Fiscal Cliff trade

[ATC777]

Closed my $33.5 weekly calls on VIX less than an hour ago, for a staggering 85%+ gain. 

Want in on this action? Ok, here's the move...

We're going off the Fiscal Cliff... Just accept it... As a result, the banks are going to get pounded. BAC, having just set a new high today before falling back, looks particularly vulnerable... Currently trading at $11.30/share. So let's get em...

Buy the weekly JAN1 13 11 puts which are trading for < $0.15, have 8 days of life till expiry and are only 0.33pt out of the money. You can buy 10 contracts (1000 options) for a mere $140-ish + commission. That will give you $1000 upside for every $1 drop in BAC stock below $11/share.

This is how you speculate with small amounts of money... Enjoy! 

--ATC--

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[ATC777]

Here's a look at the charts with some of my analysis comments (excuse my indicators being a bit out of tune)::



BAC has fallen through its MA-64 after straddling it for days, and I expect selling to intensify/concentrate around the $11.15 - $11.00 level, which will push it below my strike price. Every $1 BAC loses in the next days equals $1,000.00 profit at a risk of only $140.00 USD.

[Lethn]

It was amazing seeing the markets today for the short time it was open, really amazing, there were lots and lots of trades all going around Banks and Telecommunications groups like Vodafone, I'm surprised there are people left in this world who think that these economies are going to last, a gold stock I'm holding jumped 6 or so points in one day but it was rushing up to 12 for awhile, it's going to be insane what comes next year.

http://www.petropavlovsk.net/ - I'm putting my faith in this company myself, yum gold

I say stick with Gold and Oil though you always want to be as picky as possible with your choices but I'd stay away from financials altogether.

Edit: Blegh, selling my stocks while I can, guys, take my advice from someone who has magical moments of mathematics every now and then even though he hates it, you should only enter a trade with £1000 - $1000 otherwise you will be waiting until 2020 to break even ( granted exaggeration on the 2020 bit but that's what it will feel like POG is definitely a good pick though )

[DannyHamilton]

I don't understand why the "fiscal cliff" should have a direct effect on Bank of America's stock.

If I understand correctly, the "Fiscal Cliff" simply means a slashing of $1.2 trillion in mandatory and discretionary government spending, along with a return to the tax rates the U.S. had in the late 1990's (back when the budget was running a surplus rather than a deficit).

[creativex]

How did BAC fare in 2008?

This has been a rhetorical question.

Politicians cutting spending? Surely you jest. They'll simply decrease the rate of spending growth marginally and pass it off as a spending cut, just as they've done countless times in the past. IOW we're going over the fiscal cliff. The question is when.

[ATC777]

I don't understand why the "fiscal cliff" should have a direct effect on Bank of America's stock.

If I understand correctly, the "Fiscal Cliff" simply means a slashing of $1.2 trillion in mandatory and discretionary government spending, along with a return to the tax rates the U.S. had in the late 1990's (back when the budget was running a surplus rather than a deficit).

Because it does... Financials get slammed anytime the government makes a big fiscal or monetary boo-boo...

And the Fiscal Cliff WILL indeed have a direct, painful impact on the US banking system...

[DannyHamilton]

How did BAC fare in 2008?

This has been a rhetorical question.

Politicians cutting spending? Surely you jest. They'll simply decrease the rate of spending growth marginally and pass it off as a spending cut, just as they've done countless times in the past. IOW we're going over the fiscal cliff. The question is when.

I'm not sure what "fiscal cliff" you are referring to.  The "fiscal cliff" does not in any way involve an increase in spending. "The Fiscal Cliff" is a phrase used to describe a set of events that occur on January 1, 2013 if Congress doesn't change current law.  These events are a combination of 2 laws created in the past that take effect on that date.  

The first (increasing income taxes) is:

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Pub.L. 111-312, H.R. 4853, 124 Stat. 3296, enacted December 17, 2010)

Which provided a two-year extension of the provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA), together known as the "Bush tax cuts." Meaning that income tax rates will return to what they were prior to 2001 when the lower tax rates expire on January 1, 2013, unless Congress creates a new law to maintain lower tax rates.

The second (cutting spending) is:

The Budget Control Act of 2011 (Pub.L. 112-25, S. 365, 125 Stat. 240, enacted August 2, 2011)

Which requires a reduction of $1.2 trillion in mandatory and discretionary government spending while exempting Social Security, Medicaid, civil and military employee pay, and veterans from the reductions.

This "fiscal cliff" only occurs if Congress fails to change existing law.  It is believed by some that the reduction in private income (due to increased taxes) and the reduction in government spending (due to the $1.2 trillion spending reduction) both happening at the same time will pull so much money out of the economy that we will slide back into a recession involving massive job loss.

I'm not yet convinced that this is a large enough portion of the entire U.S. economy to really have such an adverse effect.

In reality, Congress can pass new laws regarding government spending and tax rates after January 1, and make them retroactive back to the first of the year.  Therefore, Congress has several months yet before any adverse effects of the "fiscal cliff" begin to materialize, and as long as they make changes retroactive and act before any adverse effects are experienced, this whole "fiscal cliff" is mostly just a bunch of smoke and mirrors used to create enough fear to get away with increasing tax rates and cancelling spending cuts with minimal political damage.

[DannyHamilton]

I don't understand why the "fiscal cliff" should have a direct effect on Bank of America's stock.

If I understand correctly, the "Fiscal Cliff" simply means a slashing of $1.2 trillion in mandatory and discretionary government spending, along with a return to the tax rates the U.S. had in the late 1990's (back when the budget was running a surplus rather than a deficit).

Because it does... Financials get slammed anytime the government makes a big fiscal or monetary boo-boo...

And the Fiscal Cliff WILL indeed have a direct, painful impact on the US banking system...

I'm not yet convinced that the "fiscal cliff" is a "boo-boo".  If anything, "fixing"/"avoiding" the fiscal cliff is the boo-boo.

In what way will increased income taxes and reduced government spending "have a direct, painful impact on the U.S. banking system"?

[ATC777]

I'm not yet convinced that the "fiscal cliff" is a "boo-boo".  If anything, "fixing"/"avoiding" the fiscal cliff is the boo-boo.

Either outcome is a big, fat FAIL... The entire system is screwed and we're in WAY over our heads, bro...

In what way will increased income taxes and reduced government spending "have a direct, painful impact on the U.S. banking system"?

Because the US now has to pay the piper, and austerity hurts... equity markets are going to get slammed, and we will experience a recession...

When the economy is hurting the banks are hurting... people spend less, employment numbers recede/drop, less loans are made, people spend less on credit cards, et cetera... The very basis of bank revenues will be under fire: loans, credit cards and investment...

Just tune your TV into CNBC and listen... this is no secret... The bank executives don't even try to hide it... they know what's coming...

[DannyHamilton]

. . . When the economy is hurting the banks are hurting... people spend less, employment numbers recede/drop, less loans are made, people spend less on credit cards, et cetera... The very basis of bank revenues will be under fire: loans, credit cards and investment...

Just tune your TV into CNBC and listen... this is no secret... The bank executives don't even try to hide it... they know what's coming...

Sounds like a bunch of FUD to me.  "The sky is falling! the sky is falling! Cries Chicken Little, as a fox leads them all into his lair for a tasty meal".

[ATC777]

. . . When the economy is hurting the banks are hurting... people spend less, employment numbers recede/drop, less loans are made, people spend less on credit cards, et cetera... The very basis of bank revenues will be under fire: loans, credit cards and investment...

Just tune your TV into CNBC and listen... this is no secret... The bank executives don't even try to hide it... they know what's coming...

Sounds like a bunch of FUD to me.  "The sky is falling! the sky is falling! Cries Chicken Little, as a fox leads them all into his lair for a tasty meal".

So what? I am the fox... The stocks will go down, and that's all I care about...

Anyway, looks like a relief rally coming before the next plunge... When you drop a dead cat it bounces... People placing their hopes on the senate reconvening Sunday evening. But expect nothing out of it...

[Lethn]

I don't understand why the "fiscal cliff" should have a direct effect on Bank of America's stock.

If I understand correctly, the "Fiscal Cliff" simply means a slashing of $1.2 trillion in mandatory and discretionary government spending, along with a return to the tax rates the U.S. had in the late 1990's (back when the budget was running a surplus rather than a deficit).

Because it does... Financials get slammed anytime the government makes a big fiscal or monetary boo-boo...

And the Fiscal Cliff WILL indeed have a direct, painful impact on the US banking system...

To make a long story short, the financials are like the middle-men in the economy, they receive money from central banks and that all trickles down to average person, be it through banks, lending or stocks, so if they start losing money the whole system collapses and groups like the federal reserve and their supporters think they can keep them running just by simply printing more money which isn't possible because aside from money management etc. these guys really don't do anything. They're going to have an automatic increase in taxes next year but that isn't going to solve anything either because these guys don't actually have any real money that the other countries recognise so in the end the U.S Dollar will probably collapse.

Oh and believe me, we've been here before you get the people in denial come along and saying we're all talking bullshit, instead of arguing about whether it's a recession or not we're going to be arguing about whether the whole economy will collapse until the bitter end.

https://www.youtube.com/watch?v=Z0YTY5TWtmU

[420]

Down BOA cRash and BURN!

[bitster]

Anyway to use BTC for puts options? Wont this affect the other big banks the same way?

[cypherdoc]

 

[ATC777]

 

Short 1000 BAC? 

[ArticMine]

The more interesting question is what impact will the "Fiscal Cliff" politically manufactured fiscal crisis have on the BTC / USD rate. Even if the Biden-McConnell deal passes the US House of Representatives the US still has to deal with the debt ceiling and spending cuts. The last time the US went through this manufactured fiscal crisis was in April to August of 2011 and well all know what happened to the BTC / USD rate during that period of time. http://en.wikipedia.org/wiki/United_States_debt-ceiling_crisis

My take is that they will eventually muddle through this mess with some sort of deal that solves little and pushes the hard political choices into the future. In the meantime there will be a lot of uncertainty regarding the US economy while these politicians play their little games. I see a significant risk of a BTC buying panic similar to that of the spring of 2011, and consequently  I would not want to be caught short BTC while this unravels.

[420]

The more interesting question is what impact will the "Fiscal Cliff" politically manufactured fiscal crisis have on the BTC / USD rate. Even if the Biden-McConnell deal passes the US House of Representatives the US still has to deal with the debt ceiling and spending cuts. The last time the US went through this manufactured fiscal crisis was in April to August of 2011 and well all know what happened to the BTC / USD rate during that period of time. http://en.wikipedia.org/wiki/United_States_debt-ceiling_crisis

My take is that they will eventually muddle through this mess with some sort of deal that solves little and pushes the hard political choices into the future. In the meantime there will be a lot of uncertainty regarding the US economy while these politicians play their little games. I see a significant risk of a BTC buying panic similar to that of the spring of 2011, and consequently  I would not want to be caught short BTC while this unravels.

over the next few months?

[ArticMine]

over the next few months?

I would say two months as the US has about two months before a default if they do not raise the debt ceiling. Furthermore the spending cuts are only blocked for two months in the Biden-McConnell deal. So on this level alone were are back to April of 2011 at best. and all of this is assuming the Biden-McConnell deal passes the US House of Representatives.

Bitcoin is still minuscule in the whole scheme of things and, it would only take a minuscule amount of the hot money in the markets to find its way into Bitcoin in order to trigger a buying panic similar to the one in 2011. So I see the risk for a BTC short to be very high at this time.

[Ploo]

Where can one learn the background knowledge behind the things discussed in this thread?

I wish I knew what was going on.