Confirmed Hindenburg Omen

[conraddobler]

The last one fizzled, this one showed up and confirmed on 12/15/2010

Which means....

http://en.wikipedia.org/wiki/Hindenburg_Omen

Trying to build a strategy to play this one with options, if anyone has any ideas please share.

Looking for things that will suffer from either margin compression or financial compression.

I'm thinking about XLF puts here, they have very low premiums for the puts but that might be a bad idea, dunno.

Don't like the QQQQ puts, been hammerd on those before, people just will not give up their electronic bling.

Need to find something that's run up good during this runup that is primed for a fall.

Not trading advice.

 

[Gaddabout]

Can't you just run down a list of biggies from the major indexes?

 

[conraddobler]

Can't you just run down a list of biggies from the major indexes?

Yeah you could, it's just a function of what the cheapest best play is.

In a big downturn a lot of big names don't fall as much, flight to quality and all.

First of all you want to figure out what's the most likely to fall the farthest, then you factor in what the premium on the options you need to play that are the most cost effective.

It's very possible to be completely accurate as to what will happen and lose money playing it because you setup your play badly, I know this from experience.

You can get the timeframe wrong or play the wrong stock which only falls a fraction of what everything else does, or pay so much to do the play all your profit goes up in smoke.

I've managed to do all of these things at one time or another, it's called tuition.

This is why I say not trading advice, because it can be very hard to explain and even if you explain it right you could still be completely hosed by making the wrong choice.

 

[Gaddabout]

It definitely sounds high risk. Have you seen the XLF volatility charts since 2008? Looks like a network of volcanoes and dark valleys.

 

[jefftheshark]

It definitely sounds high risk. Have you seen the XLF volatility charts since 2008? Looks like a network of volcanoes and dark valleys.

High volatility is what you'd want to find in this situation if you're looking for way out of the money puts.

I suppose, depending on my timeframe, I'd look at LEAPS on some of the real high flying beta stuff right now, like APPL or NFLX, as they would be the play if QE3 doesn't happen. But it takes a real tough stomach to be a short of anything right now, since volume has basically disappeared except for HFT bots. This means that a handful of MM's can change the direction of the market on a dime, irrespective of the news of the day - or almost any other traditional gauge you might chose.

I used to say this to be funny, but now I think it is true: You would be far better off coming to Vegas and betting on the NFL than being involved in the market, because it is probably the only truly transparent market still out there - everything else is fixed and we have no idea which side the manipulators are going to move the market on any given day, so why bother?

JTS

 

[Pariah]

I'm not an investor, really. I have some money in retirement accounts, but I genrally don't F with it. IF the third portend comes to pass, would it be wise to move that money to bonds/cash accounts...or gold...until things get better?

 

[conraddobler]

I'm not an investor, really. I have some money in retirement accounts, but I genrally don't F with it. IF the third portend comes to pass, would it be wise to move that money to bonds/cash accounts...or gold...until things get better?

I think it could be but you could also miss an epic run up like the one we just had.

There's a long term timing signal for the casual investor that I've used in the past and posted a thread on it too, it has to do with crosses of the 20 and 50week moving averages on stock indexes, when it gives a sell signal you go to cash then when it gives a buy signal you move back in.

This idea is not for the casual investor really.

However I would be aware that there's a decent chance the market could fall here, if you're not trying to play that then just watch for trouble.

 

[conraddobler]

High volatility is what you'd want to find in this situation if you're looking for way out of the money puts.

I suppose, depending on my timeframe, I'd look at LEAPS on some of the real high flying beta stuff right now, like APPL or NFLX, as they would be the play if QE3 doesn't happen. But it takes a real tough stomach to be a short of anything right now, since volume has basically disappeared except for HFT bots. This means that a handful of MM's can change the direction of the market on a dime, irrespective of the news of the day - or almost any other traditional gauge you might chose.

I used to say this to be funny, but now I think it is true: You would be far better off coming to Vegas and betting on the NFL than being involved in the market, because it is probably the only truly transparent market still out there - everything else is fixed and we have no idea which side the manipulators are going to move the market on any given day, so why bother?

JTS

I think the manipulation is just icing on the cake, it makes things a bit more predicatable than they otherwise would.

Personally it's distateful but it is what it is.

They aren't going to stop just because of the unfairness of it all.

They will stop when it overwhelms them and it will, if you can make a buck off that I think it's fine to do so.

The best of all worlds is where they end up at the end of their rope, that's probably comming with the bond market / stock market pin, one or the other, but not both Batman, one or the other.

BTW I've settled on a target of opportunity, will not pull the trigger yet but it's I think a good one we shall see.

XLY, consumer discretionary.

I expect it to be a margin compression fatality there.

BTW the Batman analogy was on purpose, no matter what you do it seems he figures out a way to save both and these guys are that good, we'll see...

How I intend to play it so far is to wait until after the Jan 11th expiration on the puts, then buy some FEB expiration puts due to the insane gearing I'll get out of that and then wait for the first 4th quarter results to support my thesis of margin compression. I intend to play it rather small on this one as the timing is very hard to determine but that's my best guess so far.

BTW also I did not come up with the margin compression idea, a guy that's very smart did and I agree with him due to the ramping commodities and the broke consumer and the after Xmas hangover and the newly elected austerity crew I think post new year the world is ripe for this, but that's just me thinking out loud, was just trying to show how you turn that thinking into action, mostly for fun.

No matter how good or bad this sounds it's full of assumptions, any one of which could prove false and fatal to all I've reasoned out, so it's just a crapshoot really.

Not trading advice.

 

[Pariah]

I think it could be but you could also miss an epic run up like the one we just had.

Wouldn't it make sense to get out while it crashes, and then buy the same shares back at a discount after the fall?

I completely realize I'm in over my head in this thread, so bear with me!

 

[conraddobler]

Wouldn't it make sense to get out while it crashes, and then buy the same shares back at a discount after the fall?

I completely realize I'm in over my head in this thread, so bear with me!

Well yeah it would make sense that's essentially how you become rich but that would require calling market tops and market bottoms consistently which would make you nearly God like.

In hindsight it's much easier to see than it is when the bullets are flying.

Had you sold out at the top then bought back in at the end of March 09 you'd be up riduculously over the average guy right now, it's just very hard to do that consistently.

 

[Pariah]

But if this Omen is a fairly solid indicator of a failure, then the third portend should be close enough to the top and after a week or so of catastrophe you'd be close enough to the bottom (if indeed it's a true "crash"...yeah, you might have some losses as it finds the true bottom, but you'd have avoided much of the fall) to reap the benefits of the recovery...right?

Again, bear with my simpleton thinking....

 

[conraddobler]

But if this Omen is a fairly solid indicator of a failure, then the third portend should be close enough to the top and after a week or so of catastrophe you'd be close enough to the bottom (if indeed it's a true "crash"...yeah, you might have some losses as it finds the true bottom, but you'd have avoided much of the fall) to reap the benefits of the recovery...right?

Again, bear with my simpleton thinking....

I'll put it this way, if I had reaped a lot of gains in the current runup then I would most definitely think about taking all my profits then waiting a bit to see how it went.

The danger is that it just keeps going up from here, the upside is you could miss the downside completely.

It's always tricky to decide when to buy back in, that's the rub.

Not trading advice.

 

[jefftheshark]

I'll put it this way, if I had reaped a lot of gains in the current runup then I would most definitely think about taking all my profits then waiting a bit to see how it went.

The danger is that it just keeps going up from here, the upside is you could miss the downside completely.

It's always tricky to decide when to buy back in, that's the rub.

Not trading advice.

The problem is that it is an escalator going up and an elevator coming down. If you didn't get onto the escalator at the bottom, the quick ride down can really hurt. However, the slow tick up, along with time decay can kill you on the short side.

Fixed income is a dangerous path, because you would have a hard time thinking that yields are going down, unless there is a financial panic again. The same for PM's etc.

IMO, we are trapped in a movie like "Armageddon" where the powers that be know there is a big honking asteroid about to smash the world, but they aren't telling anybody because the panic would be as bad as the huge rock striking us, and wouldn't do any good anyway. So what they're doing is treading water as furiously as possible until Bruce Willis saves the day. Now if we can all believe that Bernanke the second coming of BW, then we can all sleep at night, otherwise, not so much.

JTS

 

[conraddobler]

The problem is that it is an escalator going up and an elevator coming down. If you didn't get onto the escalator at the bottom, the quick ride down can really hurt. However, the slow tick up, along with time decay can kill you on the short side.

Fixed income is a dangerous path, because you would have a hard time thinking that yields are going down, unless there is a financial panic again. The same for PM's etc.

IMO, we are trapped in a movie like "Armageddon" where the powers that be know there is a big honking asteroid about to smash the world, but they aren't telling anybody because the panic would be as bad as the huge rock striking us, and wouldn't do any good anyway. So what they're doing is treading water as furiously as possible until Bruce Willis saves the day. Now if we can all believe that Bernanke the second coming of BW, then we can all sleep at night, otherwise, not so much.

JTS

The shortside comes in one hard to time whoosh, because certain people know the timing.

I'm not saying there's rampant insider trading going on or anything of that sort. wink wink nudge nudge.

Obama makes the greatest stock call in modern history because he just knows.

People in this movie treaded water furiously too, didn't work out so well.