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Stock Thread (19 Viewers)

siffoin said:
Ok.  First - whatever stupid thing I type here is for informational purposes only as is not intended as investment advice.

First thought on the Fed raising interest rates.  In the words of the Great President George Bush I..."Read my lips - the Fed is never ever ever ever never ever never ever ever going to raise interest rates in any meaningful way...EVER!"

Sure like a 3 year old addicted to her binkie Wall Street might throw a temper tantrum when the idea of weaning off that binkie is presented...but like over indulgent parents the Fed will cave at the first sign precious is upset and make sure she is soothed. 

A .25pt raise in interest rates might cause a short term Wall Street tantrum...but not a 30% crash.

My opinion of the overall market - it's pretty dang bullish...price is above multiple levels of support and the blips we've seen over the past week are just that---noise in an overall bullish trend.  Hell we didn't even tag the first level of support (yet).  

With that said - there's a lot of smoke and mirrors to this market...and there are a lot of potential issues that could cause a more significant drop.  I'd like to think 10-20%% is the max...but the question is how to protect on a 30-40% drop...so that's what I'm answering.

To get to a 30% crash we're talking about a black swan event.  Actually with all the circuit breakers, stop gaps, global central banking intervention...for the market to drop 30-40% in a span of a few weeks - months we're talking about multiple black swans occurring at around the same time.

What exactly is a black swan? To put it in perspective you guys can understand.  The LA Rams playing for the Super Bowl this year is a black swan event.  The Rams playing the Browns in the Super Bowl is a double black swan event.

So that's what we're betting on.  The Rams Vs. The Browns in the Super Bowl actually happening.

I'll be back later to describe how to structure that position.
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Sand is exactly right.

Black Swan events do happen and they happen all the time.  It's just tough to predict - though in hindsight obvious.

So back to the hedge.  

The Black Swan Hypothesis is that over the next number of weeks/months the $SPY will drop from between 30%-40% and we want to protect our long position with cheap insurance.  We're not looking to necessarily capitalize on the crash - just wanting to protect the portfolio from catastrophic loss.  We have a well diversified portfolio that is valued at $100k.

$SPY is currently priced at $215.  We own 465 shares of $SPY (465 x $215= $99,975).  Our hypothesis suggests a price below $150 in the near future. At $150 our portfolio would be valued at $69,750 (465 x $150).

The easiest hedge is with put options.  In this case I'd look to the Nov Expiration $SPY 180 Puts.

Why the 180's? 

If $SPY were to crash to below $150...those $180 Puts would have an intrinsic value of $30.  The $180's would gain $1.00 of intrinsic value for every dollar below $180.  So at $170 = $10 Intrinsic Value; $160= $20 Intrinsic Value; $140= $40 Intrinsic Value.  With $SPY at $150 - one $180 Put Contract would be worth $3000.  Because we're looking to protect $100000 portfolio against $30k in losses; we'd need to purchase 10 Contracts.

At the moment (Monday at 9:30am) the Nov $180 Puts are trading $.39 x $.40.  In our case we'd buy 10 contracts at $.40 or $400.  So for $400 or 4 tenths of 1% of your portfolio value you have black swan insurance through Nov expiration.  Holding Nov Puts, also gives you the freedom or "option" to roll the position out sometime between now and that expiration - likely prior to Oct expiration.  3 Rolls would purchase "insurance" through March 2017 at a total cost of 1.5-3% of your portfolio.  

The truth of some possible scenarios how the position would likely unfold:

1) $SPY stays at this level or rises.  Your Puts are going to expire worthless at $0.  Sucks losing $400, but I take it most people purchase fire insurance for their house and aren't too disappointed when their house doesn't burn down.

2) $SPY Crashes about 15% to $182.75.  YOU LOSE, YOU GET NOTHING.  GOOD DAY SIR.  I SAID GOOD DAY! This scenario is like being punched in the face by Mike Tyson 1988.  You are right about a major decline but the magnitude of the decline was less than your position.  Here not only do you lose the $400 "insurance", but your portfolio takes about a  -$15k hit.

3) $SPY Crashes 20% to $172.  In this case the $180 Puts will have $8.00 of Intrinsic Value x 10 = $8000.  Your $SPY Portfolio will be worth $79980 (465 shares x $172) + $8000 Put Value for a total value of $87,980.  Slightly Hedged

4) $SPY Crashes 30% to $150.  In this case the $180 Puts will have an Intrinsic Value of $30 x 10= $30000.  Your $SPY Portfolio will be worth $69,750 (465 shares x $150) + $30000 Put value for a total value of $99,750.  Fully Hedged

5) EDIT: $SPY Crashes 40% to $129.  In this case the $180 Puts will have an Intrinsic Value of $51 x 10= $51000.  Your $SPY Portfolio will be worth $59985 (465 shares x $129) + $51000 Put value for a total value of $11098599,985.  Fully Hedged+

Side Notes:  Options are priced according to Intrinsic Value and Extrinsic Value.  Right now those $180 Puts have $0 Intrinsic Value and $.40 of Extrinsic Value.  In a crash scenario volatility would rise, and Extrinsic Value would rise dramatically.  For example if tomorrow we woke up to find Black Swans Crashing and $SPY dropped all the way to $150. The value of those Nov $180 Puts would be close to $50+...$30 of Intrinsic Value + $20+ of Extrinsic Value because Volatility would be at an extreme and push the Extrinsic Value up up up.

One note about "crashes".  Crashes suck.  It really bothers me when people "root" for one.  The truth is there would be a lot of collateral damage in a crash.  A crash of 30+% catastrophic.  Lives forever changed for the worse.  Yours might be one of them. 

Now the question as to whether now is a good time to hedge?  These are questions best answered in hindsight.  The odds of a 30% crash these days is very very small.  I thought the Rams would lose yesterday too.  Technically the market looks very bullish overall though I leave it open to change my mind.

 
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bueno said:
Never happen.
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It already has, dummy.  The stock is up over 400% YTD.  Cobalt prices are heading higher and the crappy little juniors will benefit, just like they did in the uranium cycle, even when we all know they won't take anything meaningful out of the ground anytime soon or ever.  Difference is, unlike uranium, there's only a handful of crappy little juniors.

 
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Thanks Siff... I'm far from a bull, but not an end of world guy either. 

I'd think 30-40% would be massive and we would really need some sorta unforeseen shock to make it happen. Things that do have me on alert right now:

  • Election
  • Fed - Rates, market being driven by Fed
  • High valuations
  • Declining earnings and lower bars
  • BONDS
When the safe asset is scaring investors, we could have problems, why I highlighted bonds. 30-40% would be pretty intense, but I guess if everything above snowballed, it could happen, just not the likely scenario right now. 

10% would not be shocking to me though. 

 
St. Louis Bob said:
Man, glad I'm not Stumpf right now. :popcorn:
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I'm obviously not going to condone what happened there, but it's easy to stand there and say, "You should be fired. You should be investigated.  You're gutless for not firing any executives."  It's pandering to the public without having to consider whether it's actually what's best for customers or the company.

 
Yeah,  I mean they used to complain when banks didn't want to give new accounts to some people. Now they're giving lots of accounts indiscriminately to lots of people and they STILL aren't happy. The public is fickle.

 
Taking a shot on GNCA here. Reporting additional Phase 2 results on a genital herpes treatment at the end of the month and there's really no negatives I can see. Except for having genital herpes. That seems bad.

Anyway, bought 700 shares at around $5.20. Speculative biotech play. 

 
Bob Sacamano said:
I'm obviously not going to condone what happened there, but it's easy to stand there and say, "You should be fired. You should be investigated.  You're gutless for not firing any executives."  It's pandering to the public without having to consider whether it's actually what's best for customers or the company.
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I agree but to me he comes off as a lying ####### that forced unreasonable expectations on his employees.

 
eoMMan said:
Anyone know much about GLPI (Gaming & Leisure Properties)?

They bought some Pinnacle casinos apparently and although this brought on some debt, they expect the increased revenue to more than make up for it. Very nice dividend too.
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Sorry I am so late in replying to this....but I own shares in this company. I bought it a long time ago in the high teens. Great gaming REIT to own. Excellent dividend.

 
Bob Sacamano said:
I'm obviously not going to condone what happened there, but it's easy to stand there and say, "You should be fired. You should be investigated.  You're gutless for not firing any executives."  It's pandering to the public without having to consider whether it's actually what's best for customers or the company.
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It is total political grandstanding and it is disgusting. 

This is going on at all the major retail banks, not just Wells. BoFA, JP, PNC, TD all these banks push products all day every day. Have sales goals, have bankers opening accounts without getting client consent......#### has been going on for decades.

 
Bob Sacamano said:
Sounds about right. 
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This comes from middle market management. The guys at the very top are not even aware of all the widget craziness going on. There are lot's of measures in place to monitor this stuff.....but sometimes it can get out of hand fast.

A lot of people are losing their jobs over this. But the CEO and board of directors? LOL come on. They will correct the mistakes made by all the foot soldiers. This is a wonderful opportunistic way to make it like she can stick it "to the man" and rally her voters. 

It's all grandstanding.

Fine the crap out of them, fire a ####load of employees who were doing the wrong thing. 

No one puts a gun to their head and says do this. They do not condone unauthorized account opening. That is on the employee not the employer. We all have goals in a sales environment. There is a right way and wrong way to attain them. 

Let's blame the big guys at the top for putting too much pressure on employees to meet sales goals......really? ####### really? 

They knew they were doing something highly unethical. Fire them, make better internal controls and move on. This is not on the guys at the top. This is a failure of internal control at several levels....but not at the top. Sorry. I worked at a major bank for a decade......those guys are not in touch with the retail side much. This is being run by guys making 250-350 a year.....not the millions Warren was lecturing.

LOL....what a joke.

 
Todem said:
not the millions Warren was lecturing.

LOL....what a joke.
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I don't disagree with a lot of what you said, but this is also part of earning your millions. Pretty much every banking CEO/Chairman has faced this already and they have to sit there and take it.

 
RUSF18 said:
I don't disagree with a lot of what you said, but this is also part of earning your millions. Pretty much every banking CEO/Chairman has faced this already and they have to sit there and take it.
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Agreed.....they have to sit and face that stuff...comes with the job. I get it.

But wow....what a hyperbole ramble Warren laid on there. It was embarrassing. She sounded like a dimwit.

And make no mistake 2 million fraudulent accounts is no joke. That is a major breakdown in client information integrity and security. But the fact is all these bank employees have access to this information and are expected to act ethically and with integrity. A major problem in the last decade and half is the hiring practices of major retail banks such as Wells Fargo and Bank Of America etc is they are hiring highly unqualified people and putting highly sensitive information in their hands.

I can't tell you how much fraud I used to catch internally when I worked at Bank of America for over a decade. Holy cow man. It was ridiculous. 

 
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But wow....what a hyperbole ramble Warren laid on there. It was embarrassing. She sounded like a dimwit
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Average person won't see it that way,  though. She was fighting for us against the evil banks. 

 
No surprise. I bought a few EOM S&P 2060 puts basically for nothing beforehand. If they would've shocked prob wouldve turned $300 into $10k, worth the gamble.

 
Another $1 million SMA committed today.  All going to buy physical cobalt.  That will bring us up to a little over 400mt under management.  Started buying at 11.  Quoted 13.10 just now.  

:coffee:

 
Long gold after the BoJ last night, glorious day, closing it out.

Getting ready to start shorting the Euro - Dec contract currently at 1.125, looking to start scaling in around 1.1235

 
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I want to be bearish so badly, it's just impossible, tape is too strong.

I think at some point (obviously the when is the important stuff, but impossible to figure out), we will look back and see what a huge equity bubble the central banks created, but it's just impossible to fight right now.

 
fantasycurse42 said:
Long gold after the BoJ last night, glorious day, closing it out.

Getting ready to start shorting the Euro - Dec contract currently at 1.125, looking to start scaling in around 1.1235
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Gold flew today, day traded it. 

Euro reversing off of today's highs. After the reaction from yesterday, reality of a weak Euro hopefully settles in. Think this could be near 1.09 in December which would make a great play. If it closes in the range it is in now, think yesterday becomes a faded memory.

 
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fantasycurse42 said:
BBBY, was watching out of curiosity, nice call.
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Yeah, I would have covered last night so left some money on the table.  Still, can't complain or pass up that $550 in a day.

Also;

AMZN!!!

CMG!!!

EVERYTHING ALMOST!!!!

 
I found another awesome company the other day to accumulate long. CYBE. 

Profitable, high tech, no competition. 

CYBE and MZOR = ?????

 
Al Czervik said:
Really want to buy some XOM.  SEC now investigating them.  Wonder how low the price will go?
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Watching XOM as well, but no appreciable dip as yet.  Ditto for WFC.  Was hoping for a bigger dip after the hearings....

I've moved to about 18% cash, pre-election, and am hoping for some panic selling that I can take advantage of in November.

 
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