Wednesday, October 26, 2011
Friday, October 7, 2011
Market is High on Hopium, Presents Opportunities
A fortunate event has occured, and amidst a risk hedging*/eurobailout** fueled 3 day rally some favorable job growth numbers come out and put icing on the cake. Unfortunately for the economy, manufacturing/production jobs were down 13k. Less manufacturing jobs = less production (or just improved technology but thats a differet bag tricks and isn't the case in this scenario). So if we are producing less (oil, energy in general, goods), where does the money to create more jobs come from? If we sell/produce less goods, we are certainly not getting more money to fuel new job creation from production jobs. Where else does money come from? It comes from the savings of americans, the government, profitable domestic investments in foreign nations, or foreign nations buying services or making investments/buying debt in the US. That is it. We know investments in foreign nations are sub-par right now, and we know the demand for US services by foreign entities is not exactly hoppin. The job growth is a result of Hopium. It comes from people using savings and government printing in hopes things are about to turn around. Thus it creates a unique opportunity, we know its not turning around, its a false positive this time. We are creating a very good short term value shorting opportunity. For this go around I'll be buying IWM puts (russel 2000, small cap US stock index).
* How does risk hedging fuel an economy? It could move the markets in either direction, after a prolonged or intense period of gains or losses, wall street covers their hedged positions by using "covered calls" or "covered puts". So everyone with a short position buys a call after the drop, if it keeps going down they make more on the put then they lose on the call because option pricing is not linear and the further you get from your strike price the more you gain or lose. If the market turns around and goes up they can easily get out of the put in the money and profit from their covered call.
**How does a European Bailout fuel an economy? Pretty simple, financial system is rather interconnected worldwide and when you give banks money banks stocks benefit.
* How does risk hedging fuel an economy? It could move the markets in either direction, after a prolonged or intense period of gains or losses, wall street covers their hedged positions by using "covered calls" or "covered puts". So everyone with a short position buys a call after the drop, if it keeps going down they make more on the put then they lose on the call because option pricing is not linear and the further you get from your strike price the more you gain or lose. If the market turns around and goes up they can easily get out of the put in the money and profit from their covered call.
**How does a European Bailout fuel an economy? Pretty simple, financial system is rather interconnected worldwide and when you give banks money banks stocks benefit.
Thursday, October 6, 2011
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