HOLY SMOKES : Did i read this right? Dow below 10,000 S&P;1,100 Nasdaq 1500. Is this possible by October?

NEW -> Contingent Buyer Assistance Program
I saw the VIX hit over 40 and then fall back and I decided to sell my 200 shares of QID @ $55.80/share (ultra short NASDAQ 100 ETF) which I picked up for $41.50/share back in late August. The talking heads on CNBC are working double time to pump the market up. I don't buy this short covering rally.
 
I've been using/abusing calls/puts on GS all day for my personal account. It was a glorious day indeed.



Volatility = sex for me.
 
[quote author="blackvault" date=1221793066]I've been using/abusing calls/puts on GS all day for my personal account. It was a glorious day indeed.



Volatility = sex for me.</blockquote>
I picked up 10 Sept $18 Calls on Oracle @ $0.70 earlier today because I saw a huge amount of Call Buying volume today (usually an indicator that the earnings will be good). Stock is up over $1 after-hours after posting better than expected earnings.
 
[quote author="usctrojanman29" date=1221794616][quote author="blackvault" date=1221793066]I've been using/abusing calls/puts on GS all day for my personal account. It was a glorious day indeed.



Volatility = sex for me.</blockquote>
I picked up 10 Sept $18 Calls on Oracle @ $0.70 earlier today because I saw a huge amount of Call Buying volume today (usually an indicator that the earnings will be good). Stock is up over $1 after-hours after posting better than expected earnings.</blockquote>


I earned $47.12 on my CDs today...
 
[quote author="ipoplaya" date=1221798635][quote author="usctrojanman29" date=1221794616][quote author="blackvault" date=1221793066]I've been using/abusing calls/puts on GS all day for my personal account. It was a glorious day indeed.



Volatility = sex for me.</blockquote>
I picked up 10 Sept $18 Calls on Oracle @ $0.70 earlier today because I saw a huge amount of Call Buying volume today (usually an indicator that the earnings will be good). Stock is up over $1 after-hours after posting better than expected earnings.</blockquote>


I earned $47.12 on my CDs today...</blockquote>
That's damn good for CD interest in one day...benefits of those sales proceeds, eh? ;)
 
<em>I earned $47.12 on my CDs today? </em>



I probably have more couch change, than interest earned on my CD today.



The bright side is, I haven't lost 15-20% of my $$ in the market ! I would have if I didn't decide to go the safe route last year.
 
[quote author="usctrojanman29" date=1221799581][quote author="ipoplaya" date=1221798635][quote author="usctrojanman29" date=1221794616][quote author="blackvault" date=1221793066]I've been using/abusing calls/puts on GS all day for my personal account. It was a glorious day indeed.



Volatility = sex for me.</blockquote>
I picked up 10 Sept $18 Calls on Oracle @ $0.70 earlier today because I saw a huge amount of Call Buying volume today (usually an indicator that the earnings will be good). Stock is up over $1 after-hours after posting better than expected earnings.</blockquote>


I earned $47.12 on my CDs today...</blockquote>
That's damn good for CD interest in one day...benefits of those sales proceeds, eh? ;)</blockquote>


Yaup, and a lot of work digging up high rates. I am earning a blended return of 4.3% across my CDs and Everbank money market.
 
Man, all of you guys make me feel slow and stupid. Shorts? Puts? I don't even know what this stuff is.



I was reading Bernanke's stuff on the Great Depression, and looking at the state of things today. Bernanke was in the minority of thinkers who believed the great depression was heavily caused by loose credit standards. I'm glad he's chairman as I think he's right about that.



Also, back in the 20s, there were a lot of investors who were buying shares but didn't actually have the money ($1 for $100). And then when they lost, everyone went to them looking for their $100 and poof! None of that money was real. So the money just disappeared right?



I was trying to make sense of everything that is happening. This money isn't disappearing today is it? Home sellers got tons of money from the inflated sale of their houses, and then put that money into the stock market, which I personally think caused it to go up farther than it had any reasonable expectation of doing otherwise. Then let's say that investor put their money in AIG at the top. Well the person who sold AIG stock then received that money right? So where is all the money going? Isn't the real problem that investors who are selling at the top, see the wildness of the market and take their money completely out of the system and sit on it. (Including taking it out of the banks, just as in the great depression). Then, if suddenly everyone wakes up at the same time from their long binge of overconsuming, and everyone starts saving (by putting their money in the mattress because they're scared), then what we have is a lot of liquidity taken out of the market, right? Basically at the top to the bottom, people start hoarding money to get through a tough time, which the hoarding of money is making the tough time much tougher. And slowly over a period of many many years, people spend that money to live, and the money slowly shows back up in the market again.



Is this what's going on? What do you guys think?



I was also reading, back in the Great Depression, that the differntial in wealth was about as wide as it is today. Top 1% controlled as much as the bottom 20% kind of thing. Bernanke's ilk believed that the problem with this kind of thing is that when the financial markets fail, then the people who are harmed the most are the top 1%ers. And because they control the vast majority of wealth (and thus the economy), destabilizing them ends up screwing up the whole system.



(Which is why people say you need taxes to re-distribute wealth from the high end to the low end. Not for fairness, but to keep the world economy diversified... so to speak).



I feel like this is the right idea of what's going on. But I just don't understand the role of inflation. I guess what worries me (as a person with a big downpayment hanging out to buy a house, and enough cash to last 3 years without employment) is that we might see the German model of burning money for fuel (b/c it was so worthless), and then all my careful planning will blow up in my face. It's this type of thinking that gets people to buy gold right?



But I personally look at gold and think "Jesus, I ran my grandmother's jewlery store for 5 years and I've seen nothing like this. This is stupid."



Back in the Great Depression the US had almost all the world's gold. What did that mean? Did we experience hyperinflation? I don't know enough about those times. I do know enough to know that I'm going to screw up timing the gold market. Even if I tried, I feel like I'm trying to read the psychology of the bankers and not the value of the metal themselves. Can't the bankers deflate or hyperinflate our money depending on how they react in mass? Won't all money deflate if the whole world goes down the tubes together (All our currency is worthless compared to one anothers). It seems, if you count on Gold, that you count on the US currency completely devaluing in comparison to everyone else. I could see that happening, but I could also see everyone else collapsing too just as easily.



I'm going to be buying a house in dollars, I assume. That is, if my money isn't worthless by the time I get there. I'm just going to park it at the safest bank I can find. Which for me is USAA. They stodgily made me jump through all these hoops for a mortgage and had ok rates when everyone else was throwing money at me. At the time I was annoyed and got a loan somewhere else, but now it makes me want to bank with them.



Sorry for barging and posting so long. Just wanted to vent after a sleepless night investigating gold and bank credit ratings.
 
When I invest in anything...I ask myself one question before I begin to do anything.



Is this security likely to go up or down at this point given the current market conditions.



As far as gold? It's been hovering at its highs for a long time...the way I see it is that it's more likely to go down then up. So in that case I wouldn't touch it. But at the same time that is the only thing going up in a market where stocks are going down, right? Well, you have to stop thinking the only way to make money in this market is hoping securities through appreciation You have to be open to other possibilities where you can make money when things are going south. This isn't easy mentally to train yourself to do. So do a combination of both to get your feet wet...



Earlier I mentioned to ask youself whether something is likely to go up or down before you invest. Simple probability. So now lets take Best Buy for an example....



BBY is at its or near its two year low. Why not invest money into a security that is on the lower end. In my opinion there is a better chance for Best Buy to go up then Gold. Also, there is a better chance Gold will go down then Best Buy will...However, the big problem is what will happen now...can gold go up in short term and Best Buy keep going down? yeah it can, so thats why protect yourself.



Here is a simple strategy you can do when you spot a good opportunity. I'll use BBY again for an example, because I did this exact thing this morning for my own personal portfolio.



BUY BBY and then buy a 2-3 month out puts for the same strike price that the stock is at. When you buy a put in this case you are buying insurance. Short term insurance that will expire in 2-3 months. The reason I would do this is because you want to protect yourself against uncertanty we are in. But at the same time you don't want a company that is at its lows to slip away and rebound higher where you miss your opportunity. Also, have a strategy in mind. A good strategy is not to go all in when you do this. Buy in 2, 3 or 4 segments. I decided to do this in 2 segments, meaning I will place a 5K investment now, and another 5K later. This is because I want to protect myself further in case it goes down by cost averaging.



So lets create a scenario....You buy BBY at 40, with puts @ 40 strike 2-3 months out. ((A good rule of thumb is that I buy 1 option contract for every 100 shares of stock I buy at the strike price that the stock is currently trading at/near it.)) If the stock drops to 30 you lose 10 bucks for every share, but you most likely made 10 bucks for each share on your puts. Giving you a wash. Now go ahead and fire your second bullet and buy the remainder shares of Best Buy at 30 and sell your puts. So not only is your break-even now at 35, you really didn't lose anything either. You covered your losses with puts and you had an opportunity to now bring down your costs from 40 a share to 35 by cost averaging.



IF BBY goes up instead of down, then so be it. Don't fire your second bullet because now you would be cost averaging down. Simply look for another apportunity and let the current one ride. As far as your puts take a loss on it and call it a day. Remember, you only lose what you put in. Your losses on puts are limited. You can even sell it for a partiall loss if you are convinced that the market is stabilizing. Or for a small fee, you can have constant insurance by selling your put (always sell 1 month prior to experiation because the time value of money has its strongest impact 1 month or less on option contracts) and buy another set of options 2-3 months out. So yeah you will lose some money if the stock keeps going up, but you NEVER EVER have to worry about losing all your money on your stock. Because if it tanks, you will make a killing on your options to cover your losses.



Ther are actually a ton of strategies you can use here, some being a bit more complex then I care to explain at 9pm with a full stomach. But maybe I'll give another lesson on something else.



If you already knew all this, then ignore this post. ;)



For myself...the past 2-3 weeks have been the best I could have asked for as far as investing goes. When you trade options volatility is your buddy, and past 2-3 weeks especially past 2-3 days making 100-200% a day is easy.
 
When the 3-month treasuries went negative yesterday morning I figured that was so stupid it was a bottom, for the short term. Got in big on the S&P at the close yesterday but was a bit nervous today, but patience paid off. I'll get another rally or two, good for a quick and safe 10%. Don't see the Dow hitting 10K with this Uncle Ben back stop. I'm long of Communism.
 
Blackvault - If you are going to reference the highs, (or lows), of any commodity, wouldn't it not be more honest to use it's inflation adjusted values?
 
[quote author="jefa" date=1221815571]This money isn't disappearing today is it? Home sellers got tons of money from the inflated sale of their houses, and then put that money into the stock market, which I personally think caused it to go up farther than it had any reasonable expectation of doing otherwise.</blockquote>
Not sure how this will affect your decisions, but the money is indeed disappearing. Homesellers did not put the money into the stock market (I'm sure some made it there, but not the majority) but rather into a new house; they became the classic "move-up" buyer. The reason that the stock markets rose was in part due to hedge funds and their automated trading, partly from investment banks, but mostly due to cheap credit and lax regulation (think leveraged funds) increasing the amount of money institutions had at their disposal. Those leveraged banks were forced to sell those assets (hence the market drops) in a hurrry to cover margin calls when other assets they held (mortgage-backed securities and derivitives of same) were apparently not worth what they paid for them and they were forced to writedown their value and recognize them as losses. This caused others to begin making more margin calls and the downward spiral began.



Homesellers that didn't dump their profit into their new dreamhome or vacation home might have saved it, but most likely they spent most of it on new cars, clothes, furniture, TVs, etc. As stock markets have declined, so has the value of many retirement accounts, pension funds, hedge funds, etc. While there are large amount of money waiting on the sidelines to invest, they aren't coming back in until things have settled down again. At any rate, wealth is being vaporized, not transferred.
 
[quote author="Nude" date=1221827537][quote author="jefa" date=1221815571]This money isn't disappearing today is it? Home sellers got tons of money from the inflated sale of their houses, and then put that money into the stock market, which I personally think caused it to go up farther than it had any reasonable expectation of doing otherwise.</blockquote>
Not sure how this will affect your decisions, but the money is indeed disappearing. Homesellers did not put the money into the stock market (I'm sure some made it there, but not the majority) but rather into a new house; they became the classic "move-up" buyer. .</blockquote>


Well actually, now that I think about it, the money that is disappearing is the "value" of the house. Or is it? Say I move up to a 2 million house, and I put a down payment of 400k (goes to the bank), and get a loan of 1.6 million. That 1.6 million goes to the previous owner and pays off their mortgage and gives them downpayment to go wherever they are going. Now the house is worth 1 million. Say the bank reworks the loan to me for 1 million. They lose 600k. That's disappearing money? But it hasn't disappeared. The 1.6 went to the previous owner. It hasn't disappeared, they're just the guy who isn't going to see it again anytime soon.



Doesn't it seem that there must be sellers out there who are sitting on their equity (I know there are probably more hanging around here than other places. I am one of those people). In fact, I know that the money I just recieved from my seller came out of their stock portfolio, and now it's hanging out in my bank account. (The part that didn't go to Wells Fargo who held my loan).



It's just the whole inflation/deflation thing I don't get. I guess that's the part of financing that's all about faith.



I guess a real hedge would be in commodities... like wheat. Everybody has to eat. Can I put all my money in wheat? How about corn? Their lobbyists are hardcore. Maybe I should go with corn.



I always thought I should own shares in lots of different small farms near me. And the agreement would be that if everything falls apart, I get to eat my portion as a shareholder. :)
 
[quote author="jefa" date=1221829550]

Well actually, now that I think about it, the money that is disappearing is the "value" of the house. Or is it? Say I move up to a 2 million house, and I put a down payment of 400k (goes to the bank), and get a loan of 1.6 million. That 1.6 million goes to the previous owner and pays off their mortgage and gives them downpayment to go wherever they are going.</blockquote>
No, the entire 2 million gets split between the homeowner, the RE agents, and whatever bank holds the mortgage they are paying off. Your down payment is part of the deal and your bank sees none of it.

<blockquote>Now the house is worth 1 million. Say the bank reworks the loan to me for 1 million. They lose 600k. That's disappearing money? But it hasn't disappeared. The 1.6 went to the previous owner. It hasn't disappeared, they're just the guy who isn't going to see it again anytime soon.</blockquote>
That 600k came from somewhere, whether it was foreign or domestic investors, the bank's depositors, or the federal government. If they agree to forgive 600k of the loan, whoever provided it for use in the loan to you is never getting it back. You took their 600k after promising to pay it back, gave it to someone else, and then told the original lender to go screw. Not only is the original lender out 600k, but the interest on that 600k is lost as well.

<blockquote>Doesn't it seem that there must be sellers out there who are sitting on their equity (I know there are probably more hanging around here than other places. I am one of those people). In fact, I know that the money I just recieved from my seller came out of their stock portfolio, and now it's hanging out in my bank account. (The part that didn't go to Wells Fargo who held my loan).</blockquote>
There probably are, now that the market has started to really tank. But prior to last summer, I doubt many people realized that things were coming to an end in housing. Based on the charts showing consumer spending, credit card debt, and MEW it's clear that most people were using any equity gains to either buy stuff or get better/bigger homes through the end of 2006 and into 2007.



<blockquote>It's just the whole inflation/deflation thing I don't get. I guess that's the part of financing that's all about faith.



I guess a real hedge would be in commodities... like wheat. Everybody has to eat. Can I put all my money in wheat? How about corn? Their lobbyists are hardcore. Maybe I should go with corn.



I always thought I should own shares in lots of different small farms near me. And the agreement would be that if everything falls apart, I get to eat my portion as a shareholder. :)</blockquote>
Infltion and deflation mean different things depending on the context. Asset deflation is not the same as monetary deflation. I'd suggest starting with Wikipedia to get a better understanding of the differences. Just make sure you drink plenty of coffee because the subject matter can be very boring. :gulp:
 
[quote author="awgee" date=1221827379]Blackvault - If you are going to reference the highs, (or lows), of any commodity, wouldn't it not be more honest to use it's inflation adjusted values?</blockquote>


Not sure what you are getting at here...but either way what does inflation adjusted values have ANYTHING to do with a simple example of how option contracts can work in conjuction with stocks.



If I was to plug in inflation to this, which are you referring to? gold? I never used a figure to begin with and even if I did...all I will do is create a new high based on a different standard. So if gold is 850 right now with inflation it might be 650 giving its new high when adjusted with inflation. It changes nothing, absolutely nothing.



Or are you talking about tagging inflation to best buy? should I have taken away broker fees too? should I have counted in the 0.00000000001 inflation that occured overnight?



Once again it was an example not a mathematical calculation on exact profits.
 
[quote author="blackvault" date=1221823226]



As far as gold? It's been hovering at its highs for a long time...</blockquote>


No, you do not point to a number, but you say that gold is hovering at it's highs. You are comparing apples to oranges. Is GS hovering at it's highs? What was GS in 1980? GE? XOM? JPM? To be honest you must compare apples to apples.



Inflation adjusted, the high for gold would be $2300 in 1980 dollars. Gold has not been hoveing near it's highs.
 
[quote author="optimusprime" date=1221860506]All this market volatility has our little PANDA challenged "FROZEN".</blockquote>
Frozen - No?

Blackvault gained $35K in one day in the Panda Challenge.

I'm Jealous!
 
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