreases in volatility.  VXX basically buys /VX futures with their fund, and tries to track the daily moves of the VIX.  Since it does this by trading futures, there is significant decay, so you know that gravity is always going to be working on VXX.  Just look at a long-term chart of VXX.  Although it is eventually heading to 0, in periods of high volatility, it can spike really high, and when it is spiking, you can sell calls against it that have a very high likelihood of expiring worthless (due to the decay).  I have typically been selling calls that expire in six months, but it isn't an exact science, and I'm still experimenting with strike price and position sizing.  I start selling at 17.50 or 20 on the vix, and typically target a strike price that is double the current VXX price.  If the VIX keeps going up after you enter, you eventually want to roll to a higher strike, and increase the contract quantity, to keep margin manageable.  

    However, It is very important to be very confident in your knowledge of what can happen in a shock.  There are a lot of hedge funds who short volatility with enormous leverage, so there is the potential for a flash crash type event, where everyone is trying to exit the trade (and VXX and other ETFS are forced to buy more /VX), and the price spikes dramatically.  This happened in the last couple years, with a short volatility ETF going bust (I can't remember the ticker).  Getting forced out with a margin call would be a complete disaster, so you really can't be greedy, and need to keep the position sizing conservative.  In my back tests, I saw the potential for the margin requirement to increase by over 7-10x (assuming I didn't roll).

    I hope this helps.

  31. Thanks Palotay, StJ and others for generating the discussion on ways to profit from shorting volatility. It looks the closest thing to free money that I have seen in a while – that's not a cynical comment! I was always interested in StJ's strategy on buying puts or selling calls on these volatility products and very happy to see it explained in a bit more detail. I know that StJ has been very successful in trading this strategy.

    Palotay quite rightly mentions 'a short volatility ETF going bust' – I believe it was XIV, which technically was an ETN not an ETF – the difference is perhaps only important for the autopsy report. Its brethren SVXY was a volatility trading favorite – it also died, was brought back to life and currently still trades – although you have to look at the chart which covers the fateful day – Monday February 5th, 2018

    "On February 5th, two Exchange Traded Products (ETPs) lost roughly 95% of their value in a single trading day, wiping out approximately $4.1 Billion of shareholder value in both products. Trade tickers XIV and SVXY were products issued by Credit Suisse and ProShares respectively and were designed to track the performance of a rolling 1-month duration VIX futures contract portfolio with a leverage factor of -1X."

    If anyone's interested in a bit of history, then below are a few links to add some color and some facts to what happened to those volatility products during February 2018.

    By chance there was a hedge in the STP added on January 19th, 2918, which was a long put spread on SVXY with additional naked short puts – so the debacle was of interest close to home.

    Forbes did write up on what went wrong with short volatility products the day after the crash; notable quote: "In fact, the worst part of my job as a financial pundit is having to listen to pinheaded quasi-professional investors who believe they have gamed the system via derivative securities so that they can make money in any market condition.  We market veterans know that "it always works" is really just shorthand for "it works until it doesn't work." end quote.

    Barry had this commentary to add - Terminated: Volatility Products Blow Up. It starts off with a cracker:

    "A basic rule of life is to avoid being a guinea pig in other people’s experiments. "

    Ritholz refers to a more detailed account of what really happened (useful for those who are tempted to get involved in short volatility products) - $XIV Volpocalypse – A Sea of Disinformation and Misunderstanding - appropriately authored by 'Kid Dynamite'.

    And of course, there's always somebody who profits from other's misfortune. Houndstooth Capital provides a lengthy blow by blow account of how they took advantage of going an alternative route. It's a lengthy read, but always good to see who is playing the other side of your trading strategy.

    For details on the VXX product here's a term sheet.

    And of course, that first hedge in the STP would have been a big winner if not for those additional naked short puts on SVXY, noted by Phil: "As long as it doesn't drop too fast, we shouldn't have any trouble rolling the short puts and, if SVXY goes up and the puts go worthless, then we sell $5,000 worth of March puts."

    Again, great discussion on this thread, and many thanks to all for posting. 

    It's just my cautious side which likes to look at what downside risks need to be managed in any trading strategy.

  32. Does it pay????
    Today I like to give you the result of a deep in ITM call sale on NLY
    On 5/20/2019 I initiated the following trade.
    Sell a leap 2021 c/p strangle for 1.34/2.17 = 3.51 x 500 = 1755.00 less 8.21 commission = 1746.79
    Buy 500 stk @ 9.29 = 4645.00 plus 8.00 commission = 4653.00
    Total net cost 2906.21
    Indicated on TOS NLY’s ex div. is 6/27/19. Obviously no div. received.
    6/22/19 I was assigned 500 stk. @ 8.00 = 4000.00 less 15.14 assignment fee = 3984.86.
    You might say so far so good received 3984.86 – 2906.21 = 1074.65!!!
    But what about the short 10 put where I received 1085.00 less 4.11 commission = 1080.89.
    The market shows for the 10 2021 putter a value of 2.15 so I show still a 2 cent premium before assignment of 500 stock at 10$. Naturally with an assignment cost of 15.00
    So again does a trade with a deep ITM caller pay. NO
    The only one who makes money here is the broker. Possible get a thank you card from TDA.

  33. Will This New Law Kill Car Sharing?

  34. VXX- thanks for the comments. It looks interesting but as always there is a serious risk issue if the trades are not sized and managed correctly. The VXX premium decay benefit is in the same vein as the short index strangles (the magic of premium decay) which was popularized by former (?) member/contributor Peter D. I have been trading short index strangles (SPX & RUT) for some years  each month and have produced regular profits ranging from .5% to 1% (occasionally when the VIX is up). I play these monthly with wide strikes, well out of the money (usually +9%/-12%) and limit the sold contracts to available margin allowing a wide cushion to roll 2X; 3X or even 4X (very rarely). I follow Peter's rule of thumb to reserve approximately $20,000 PM margin per contract pair (strangle). I have dipped my toe in the water with Palotay's Jan 50 caller just to see how it behaves and will need to compare the risk/reward. Index strangles are very sensitive to market volatility and the VXX trades appear to be even more so which flashes "danger" signals for the careless. I will tread very lightly until I get a few under my belt. 

    Still looking for an IRA income vehicle (over and above MMF) for my cash hordes. The PM restriction really limits one's options. Perhaps covered calls on dividend paying blue chips? If I recall, someone posted some info on such a program for IRA's some time back. Anyone happen to have that in their archives? 

  35. 10 Sunday Reads

  36. Words of wisdom?

    ……began today’s piece with a quote from the late great Peter L. Bernstein because listening to Marks reminded me of Bernstein. The great investors are humble, emotionally level-headed and well-versed in human behavior. Peter was an American financial historian, economist and educator whose refinement of the efficient market hypothesis made him one of the country’s best-known authorities in teaching investment economics to the general public. Bernstein authored one of my favorite books, Against the Gods: The Remarkable Story of Risk.

    Bernstein said, “The riskiest moment is when you’re right. That’s when you’re in the most trouble, because you tend to overstay the good decisions. Once you’ve been right for long enough, you don’t even consider reducing your winning positions. They feel so good, you can’t even face that. As incredible as it sounds, that makes you comfortable with not being diversified. So, in many ways, it’s better not to be so right. That’s what diversification is for. It’s an explicit recognition of ignorance.”

  37. Steer clear of paper money, Hamilton urged the central bank that he had not yet instituted. No wise government would trust itself with “so seducing and dangerous an expedient.”

    “In times of tranquility,” Hamilton goes on, “it might have no ill consequence, it might even perhaps be managed in a way to be productive of good; but in great and trying emergencies, there is almost a moral certainty of its becoming mischievous. The stamping of paper is an operation so much easier than the laying of taxes, that a government, in the practice of paper emissions, would rarely fail in any such emergency to indulge itself too far, in the employment of that resource, to avoid as much as possible one less auspicious to present popularity. If it should not even be carried so far as to be rendered an absolute bubble, it would at least be likely to be extended to a degree, which would occasion an inflated and artificial state of things incompatible with the regular and prosperous course of the political economy.”

    Dream on…..

    Because, in finance, all things are cyclical, and because, in life, there’s no free lunch, the open-minded speculator will ponder which cause is lost. Lost, or losing, for this column’s money, is the doctrine of radical monetary policy. Poised for a triumphal return is the ideal of a sound currency, fiscal balance, and the personal responsibility of bank investors for the institutions in which they own a fractional interest.

  38. Pstas – One interesting strategy that I came across that you can think about emulating is a partial covered call strategy on high quality dividend stocks.  Check out the fund KNG, and their strategy of buying dividend aristrocrats for their fund, and selling calls on 10% of their stock each month.  This boosts the yield on these dividend payers significantly (the fund is currently yielding 4.3% or so, which is more than double what the aristocrats yield on their own), and you still get the upside/growth of 90% of the stock.  They charge a fairly high 0.75% expense ratio to handle this for you, but if you have a large account you can setup an automatic call rolling strategy within the TOS platform and save the fees.

  39. VXX / Winston, pstas and Palotay – Some more notes on that trade. Clearly, there is not free money anywhere, but I have been studying and trading these instruments for a while. The downside has been that it became a crowded trade which was the downfall of instruments like SVXY where the funds actually were  responsible for an AH VIX spike to 60 because they had to cover short positions in futures! But if you trade carefully, and don't get overrun by rolling when needed, this is a pretty cool trade that can really boost your returns by 5% if you are super cautious and probably around 10% if more adventurous. One factor to keep in mind when evaluating a trade, VIX moves about twice as fast as VXX so a 100% move in the VIX means a 50% or less move for VXX. So evaluate where you are on the VIX and what a spike looks like. Right now a spike to 30 would take VXX to 40. So anything above that is relatively safe and very rollable.The key thing is that the VIX always comes back down – if he didn't we would have more to worry than just a few trades!

    As I said earlier this year, I'll document my trades by year end and see where I stand and what can be learned.

  40. Thanks StJ – that's helpful.

    pstas – thanks for sharing, interesting stuff. And as for PeterD, I wish he would have stuck around, I would like to have seen how his performance panned out on a long term basis. I hope he didn't leave because the strategy blew up.