While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to six-month time frame, Mad Day Trader, provided by Bill Davis, will exploit money-making opportunities over a brief ten minute to three day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points. Read more
Global Market Comments
June 2, 2016
Fiat Lux
Featured Trade:
(JULY 7 DUBROVNIK, CROATIA GLOBAL STRATEGY LUNCHEON),
(A NOTE ON JUNE'S OPTIONS EXPIRATIONS),
(TESTIMONIAL)
We have two options position that are in-the-money and expire in 11 trading days, and I just want to explain to the newbies how to best maximize their profits.
These comprises:
the S&P 500 (SPY) June $212-$217 in-the-money vertical bear put spread with a cost of $4.51
the Japanese Currency ETF (FXY) June $91-$94 vertical bear put spread with a cost of $2.65
As long as the (SPY) closes at or below $212.00 on Friday, June 17, the position will expire worth $5.00 and you will achieve the maximum possible profit of 10.86%.
As long as the (FXY) closes at or below $91 on Friday, June 17, the position will expire worth $3.00 and you will achieve the maximum possible profit of 13.20%.
Better that a poke in the eye with a sharp stick, as they say.
In this case, the expiration process is very simple. You take your left hand, grab your right wrist, pull it behind your neck and pat yourself on the back for a job well done.
Your broker (are they still called that?) will automatically use the long put to cover the short put, cancelling out the positions. The profit will be credited to your account on the following Monday, and the margin freed up.
Of course, I am watching these positions like a hawk, as always. If an unforeseen geopolitical event causes the (SPY) or the (FXY) to take off to the upside once again, such as Janet Yellen announces that there will never be another interest rate hike again, you should get the Trade Alert in seconds.
If the (SPY) expires slightly out-of-the-money, like at $214.10, then the situation may be more complicated, and can become a headache.
On the close, your short put position expires worthless, but your long put position is converted into a large, leveraged outright naked short position in the (SPY) with a net cost of? $217.49.
This position you do not want on pain of death, as the potential risk is huge and unlimited, and your broker probably would not allow it unless you put up a ton of new margin.
This is not what moneymaking is all about.
Professionals caught in this circumstance then buy a number of shares of (SPY) on expiration day equal to the short position they inherit with the expiring $217 put to hedge out their risk.
Then the long (SPY) stock position is cancelled out by the short (SPY) resulting from the exercised stock position, and on Monday both disappear from your statement. However, this can be dicey to execute going into the close.
So for individuals, I would recommend just selling the $214-$217 put spread outright in the market if it looks like this situation may develop and the (SPY) is going to close very close to the $214 strike, even if it as a loss.
The risk control is just too hard to handle.
There is another reason to come out early. Some brokers exercise the options in the spread into shares on expiration, and then hit you with a another commission on the sale of the shares.
So check with you broker to see how they handle options expirations.
To be forewarned is to be forearmed.
Keep in mind, also, that the liquidity in the options market disappears, and the spreads widen, when a security has only hours, or minutes until expiration. This is known in the trade as the ?expiration risk.?
One way or the other, I?m sure you?ll do OK, as long as I am looking over your shoulder, as I will be.
Well done, and on to the next trade.
While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to six-month time frame, Mad Day Trader, provided by Bill Davis, will exploit money-making opportunities over a brief ten minute to three day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points. Read more
Come join me for lunch for the Mad Hedge Fund Trader?s Global Strategy luncheon, which I will be conducting in Dublin, Ireland on Wednesday, June 29, 2016.
A three-course lunch will be followed by an extended question and answer period.
I?ll be giving you my up to date view on stocks, bonds, foreign currencies, commodities, precious metals, and real estate.
And to keep you in suspense, I?ll be tossing a few surprises out there too. Enough charts, tables, graphs, and statistics will be thrown at you to keep your ears ringing for a week. Tickets are available for $237.
The lunch will be held at an exclusive private club in the downtown area of the city, the location of which? will be emailed to you with your purchase confirmation.
I look forward to meeting you, and thank you for supporting my research.
To purchase tickets for the luncheons, please click here.
While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to six-month time frame, Mad Day Trader, provided by Bill Davis, will exploit money-making opportunities over a brief ten minute to three day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points. Read more
Global Market Comments
June 1, 2016
Fiat Lux
Featured Trade:
(JULY 22 ZERMATT, SWITZERLAND GLOBAL STRATEGY SEMINAR),
(WHY I DON?T CARE ABOUT OIL),
(USO), (UNG), (XOM)
United States Oil (USO)
United States Natural Gas (UNG)
Exxon Mobil Corporation (XOM)
With the price of oil closing at a low on Friday of $48.33, you?d think I might be concerned.
In actual fact, I could care less, am indifferent, unconcerned, and couldn't even give a rat?s ass.
In actual fact, oil was exactly at $48.33 a year ago. If you?d taken a one year cruise around the world, as I advised, you?d wonder what all the fuss is about.
Furthermore, I believe that oil could be at $48.33 a year from now. We may visit $60 first, then $40. But basically the price of oil has reached an equilibrium.
It is just high? enough to keep too many producers from going bankrupt, but low enough the keep that juggernaut, the America consumer, in the stores and buying.
There?s nothing like seeing your long-term forecasts vindicated.
When I warned the oil majors in the late 1990?s that fracking technology was about to change their world beyond all recognition, they told me I was out of my tree, in the politest way possible, as is their way in Houston.
Their argument was that the technology was untested, unproven, and a huge liability risk. If they accidently polluted underground fresh water supplies, the ambulance chasers would make a beeline towards the deepest pockets around, and that was theirs.
They were telling me this after I supplied them my data showing my 17 consecutive successful wells drilled in the depleted oilfields of the Barnett Shale, in West Texas (in the old Comanche country).
Some 17 years later and the energy industry has been changed beyond all recognition.
The majors finally jumped into fracking after building legal firewalls against the liability that so concerned them, and started fracking like there was no tomorrow.
The message is pretty clear. In the last five years, US oil production has skyrocketed from 8 million to 11.3 million barrels a day. It has since backed off 1 million b/d from the top.
America can now become the world?s largest oil producer any time it wants, eclipsing Saudi Arabia at 11 million b/d, and Russia at 10.5 b/d and falling. Thanks to the oil crash, there are now 1,000 wells that have been drilled, but capped, awaiting higher prices.
Some 200 large crude carriers are also slow steaming in circles around various parts of the world, awaiting the same.
Oil imports have collapsed from 10.3 to 6 million barrels a day. The share coming from the volatile Middle East has shrunk to a miniscule 2 million barrels a day.
Some 80% of Persian Gulf oil exports now go to China. OPEC surplus oil production capacity is soaring. It couldn?t happen to a nicer bunch of people.
The US will achieve energy independence within three years, or at least parity in its imports and exports of energy and distillates.
The administration is doing what it can to help along this trend, permitting the first exports of distillates in half a century, to South Korea it turns out.
Is it any wonder that president Obama is turning a blind eye to recent horrific developments in the Middle East? This explains why I really don?t care about oil prices anymore.
There is another upshot to all of this. About the time that America gets its energy independence back, it should also get a balanced budget.
That is coming primarily from the big cuts in defense spending. The twin deficits, energy and the budget, are intimately linked. It is no surprise then, they will disappear together.
By the way, did I mention that this is all great news for the long-term future for stock prices? The stock market certainly thinks so, with its stubborn refusal to fall substantially.
And for the price of oil?
I am not big buyer here. Nor am I a seller. We could ratchet back and forth within a $40-$60 range for quite some time.
Ask me again at either end of that range and I might be interested.
Just thought you?d like to know.
?There?s nothing but tailwinds behind the American consumer. You?re creating a boatload of jobs, you?re creating all kinds of jobs. Wage growth is accelerating. The stock market is at record highs. The debt service burden is as low as it has ever been. And consumer confidence is back to pre recession levels,? said Mark Zandi, chief economist at Moody?s Analytics.
Come join me for lunch for the Mad Hedge Fund Trader?s Global Strategy luncheon, which I will be conducting in Florence, Italy on Saturday, July 9, 2016.
A three-course lunch will be followed by an extended question and answer period.
I?ll be giving you my up to date view on stocks, bonds, foreign currencies, commodities, precious metals, and real estate.
And to keep you in suspense, I?ll be tossing a few surprises out there too. Enough charts, tables, graphs, and statistics will be thrown at you to keep your ears ringing for a week. Tickets are available for $227.
I?ll be arriving at 11:30 AM and leaving late in case anyone wants to have a one on one discussion, or just sit around and chew the fat about the financial markets.
The lunch will be held at an exclusive five star hotel in the downtown area of the city, the location of which will be emailed to you with your purchase confirmation.
Florence is one of those bucket list cities that everyone must visit once in their lives. I have been dropping by the Renaissance capitol since 1968.
Michelangelo?s statue of David, a true masterpiece, is a must see. The Galleria dell? Academia is one of the finest art museums in the world, as is the Uffizi Gallery.
The Duomo, the Cathedral of Santa Maria del Fiore, is a highpoint of medieval architecture. The ancient Ponte Vecchio, the only bridge the Germans failed to blow up during WWII, is perfect for souvenir shopping, but watch out for pickpockets!
For my stay in Florence I have rented one of the city?s lesser palaces. You will find me in the mornings at the Piazza del Signoria sipping my double espressos and practicing my Italian with the locals. It?s amazing what you can learn! Ciao!
I look forward to meeting you, and thank you for supporting my research.
To purchase tickets for the luncheons, please click here.
