Monday, September 14, 2009

Tuesday Reading

Puts are on sale: current implied volatility vs. the 52 week high IV of Dow 30. I have accumulated almost a thousand GE put contracts so I'll never have to work again if we get the next leg down.

Conservative Woodstock Rocks the Capital.

"Every week the FDIC takes over failed banks and every week the assets on the banks balance sheets are written down by 30% overnight. Does this not make eager buyers of bank stocks wonder how assets on bank's balance sheets are being valued?" (Capital Observer)

Why do people say the government "let" Lehman fail? Lehman was a mess. It failed. It's requiring "the biggest real-estate workout department in the U.S." just to oversee the real estate screwups they made.

Geithner cancels Westchester house listing, rents to tenants. Cap rate is around 4% based on his asking price for the house.

Short Interest At Lowest Level Since February 2007


jm said...

I wonder if Geithner's tenant is a Goldman Sachs employee?

CP said...

There is nothing that I would put past Geithner OR Goldman Sachs.

eh said...

Pretty ballsy call on GE.

Saw a posting from some guy who says he bought Sep 09 $3 calls on UYG for 30c back in March when UYG fell to less than $1.50. That trade is looking pretty good right now.

eh said...

Just to clarify: so you have put options covering almost 100k shares of GE?

But the way things are going it is very risky to short the market. Especially a marquee name like GE.

On the other hand, you hear again and again horror assessments/scenarios of GE's balance sheet, and all the problems swept under the rug at GE Capital.

I'm looking at the Mar 2010 $10 puts, which you can get for 24c.

CP said...

Yeah, it would be about 100,000 shares, but at lowish strike prices.

Tangible BV for GE is like $1 per share.

The very best time to short the market is when shorting is unthinkable. What is the ONE and only asset in the world that is most reviled right now? Put contracts.

Scoop them up. You know the spread between a GE jan 10 2.5 and jan 11 2.5 is less than 2 cents? If I could trade without commissions, I would buy that spread HUGE.

eh said...

Thanks for the feedback. I have not been dabbling in options for all that long, so if you don't mind...

If I could trade without commissions, I would buy that spread HUGE.

I understand about the commissions -- on a big block of options they can cost you plenty. (Where do you trade? Have you tried these guys?) But could you elaborate on what you mean by 'buy that spread'? Thanks a lot.

One thing that bothers me: via one of the innumerable government bailout programs, GE -- and that means GE Capital -- can borrow and have the debt guaranteed by Uncle Sam. That could cover a lot of mistakes on GE's part.

You put out a nice, concise blog. Been following it for a couple of years. Or trying to.

CP said...

Yes! Flat rate commissions are exactly what is needed to do that trade.

Mar 10 GE 2.5s are 5 cents and Jan 11 2.5s are 6 cents.

That is a one cent spread with 10 months extra time for the Jan 11 option. That 10 months is worth something - the spread is the market's opinion of the value.

If you bought the 2011 and shorted the 2010, you would be long the spread. It would cost you a penny per contract.

The best case scenario would be for GE to go bust the day after the short March option expired. You would get full strike - 250x.

The worst case scenario is that you lose a penny because both expire worthless.