THE CHART ROOM

[johnyholiday]

This chart room is such mess it's orderly.......volume leads price....until volume turns up don't get to excited ~$~ all disclaimers apply ~$~

[johnyholiday]

This is about the 409............ all the rest is interesting guesstimating ~$~ all disclaimers apply ~$~

[pauln]

[johnyholiday]

SAY IT AIN'T SO JOHNY ...Well the old stock market it's always telling you something [:-*] about to happen 6 to >9+ months out ,{discount mechanism} about the world economy ..... RECESSION/SLOWDOWN .......rookie Benny Bernanke's first test.....the Fed dude...hang on tight it will be over before you know it...{ upset the China market ?}

Consumer prices rose more slowly in July due to lower gasoline prices. However, since 1970, whenever the four-quarter moving average of the yield spread has turned negative and, at the same time, the year-over-year change in the quarterly average of the CPI-adjusted monetary base has turned negative, a recession has occurred. In each of the first two quarters of 2007, this combination of a negative yield spread and contracting real monetary base has obtained. ~$~ all disclaimers apply ~$~

[pauln]

Hey Johny,

If the US is deep in debt,

And if China is not, and holding US debt;

Is China in a position to begin aquiring US assets?

If so, what kind of US assets would they likely prefer take over?

In other words, what is the chance that China might redeem their US Treasury notes

To purchase US businesses, properties, means of production...?

[oldtimer]

You mean just as we have done in other countries? And the Japanese have already done here? And the godawful English did in the 1800's when they financed the building of railroads? Usually direct foreign investment in a country is a good thing. Why? Because it means that people with money think that your country is worth investing in! Would you rather have it that no one wants to put money into your country because they think it is a hellhole? then you will truly know what it is like to live in a third world country.

[pauln]

If the incoming investment comprises independent value owned by the outside country poured into the US (like tourism money), that is one thing.

If the value used to invest is actually the debt of the US, this seems like a losing proposition for the US; it seems to be the same as just handing assets over and giving it away (although the debt is reduced). Sort of like a forclosure.

It is not about outsiders wanting to put money into the US, more about us trading assets for our debt. An existing asset that is US owned would be bought by outsiders and paid not with money but by lowering our debt.

Am I missing something in this equation?

[oldtimer]

That is a good point as far as it goes. The rest of the equation has to do with how did they get the debt in the first place. It has to do with trade. We have given them dollars in exchange for goods and services. We have also made direct foreign investments in their country. Obviously it would be a bad thing if a sizable portion of treasury debt was liquidated all at once. It would also be a bad thing for the liquidator since the price of that debt would get driven down sharply, so even though the possibility hangs over our heads, the probability of it happening is low. Remember back to when the Japanese were snapping up companies and real estate like crazy? There was much hand wringing over that. What eventually happened though was we ended up buying those same assets back for less than they gave us for them. Who really got the last laugh? I'm not saying that it will happen like this again, but I am saying that the normal flow of commerce usually balances out over time.

[johnyholiday]

Hey Johny,

If the US is deep in debt,

And if China is not, and holding US debt;

Is China in a position to begin aquiring US assets?

If so, what kind of US assets would they likely prefer take over?

In other words, what is the chance that China might redeem their US Treasury notes

To purchase US businesses, properties, means of production...?

Foreign investments cause problems for government in

China due to public's strong nationalism; Chinese are highly critical

of government's recent aggressive strategy of chasing higher returns by

pursuing high-risk companies; $3 billion investment in Blackstone Group

has prompted outrage; company's stock price has fallen sharply since

going public in June,,,,,,with investments like this, and the China stock market in a parabolic hyper curve that can crash/correct, they will be happy to be holding US debt,US cigarettes ,US boose,US movies,........because thats what you do in a RECESSION/SLOWDOWN , smoke ,drink ,an go to the movies...

[johnyholiday]

Another parabolic ,live it ,love it ,learn it,..... on a train of consequences

[oldtimer]

Thanks johny that is wicked funny! And true....

[pauln]

Thanks johny that is wicked funny! And true....

Here is what is wicked funny... the head of Blackstone Group is none other than George Bush's old roommate from college.

[oldtimer]

I'm not sure why it is funny. Al Gore also went to the same school as Mr. Bush. Going to an elite school goes a long way to putting you into an elite position, but it makes me wonder what exactly these people are learning there. Any time someone knows that the best is over so lets sell shares to the public so we can be way richer than we deserve to be is when companies go public or already public firms sell more issues.

[johnyholiday]

Never Fear Bernankes' Here..ring...ring...ring....Bush calls Ben Bernanke "B B we don't want one of those repressions ,my Blackstone friends and others can't make any money with tight credit B B!!"..... B B Bernanke "you mean recession Mr President,I'm on it sir"...click.....B B thinks hummm "the world needs a hero! better get ahead of the curve"....ring... ring...ring...johny tells his assist "don't call me! tell em I'm not here! tell em I'm busy!".....

When the Fed begins its interest rate cutting campaign - the only argument is when, not if - the stock market will snap back with a bias towards the large cap NASDAQ 100 index ,the economy will come lagging along on it's own time line, the good old USA has trimmed it's parabolic's,,,,,,what event,what, when, were,who,will trim China's parabolic? maybe B B already did an it hasn't shown up yet?{all the rate increases that trimmed the USA's parabolics perhaps?}... in the past the tendency of the USA market to put in long-term bottoms when the bearish sentiment reaches extreme levels, the past 4 years or so, we've experienced many occasions when the put call ratio has exceeded 1.0. But there have only been a dozen or so times that the "equity only" put call ratio has topped 1.0. Prior to the recent downtrend, only one previous occasion where that "equity only" put call ratio topped 1.0 on consecutive days. That occurred in mid-August 2004, the extreme pessimism seen then marked a long-term bottom, one that was never retested.

that nasty "recession" word is being tossed about.......... Major market tops normally coincide with excess bullish sentiment. For instance in 2000 when the major indices began its downward spiral, it was routine to see put call ratios down around .40-.50 - very bullish indeed. Everyone was buying calls because it was "easy money." Margin debt used to buy stocks was at outrageous levels and when the selling began, it fed off itself - We are looking at a market at the opposite end of the sentiment spectrum now. Instead of record margin debt to finance stocks, we see record short interest. Instead of bullish call buyers, we have bearish put buyers. The masses in the Options World rarely get it right, illusionary or real or a mix ,fear is good ~$~ all disclaimers apply ~$~

[johnyholiday]

This man wants your money!!!

China FXI, China has gone Coo Coo for Cocoa Puffs, meddling with God/Buddha help them when it finally cracks, look at the insane volume, and lack of teeth ~$~ all disclaimers apply ~$~

[pauln]

What does this man want? Or know?

Anonymous trader places 245,000 put options ($1 billion
dollars) on the Dow Jones
Eurostoxx 50 index, options expire September
21st.

http://www.financialnews-us.com/?page=ushome&contentid=2448565379

http://www.prisonplanet.com/articles/august2007/270807_market_crash.htm

[oldtimer]

Looks like a giant insurance policy to me. Another thing we don't know is what other positions he has, this could also be covering those other bets. The thing about options, you not only have to be right to make money, you have to have the timing right as well. All in all, that is a very interesting deep out of the money purchase.

[Coytee]

The thing about options, you not only have to be right to make money, you have to have the timing right as well

You're dead on there. At the risk of offending others with another 'analogy' (it isn't one, I just use it to try to explain the 'odds' of being right or wrong on options and why in MY opinion, it's better to be a seller of them than a buyer)

Story goes: Joe Schmoe goes to Vegas & plunks down his $100 bet, he can possibly make a million on the bet or more likely, lose it all. Vegas on the other hand, can't make a million off each person that comes out there so what they do is nickle & dime everyone to death and though they get "burnt" every now & then (by someone winning a decent amount) that's how they make their cash, by being the house and SELLING the bet and collecting their nickels.

On to options... I draw the picture of "what does it take to make money in options from a probablity point of view"??? I might add that "being right" is defined as buying a put or call and upon expiration date having it in the money so it can be sold at a profit.

Well... if we can keep it simple (disclaimer in there for those who might not like the way its described)

If someone is to make money on an option, they first have to decide do they want to try to make money on the market going up or down, so for sake of being even handed, let's say it has odds of 50/50 on "do I buy a put or call"

Second hurdle is, what strike price do I use?? after all, if the market goes in my direction but STILL does not surpass my strike price, then on expiration day I'll STILL be wrong, so my strike price has to be the "right one". Now, there are MANY strike prices so for simple conversation, let's just presume that you have again, 50/50 odds of hitting the RIGHT strike price (right is defined as you make money on the "investment" (which options are NOT))

Third hurdle is, what time frame do I use? If the option moves benefically to my stike price, it STILL has to happen PRIOR to expiration. The strike price is worthless if the market moves 40 days AFTER the option expired. Well...there are several months worth of expiration dates, so again, let's just presume that someone has a 50/50 odds of picking the RIGHT expiration month.

(note: All of these presumptions of 50/50 on direction, price, expiration are in my view highly optimistic which is the exact reason I use them)

So, now... we have to be right on the direction (.50) AND the strike price (x .50) AND the time frame (x .50) so we have the odds (optimistcally) being 1x (.5) x (.5) x (.5) = .125

another way of wording that (IMHO) is, you have to be right on all accounts which means you multiply the odds which means you have at best, a 12 1/2% chance of being "right" on an option and making money. What exactly does that say? it also says you have an 87 1/2% chance of being WRONG on buying that option (and remember, this is being optimistic)

So... if we follow the money, what's going on? Well, the person we bought the option from is receiving our cash right? Well, if we have a 12 1/2% chance of being right and a 87 1/2% chance of being wrong on BUYING the option, I think it's fair to follow the money and realize that the seller has a 12 1/2% chance of being WRONG and a 87 1/2% chance of being RIGHT by selling it to us.

What that means is, the sellers definition "being right" equates to "if I sell this option, am NOT exercized and get to keep 100% of the premium free & clear"

The seller of the option is "being Vegas" and is selling the bets to you.

Example on a stock

Calls:

You buy a call for $1,000 premium, seller sells it to you for same amount (he's covered with owning the stock or perhaps another option)

If the stock races up and you take the stock from him (you won the bet), he just hands over his stock and still keeps your $1,000 (note, he also picked the strike price he sold at so he's happy with the price)

If the stock stagnates or dies, then you do NOT take his stock from him and he keeps your $1,000. True, his stock might have declined in value HOWEVER, if it was a stock he was keeping anyway, then his decline is mitigated by keeping your $1,000.

Puts: (buying "stock insurance")

You buy a put for $1,000 premium, the seller sells it for same (he's covering it with cash or buying power or another Put)

If the stock goes UP, you do NOT assign the put to him and he simply keeps your $1,000 free & clear

If the stock goes below the strike price (which is also one that HE picked), then you put your stock to him & he still keeps your $1,000...bottom line... he ends up with a cash asset either way (though it's possible that he just bought your Enron for $50/share..[:$] )

Net bottom line, in my view, if you want to "make money" in options, you want to be a SELLER of them and be the house. If you want to GAMBLE and swing for the fences, knowing that if you miss (which is statistically probable) then you will lose part/all of your bet, then you might want to be a buyer of them.

All I try to do with the above "analogy" is try to illustrate to someone that buying an option is more luck driven than strategy. Selling them however.... can become quite an interesting strategy.

Disclaimer: This isn't an offer to buy nor sell options & everyone should read & understand the OCC's Options booklet and all those other fine disclaimers that should be in the fine print

(btw as a background I have held a "Series 4, Registered Options Principle" registration since 1989)

[pauln]

So who is this mystery trader?

George Soros? The Illuminati? The Royal Family?

[mas]

Richard,

But you can also reduce the odds significantly by 'betting' on a historically volatile stock where you simply want it to move - up or down - and choosing a reasonably 'achievable' strike price with a pocket-able outcome/profit that exceeds the option cost by straddling the stock.

I might also argue that those who believe you only make money when stocks go up perhaps do not belong in the market.

But hey, right now while so many are lamenting the real estate crash (only in some parts of the country! - not here!) and take advantage of the big fire sale.

And I just love it when so many lament the downturn in a particular market segment. It is like listening to the same folks complain that the very item they complain about has just been put on sale! A terrible thing! []