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BoomBustBlog Trading Update 8/19/2011 - US Equity Broad Market Options Return Triple Digits, Volatility Eating Profits Alive!!!
A more advanced approach to monetizing volatility in the US equity broad markets (at least comparison to the introductory subscription document SPY option strategies in violent down moves) is to trade the SPX options or futures directly. The spreads in the options are MURDER and the volatility has already jumped. If you would have acted when we first indicated, you would be in profit heaven right now. Reference The 830% One Week Armageddon Trade Commentary: Tuesday, 8-9-2011, Continuing The Easily Seen Market Crash?, as excerpted:
All subscribers are welcome to download this full document This is the introductory post to a series of trade setups for European Bank at Risk, complete with sample trade setups. Since then, my Armageddon put trade has come a long way...
So, the question for all of new comers, Johnny Come latelys, skittish or those following the all will be well because the Fed/ECB are all powerful... Is it too late to set up new, profitable bearish positions? My answer is an unqualified "No" once it comes to our subject banks/countries (althought the risk/return on the French candidate is now diminishing save an all out rout, which is quite possible referencing the post The French Government Creates A Bank Run). We are working on the US contagion bank (reference 
Actionable Note on US Bank/ French Bank Run Contagion) and have yet to provide a valuation band, but if things kick off this will throw off considerable alpha. As for the simpler and more generic broader market, it all really depends on whether you belive the "long-only" asset management and sell side analyst crew are more credible than I am (see Did Reggie Middleton, a Blogger at BoomBustBlog, Best Wall Streets Best of the Best? for more on this topic). If you feel that I have a point in that the European situation will not end favorably without debt destruction, and said debt destrucion will destroy massive amounts of bank TEC, than the decision is easy. See the link list at the bottom for more on this topic. We also have the real estate problem hiding in both the US and European banking markets. These, in addition to insolvent sovereign states add up to an event worse than post-Lehman. If that's truly the case, then this is a no-brainer, even with nosebleed volatility levels. Take a look at the comparison of where we stand now and where we stood at the Lehman blow up...
Now, don't get me wrong. The path back to the bottom is fraught with risk, excessive volatility and markets so choppy as to be able to remove your head. Remember the bear market rally of 2009 that lasted until just a few months ago? Even correct calls this week proved to be considerably less profitable due to the heightened vol levels, at least in comparison to my 850% put trade referenced above. See what I did this week in relation to the broad market.
The SPX Oct. 20 1005 puts that I OVERPAID for on the 16th (as a result of getting stopped out of my previous Armageddon trade at 350% return down from 850% due to my ignoring my own advice and not gamma hedging/taking profits), went for $13.81, as was logged in my inventory. Today, with several significant drops in the broad market, these puts are currently bid at 23.70 and asked at 27.8. That's barely a 100% gain, wherein I posted a 550% gain last time around due to purchasing them when volatility was at a discount. Yes, the returns do sound good, but they are also rapidly diminishing... At this point, I would like to make it clear that this is not the market, and these are not the instruments for novice, meek, first time investors with a typical sell side directed brokerage account.
I will be posting more advanced trade setups over the next few weeks for professional and institutional subscribers and will post trading opinion slightly contrary to this piece later on today or tomorrow to give readers and subscribers a broader purview.
Bank Run Candidate Option Trading Update (referencing native exchange pricing, ADRs are available for US investors)
As opined in the subscription trading setup available for download (This is the introductory post to a series of trade setups for European Bank at Risk), there was vacuum below the trading range drawn below the graph on page one (and similar levels for the other bank at risk) so it wasnt surprising we had this -20% (intraday on Tuesday) move in French banks when we broke the support convincingly. We already rallied significantly from the previous lows, because of the short selling ban but banks are clearly f*cked and even the short ban will not help much for recovery, and to the contrary will thoroughly assist prices in their collapse on the way down - reference The French Government Creates A Bank Run? Here I Prove A Run On A French Bank Is Justified And Likely.
The conservative struck puts will probably end up making in excess of x3. The 40 gamma trade put already made a killing trading around 6 (x4) still, while having plenty of gamma on the way down. Rmember, volatility literally exploded as I update this slighlly dated report at 3:58 am EST, the European markets opened sharply down - led by the banks, of course.
Remember, after EVERY violent move in your favor, but particularly downward, it is YOUR DUTY to take profits and DELTA HEDGE!!!
My warnings on the most recent banking crisis started in 2010, but here are the most recent rants starting with...
- then a research note to subscribers, The Inevitability of Another Bank Crisis,
- followed by blog posts on the same, see Is Another Banking Crisis Inevitable?
- then a full fledged, step by step tutorial on exactly how it will happen....
- The Mechanics Behind Setting Up A Potential European Bank Run Trade and European Bank Run Trading Supplement
- What Happens When That Juggler Gets Clumsy?
- Let's Walk The Path Of A Potential Pan-European Bank Run, Then Construct Trades To Profit From Such
- The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!
- The Fuel Behind Institutional “Runs on the Bank” Burns Through Europe, Lehman-Style!
- Multiple Botched and Mismanaged Stress Test Have Created The Makings Of A Pan-European Bank Run
- France, As Most Susceptble To Contagion, Will See Its Banks Suffer
- Observations Of French Markets From A Trader's Perspective
- On Your Mark, Get Set, (Bank) Run! The D…
- ECB As European Lender Of Last Resort = Institutional Purveryor Of A Pan-European Ponzi Scheme
Over the next few days I will offer advanced trading techniques to allow BoomBustBlog subscribers to monetize their view via the market, despite the attempts by those who do not see to manipulate free markets. In the mean time I will excerpt portions of the Pro/Institutional report on the French bank most at risk for a run, available for download right now - Bank Run Liquidity Candidate Forensic Opinion.
Bank Run Liquidity Candidate Forensic Opinion. Here are a few screen shots from the free public abridged version ( French Bank Run Forensic Thoughts - pubic preview for Blog), that easily demonstrates the problem with the French banks cannot be solved by banning short selling. The problem is inherent in the banks themselves. Please click to enlarge to printer quality...
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Reggie is one of the best cheater analysts. With an one eye on the fundamentals and one eye on the cheater's toolkit and motives - he provides some of the best cheater analysis currently available. You go Reggie.
Reggie,
Is there a trade strategy for novice, meek, first time investors with a typical sell side directed brokerage account.?
Maybe something we could watch quarterly?
30% Physical metal / PHYS
30% Cash
40% SH
I worry about the Compounding Risk in SH. Are there any alternatives? IMO your best post yet.
Have you ever made a bad trade or prognositcation in your life?
What kind of ass are you anyway?
Look, based on the past performance of the central planners. Having bank puts in place was something many of us saw. Reggie does a good job of articulating it and I appreciate his candid information. I have some great puts in the tech sector too, but as Reggie points out, you can lose your head if you are not careful.
the head, the tail, the whole damn thing.
Normally I would ignore you because you're being an asshole, but your questions would be pertinent if asked as a professional, so I'm going to pretend you have some manners and decorum and address it anyway.
Of course I make mistakes. I've been uncannily accurate because the path is very clear going forward... Many massive insolvent entities will either crash the global economy as they implode or create a material drag on growth as central banks and associated sovereign entities squander precious resources to save the although it is contrary to common sense.
With that being said, following the empirical path is not easy. I lost half of my market crash profits by underestimating both the breadth and the depth of the bear market rally in 2009. It was ironic since I actually called the start of said rally (it was luck, actually) the weekend before it started. See my response to my readers and susbcribers... 2009 Year End Note to BoomBustBlog Readers and Subscribers A year end letter to readers and subscribers (what was tantamount to an apology for what I considered subpar performance for 3 quarters in a row. That was a period where fundamentals and valuation (my forte) meant absolutely nothing, and it showed in my performance.
2009 took back more than half of my 2008 gains too. greatly influenced by reading reggie's analysis i had 1100% gains in 2008.
at one point in october of 08 i was up 400k and down 800k then back up 200k on an /es futures trade over an 8 day period. white knuckles my ass, the bones were sticking out of my fingers i was holding on so tight.
Touche
I appreciate the candid response.
Once again, Reggie proves he is a class act.
Plenty of ego, but no B.S. & lot's of wisdom backed up with real numbers.
Thanks, Reggie. Your insights are ALWAYS appreciated.
Wow Reggie!!!!!
If only I would act on your recommendations. I could be sooooo rich.
Well then, just do it.