Thursday, March 3, 2011

Nickels

From a Credit Bubble Stocks correspondent:

I said that nickels are worth the same per pound as a used Ford.
But they are more dense that a car that has been through a car crusher.
So a million-dollars-worth would take up the space of 60 crushed cars, roughly.

4 comments:

getyourselfconnected said...

Putting all your eggs in one metric ton nickel basket?

CP said...

Short silver, long nickels

getyourselfconnected said...

CP, in size or a small position?

CP said...

Not sure let. Let me give you an analogue from late 2006 that will shed light on the dilemma.

At that time it was possible to get free options on real estate, chiefly condominiums, by signing purchase contracts (with "outs") for projects that were still multiple years away from completion.

The developers were willing to offer these free calls because the banks would (stupidly) condition their financing based upon the percentage of units under signed contracts.

Collecting free options is all well and good - you have positive expected value.

The problem was, it seemed really unlikely that the real estate bubble would last much longer.

So, the probablity distribution (though skewed positive with positive EV) was dominated by a payoff of zero.