Options Risk, Manipulation, And The May Silver $40 Calls: An FMX Connect Special - Parts 1 And 2

Tyler Durden's picture

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Robslob's picture

Where are the cliff notes?

VogonPoet's picture

I blurred at Correlation with the underlying. This is an interesting post for the layman who actually cares (like me), but Damn! this is a hard read at the end of the day. I hope I remember to revisit in the morning when i have more energy and better focus.

Doña K's picture

My hubby told me that to make money on options, you have to be lucky, directionally correct and buy them deep into the money.

Now I don't know what that means. But I know that my hubby is very smart. He bought me my first Porsche shorting Bear Sterns.

ShittyLipsMcCrapStain's picture

What an annoying fucking bot you are....

French Frog's picture

i eagerly await part3-4... for your prediction regarding the movement of silver before expiration next week

slewie the pi-rat's picture

hey, robslob, no prob, happy to share! wld you like the cliff notes for Pt. 1 or Pt. 2?

rumblefish's picture

does options expirations have anything to do with SLW being down while silver was up over the last few days?

ZeroPower's picture

Might have until last friday (OpEx), but would have had to see where the majority of the OI in the strikes was. Next monthly equity OpEx is May21.

Protonrick's picture

SLW's CEO unexpectedly resigned effective last Tuesday.  Sure looks like somebody knew that the day before, however.  A bear pennant resolved to a lower gap fill, and now the stock is back in action.  IMHO 

Dingleberry Jones's picture

Beautiful job. Seriously, many thanks.

NOTW777's picture

good stuff - always learning

ZeroPower's picture

Good options101 intro, but nothing here on the SLV manipulation, im guessing more posts are coming this week?

NOTW777's picture

how do we know for sure that "major" participants are absent in futures??

HK's picture

Here's an interesting article that surmises that major participants are usually present:

 

http://www.silverbearcafe.com/private/04.11/occam.html

 

 

Pegasus Muse's picture

+100 Great article.  Hoffman explains with great clarity the government's manipulation of the markets, particularly the gold and silver mining stocks.  Watching how the miners have behaved the last two weeks it is intuitively obvious what Hoffman says is the truth.

Bastiat's picture

A $4 (10%) takedown in a thin market into OPEX.  Entirely possible.  But it won't last long as the Asians BTFD.  There is also the matter of delivery in May . . . and the physical supply/demand function that just won't go away. 

macholatte's picture

There is also the matter of delivery in May . . . and the physical supply/demand function that just won't go away. 

 

This is a serious question: say I buy one June silver contract (to get away from the theme of the article) and about a week before expiration I tell my broker I want to take delivery. What happens next (please answer in these 2 scenarios):

scenario #1: normal supply, no problems with delivery (circa 2005)

scenario #2: supply compromised (problems of today)

Has anyone done this recently?

 

malusDiaz's picture

Step 1: They take your money.

Step 2:  "Magic Happens"

Step 3: PROFIT!

 

-Otherwise known as: Your silver is delivered to a JPM Registered vault (along with UoT gold) where you are not allowed to withdrawal it for national security reasons.

fmxconnect's picture

1- you declare intent to take delivery

2- your clearingfirm tells the exchange on first notice day

3- they start to hound you for the face value money to pay for it.

4- they ask if you want to keep it in the vault or do you want it delivered

 

scenario 1- see above

 

scenario 2- does not exist yet. you can take delivery of bars anytime you want. but if it did the exchange would find a short like in scenario 1 and tell him he must either reissue or make delivery. if he didn't have the metal he'd lease it form someone else to make delivery or  cover the short contract or roll the short back deferring delivery. Enough deferring and contango becomes backwardation as we have today. if there was noone who wanted to make delivery then the market would rally on short covering.

 

If there was no physical to back the contract, the contract would be broken.Google Potato contract on Nymex back i nthe day.

most likely, the govt would step in declare crisis, suspend delivery, make everyone settle in cash and the contract would continue to trade. Albeit at a discount to real silver

 

 

macholatte's picture

thanks for the help.

next question is how to get protection from a broken contract, is there insurance available?

It would be interesting indeed if a single individual who wanted to take delivery, put the goods on his own truck and not leave it in the JPM vault in return for a receipt (JPM fiat) caused the kind of market disruption you outline above.

Math Man's picture

The theta decay won't matter any  more when silver breaks $40 later this week...  this bubble has gotten out of hand.  It only costs $5 bucks to dig it out of the ground.

 

 

 

Bay of Pigs's picture

And of course, you can't eat it either.

Tears of the Moon Mathboy...

akak's picture

It only costs $5 bucks to dig it out of the ground.

And there's only about $3000 worth of actual physical materials in a new $35,000 pickup.  So I am going to immediately go to my nearest truck dealership and demand that they sell me a brand new pickup for $3000.  Thus dictates the logic of MothMan.

malusDiaz's picture

And plants grow in the sunlight for free!

Chickens pop eggs out and you don't have to pay them either!

WTF!  I Demand my free food!

 

iowaguy's picture

Don't forget that any money from the government is free money.

Hephasteus's picture

Why does it cost 7 cent's to make a nickel?

Because it costs 12 cents to make a 100 dollar bill!!!!!

Dr. Porkchop's picture

If you had the parts and brought a team of 10 autoworkers to your home shop; do you think they would be able to assemble the truck?

rumblefish's picture

if thats true, you should be buying SLW in addition to physical. A whole lot of FRN's wil be coming their way.

ssp2s's picture

Meth is back!  Your return is a major buy signal.  $50 apparently is on the way.

quartshort's picture

Ok you dumb bastard ass... Here is five fun tickets courtesy of Ben. Start digging. When you get to six feet quit, and and proceed in reverse from the bottom. This makes about as much sense as your dumb fucking comment above. Personally, I'm praying for the miner trapped over the hill here in Idaho, but I assume you have rolled that one into your feeble calculation. Using the ass cracker's logic I can go outside and put a five dollar butt wipe in my back yard and PoOf... an ounce of silver will appear. Damn it. I just spent ten mintes on my turd phone just to reply to this shit. Worth every second.

Dr. Porkchop's picture

Try not to get too worked up. He's just a troll. He probably doesn't even believe his own bullshit. He's just here to agitate people, as trolls do.

gwar5's picture

Good stuff. I think I grew more hair on my synapses. I'm good holding physical metal. Playing the game is a fun and gets the adrenaline pumping, but not for me anymore. I mostly got out of the market in Nov 2007. Just rode it down with short ETFs.

Much more fun and liberating being out of the banking system and going John Galt, going dark. No thinking about capital gains on transactions. Just watch PMs and a few other hard assets do well. 

In psychology, this "rate of change of the rate of change," is called stepping on the Happiness Accelerator

Galt out.

 

 

slewie the pi-rat's picture

yay for gwar5!!!  yay!  will be self-medicating in yer honor, tonight!

NotApplicable's picture

So, where's the $40 May silver calls example?

Did somebody fat-finger the copypasta?

fmxconnect's picture

part 1 implies if we are near the 40 strike come next Tuesday, watch out.

we'll get more specific on the how in subsequent parts.

slewie the pi-rat's picture

9% correction, we're there!  

i think if the beta gets the delta goin, the gamma and theta will just rock!  

does silver even have a beta?  i'm not sure.  if it doesn't, slewie will give it one.  how about 70?

Cow's picture

Great stuff.  This is easily the best website on the web.  I'm sending them some money.  

 

Theta_Burn's picture

Suffering the burn as we speak...

Nice piece

Bubbles...bubbles everywhere's picture

Dog gone it...I knew I should have joined a fraternity in college.

bigdumbnugly's picture

yeah, trust me bubbles, that didn't help...

AboutAverage's picture

Here is an option lesson.  Those who know the position balances and control the price - win 90% of time.    Those who have the government in their pocket and know balance positions and control the price - win 100% of the time. 

Life lesson - don't play a rigged game.   If you want to gamble, go to Vegas.  I read somewhere they are closing down online gaming - probably because the payouts are better than the Street.   Got to eliminate that competition!

fmxconnect's picture

This is essentially Part 3. thank you for summing it up so neatly.

Theta_Burn's picture

Don't play a rigged game...amen

The destruction of my trading account this year was epic.

 

For those options trader out there, if you haven't seen this, its pretty cool http://www.optionpain.com/MaxPain/Max-Pain.php

been there done that's picture

This is REALLY GREAT!!! Thanks. I tried making one of these using a spreadsheet but you had to copy and paste options data. This ROCKS!!!!!!