Fiscal Cliff trade

[ArticMine]

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

I wish I knew what was going on.

Here is a good starting point http://en.wikipedia.org/wiki/United_States_fiscal_cliff in addition to http://en.wikipedia.org/wiki/United_States_debt-ceiling_crisis

[1714680510]

1714680510

[420]

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

I wish I knew what was going on.

Here is a good starting point http://en.wikipedia.org/wiki/United_States_fiscal_cliff in addition to http://en.wikipedia.org/wiki/United_States_debt-ceiling_crisis

and if you're totally unfamiliar with us and the crisis here's a short documentary from that debt ceiling crisis of 2011: http://www.youtube.com/watch?v=LL99b7_golQ

[ArticMine]

Well the Biden-McConnell deal passed the US House of Representatives so now the real fun begins over the next two months with the debt ceiling and spending cuts.

[Lethn]

Here's an insanely long documentary about all the history etc. behind the idea of money.

https://www.youtube.com/watch?v=HfpO-WBz_mw

[xxjs]

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

I wish I knew what was going on.

My suggestion: start by considering what the state, or government is. Can it be viewed as some entiy, like a company, but with some special treats (tax power, control over the money system). At least around here, folks believe that when the state is rich, they are rich.

Then, search the net for what the market can do, and the meaning of sound money.

I could say more, but this will get you hooked.

[CurbsideProphet]

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--

10 contracts gives you the OPTION to sell 1,000 shares of stock, not 1,000 options.  I'm sure it was a typo but just to clarify for those unfamiliar.  Also, you should probably disclose that your 85% gain will be wiped out by your 100% loss on this position come next Friday.  There is no free lunch people.

[ATC777]

10 contracts gives you the OPTION to sell 1,000 shares of stock, not 1,000 options.  I'm sure it was a typo but just to clarify for those unfamiliar.  Also, you should probably disclose that your 85% gain will be wiped out by your 100% loss on this position come next Friday.  There is no free lunch people.

Yeah... my trade is pretty much sour at this point. It happens. That's why I only risk small amounts on these highly risky plays in weeklies, and I speculate with "bundles" of options on various securities. That way if I take a 100% loss on a trade like this, which looks like a possibility, I just write it off and charge it to the game.

Anyhow... We didn't "solve" the Fiscal Cliff, we just pushed it back several weeks and created a BIGGER problem. But markets aren't always rational. This big rally is just a happy-go-lucky reaction to the sense of impending doom being put off a few weeks. It will top out, in which case I'll be ready with an even better trade and we will probably get some extreme volatility at some point in the next 2 months. Playing options on VXX will then become quite attractive.

[DannyHamilton]

. . .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...

Yeah... my trade is pretty much sour at this point. It happens . . . if I take a 100% loss on a trade like this, which looks like a possibility, I just write it off and charge it to the game . . .

Might have been nice if you would have shared with people your thoughts that there was nothing definite about your "predictions" a bit earlier.  Clearly you went into this knowing that "it happens", and that you "just write it off and charge it to the game", but you didn't say anything about that when you were telling everyone that "The stocks will go down", and "banks are going to get pounded".

Perhaps a little more caution and a willingness to consider the possibility of a downside would add some perspective to your opinions about the directions of various markets.

[420]

there will probably a significant crash this year

short term is harder to predict

[ATC777]

Might have been nice if you would have shared with people your thoughts that there was nothing definite about your "predictions" a bit earlier.  Clearly you went into this knowing that "it happens", and that you "just write it off and charge it to the game", but you didn't say anything about that when you were telling everyone that "The stocks will go down", and "banks are going to get pounded".

True... but I made all of my statements on the basis of "IF x, then y". Had we not had the postponement of the Fiscal Cliff and "fell off" it certainly would've caused chaos in the markets and the "predictions" I made would've panned out almost instantly. And there's still a very high likelihood that it will end up happening, just not right away...the date has been pushed back.

Perhaps a little more caution and a willingness to consider the possibility of a downside would add some perspective to your opinions about the directions of various markets.

Well, that's why I often trade options, as in this case. I knew my downside from the start: a couple hundred bucks gone if I lost a full 100%. Anytime I trade weeklies I don't put in more than I can afford to burn in full.

there will probably a significant crash this year

short term is harder to predict

I agree. We didn't "avert" anything, just changed the date. And what the market isn't considering yet is that if we do get the "grand bargain" everyone is hoping for that means huge tax increases and other changes which will result in a net loss to economic activity. So no matter which way it goes it's bad news for the economy.

Risk is definitely to the downside and the market, in general, feels very toppy. But it's times like these I love to trade. As soon as we start to break down I'm going to be there on the short side again, as I have been in every market crisis... :-)

[DannyHamilton]

True... but I made all of my statements on the basis of "IF x, then y" . . .

I saw a lot of definitive statements from you, but I don't think I saw a single conditional statement.  Please point out for me ANYWHERE in this conversation where you used the word "If".  Here is what I saw:

. . .here is the move. . .

suggestion: "here is one possible move"

. . .We are going off the Fiscal Cliff...Just accept it. . .

suggestion: "we could be going off the Fiscal Cliff"

. . .the banks are going to get pounded. . .

suggestion: "the banks may get pounded"

. . .Buy the weekly JAN1 13 11 puts. . .

suggestion: "consider the possibility of buying the weekly JAN1 13 11 puts"

. . .That will give you. . .

suggestion: "That could give you a chance at"

. . .the Fiscal Cliff WILL indeed have a direct, painful impact. . .

suggestion: "The Fiscal Cliff might have a direct, painful impact"

. . .Either outcome is a big, fat FAIL. . .

suggestion: "Either outcome has potential to be a big, fat FAIL"

. . .The entire system is screwed

suggestion: The entire system could end up screwed"

. . .we are in WAY over our heads. . .

suggestion: "we seem to be in WAY over our heads"

. . .the US now has to pay the piper

suggestion: "the US will eventually have to pay the piper"

. . .equity markets are going to get slammed. . .

suggestion: "equity markets might get slammed"

. . .we will experience a recession. . .

suggestion: "we have a significant risk of a possible recession"

. . .The very basis of bank revenues will be under fire. . .

suggestion: "The very basis of bank revenues could come under fire"

. . .The stocks will go down. . .

suggestion: "The stocks might go down"

. . .People placing their hopes on the senate reconvening Sunday evening. But expect nothing out of it. . .

suggestion: "But I personally expect nothing out of it"

[CurbsideProphet]

10 contracts gives you the OPTION to sell 1,000 shares of stock, not 1,000 options.  I'm sure it was a typo but just to clarify for those unfamiliar.  Also, you should probably disclose that your 85% gain will be wiped out by your 100% loss on this position come next Friday.  There is no free lunch people.

Yeah... my trade is pretty much sour at this point. It happens. That's why I only risk small amounts on these highly risky plays in weeklies, and I speculate with "bundles" of options on various securities. That way if I take a 100% loss on a trade like this, which looks like a possibility, I just write it off and charge it to the game.

Anyhow... We didn't "solve" the Fiscal Cliff, we just pushed it back several weeks and created a BIGGER problem. But markets aren't always rational. This big rally is just a happy-go-lucky reaction to the sense of impending doom being put off a few weeks. It will top out, in which case I'll be ready with an even better trade and we will probably get some extreme volatility at some point in the next 2 months. Playing options on VXX will then become quite attractive.

No, I understand your position I just think like DannyHamilton, it may have attracted the inexperienced investor with the lure of big gains.  Options are complex for the average investor and due to their leverage, you can make fantastic gains but that pendulum also swings in the other direction.  I'm not knocking you for the bad call, it happens, I just wanted to throw out some disclaimers.

As for the "Cliff" I do agree with you, the can has just been kicked further down the road.  However, I've also learned two frequently used sayings through my career, "the market can stay irrational longer than you can stay solvent" and "don't fight the Fed."  The problem with options is you not only have to be right about the direction of the stock, you also have to be dead on about the timing.  That's the tough part.  BAC could plummet on the 14th but by then your options are already expired.  Options certainly serve a purpose, and I use them often, but people also need to be cautious and aware of the downsides.   

[ATC777]

Danny, why exactly do you have a problem with what I do with my own money in a personal brokerage account?  

The outcome I expected was Congress failing to do anything and going off the cliff... so every statement I made I was talking about what was going to happen IF we did go off the Fiscal Cliff, as I expected. I think you know this, but choose anyway to commit an act of contextomy?

We didn't go "off the cliff", though we came very close and are still in danger of it. So the market rallied in my face. I'm a big boy and I accept my loss. That's how trading works.

[ATC777]

No, I understand your position I just think like DannyHamilton, it may have attracted the inexperienced investor with the lure of big gains.  Options are complex for the average investor and due to their leverage, you can make fantastic gains but that pendulum also swings in the other direction.  I'm not knocking you for the bad call, it happens, I just wanted to throw out some disclaimers.

I can't control what other people do with their money. I just talked about what I was doing with mine and why I thought it was a good trade. If an inexperienced investor tried to follow me into a trade like that then I feel sorry for them but they should've read the standard options disclosure packet from their broker and did their homework. Inexperienced investors shouldn't be toying around with options, and no one should make a trade based on what I (or anyone else...be it Jim Cramer or David Einhorn) says.

As for the "Cliff" I do agree with you, the can has just been kicked further down the road.  However, I've also learned two frequently used sayings through my career, "the market can stay irrational longer than you can stay solvent" and "don't fight the Fed."  The problem with options is you not only have to be right about the direction of the stock, you also have to be dead on about the timing.  That's the tough part.  BAC could plummet on the 14th but by then your options are already expired.  Options certainly serve a purpose, and I use them often, but people also need to be cautious and aware of the downsides.   

You're absolutely right. I'm actually eyeing this big gap up in S&P 500 futures from 1424 to 1441... gaps in futures prices tend to almost always get filled back in quickly. So let's keep an eye on that. Definitely expecting some volatility sometime soon, but it's too early for me to get back in just yet.

[Grant]

The problem with options is you not only have to be right about the direction of the stock, you also have to be dead on about the timing.  That's the tough part.  BAC could plummet on the 14th but by then your options are already expired.  Options certainly serve a purpose, and I use them often, but people also need to be cautious and aware of the downsides.   

Very true, i bought a lot of Apple september 660$ puts in late august. Should have paid the extra premiums for october or "doubled down" in september, but didn't.

[DannyHamilton]

Danny, why exactly do you have a problem with what I do with my own money in a personal brokerage account?  

I don't care what you do with your money in your account.  Get rich, go broke, doesn't matter to me.  My issue is with someone creating a post on a public forum telling others what they should do, while hyping up the idea as a sure thing, and avoiding any suggestion that it could go sour.

The outcome I expected was Congress failing to do anything and going off the cliff... so every statement I made I was talking about what was going to happen IF we did go off the Fiscal Cliff, as I expected. I think you know this, but choose anyway to commit an act of contextomy?

The outcome you declared would happen is going off the cliff.  Every statement you made was talking about what was going to happen WHEN (not if) we went off the cliff on January 1.

Furthermore, when I suggested that going off the cliff wasn't necessarily a bad thing, you claimed that "Either outcome is a big, fat FAIL" creating an impression that your advice was good regardless of what happened with the Fiscal Cliff, demonstrating further that your statements weren't based on "IF we did go off the Fiscal Cliff".

As I said earlier, perhaps a little more caution and a willingness to consider the possibility of a downside would add some perspective to your opinions about the directions of various markets.  If you are going to say something "will happen", be sure that it "will happen", otherwise you're better off saying that it "might happen".

Note, if you were paying attention you'd see there was no "contextomy".  In every instance you'll find that I offered a suggestion on an improvement to what you said.  Plug my suggestions back into your original statements (in their original context) and you'll find that they all fit very well with the context and offer a more realistic statement of the situation.  Furthermore, I included the link back to the original post with every single quote so anyone can see the complete context if they care to.  I only shortened the quotes because there were so darned many of them and it would have been a mess for others to read through if I hadn't.

[ATC777]

I don't care what you do with your money in your account.  Get rich, go broke, doesn't matter to me.  My issue is with someone creating a post on a public forum telling others what they should do, while hyping up the idea as a sure thing, and avoiding any suggestion that it could go sour.

Nothing is a "sure thing"... I think we all know better than that. You're essentially scolding me for serving coffee without a sticker saying "Hot coffee can burn you".

The outcome you declared would happen is going off the cliff.  Every statement you made was talking about what was going to happen WHEN (not if) we went off the cliff on January 1.

I'm not selling anyone investment advice so I don't feel like I need to provide a legal disclaimer to share my opinions on the market and describe how to speculate... There's a reason it's called speculation, and why I said "this is how you speculate"... I did not say "this is how you win every time, guaranteed, so do this and you can never lose"... I remember learning in the 3rd grade that the stock market had risks...

Furthermore, when I suggested that going off the cliff wasn't necessarily a bad thing, you claimed that "Either outcome is a big, fat FAIL" creating an impression that your advice was good regardless of what happened with the Fiscal Cliff, demonstrating further that your statements weren't based on "IF we did go off the Fiscal Cliff".

I did say either outcome is a fail, and it is... the outcome which ultimately came to be was yet another failure of government. I hope you don't think they "saved" America by moving the date back... I also did not say that the trade was going to work no matter what...

As I said earlier, perhaps a little more caution and a willingness to consider the possibility of a downside would add some perspective to your opinions about the directions of various markets.  If you are going to say something "will happen", be sure that it "will happen", otherwise you're better off saying that it "might happen".

I believe readers are a bit more intelligent than that... I don't see why we should argue about what might happen if the dumbest/most naive person possible read my thread and decided to use it as some form of "absolute" investment advice. If such a person is among us I hope they don't have a brokerage account because it won't be long before they find one of those penny stock websites... 

[notme]

I don't care what you do with your money in your account.  Get rich, go broke, doesn't matter to me.  My issue is with someone creating a post on a public forum telling others what they should do, while hyping up the idea as a sure thing, and avoiding any suggestion that it could go sour.

Nothing is a "sure thing"... I think we all know better than that. You're essentially scolding me for serving coffee without a sticker saying "Hot coffee can burn you".

Which, in America, can make you liable for millions of dollars in damages.

The outcome you declared would happen is going off the cliff.  Every statement you made was talking about what was going to happen WHEN (not if) we went off the cliff on January 1.

I'm not selling anyone investment advice so I don't feel like I need to provide a legal disclaimer to share my opinions on the market and describe how to speculate... There's a reason it's called speculation, and why I said "this is how you speculate"... I did not say "this is how you win every time, guaranteed, so do this and you can never lose"... I remember learning in the 3rd grade that the stock market had risks...

Furthermore, when I suggested that going off the cliff wasn't necessarily a bad thing, you claimed that "Either outcome is a big, fat FAIL" creating an impression that your advice was good regardless of what happened with the Fiscal Cliff, demonstrating further that your statements weren't based on "IF we did go off the Fiscal Cliff".

I did say either outcome is a fail, and it is... the outcome which ultimately came to be was yet another failure of government. I hope you don't think they "saved" America by moving the date back... I also did not say that the trade was going to work no matter what...

As I said earlier, perhaps a little more caution and a willingness to consider the possibility of a downside would add some perspective to your opinions about the directions of various markets.  If you are going to say something "will happen", be sure that it "will happen", otherwise you're better off saying that it "might happen".

I believe readers are a bit more intelligent than that... I don't see why we should argue about what might happen if the dumbest/most naive person possible read my thread and decided to use it as some form of "absolute" investment advice. If such a person is among us I hope they don't have a brokerage account because it won't be long before they find one of those penny stock websites... 

In spite of my interjection, I completely agree that DannyHamilton is off base here.  Unfortunately, he seems to hold the position that is held by the majority of nanny-state dependent Americans who want to blame others when things they do go wrong.

[DannyHamilton]

. . . DannyHamilton . . . seems to hold the position that is held by the majority of nanny-state dependent Americans who want to blame others when things they do go wrong.

Really?

[ATC777]

. . . DannyHamilton . . . seems to hold the position that is held by the majority of nanny-state dependent Americans who want to blame others when things they do go wrong.

Really?

Flies are flocking to this dead horse... I'm putting down the baseball bat. 

No, seriously, let's just stop guys lol...