The Case for Selling Apple Puts (brave ones only)
Guest post by Vix and more.
Lately it seems as if everyone with a keyboard is aflutter about the two weeks of selling in Apple (AAPL). I was about to label this a correction, but really, which is more correct: AAPL at 644 or AAPL at 582? How about the Topeka Capital Markets analyst that put a 1001 price target on the stock?
With earnings due out on Tuesday, there are rumors circulating about possible revenue beats and misses, what may emerge from the product pipeline when, etc.
There are a lot of investors out there that would like to own AAPL or add to an existing position. Many of those see the stock as an excellent value at 582, but are worried about the possibility of a negative earnings surprise, so they are not sure what to do.
Yesterday I tweeted the following trade idea:
“Simple idea: pick a price at which you would like to own $AAPL and sell the puts”
“$AAPL May 520 puts at 7.25. Think of it as being paid 7.25 to see if you can get the stock at a $70 discount”
Remember the non HFT days?
S&P pit 30 years ago. Courtesy CME.
EU IMF’d
Hudson interview by Lauren Lyster. Video below.
Missing the bull….
Missing the bull in finance is a no no. How do managers of other peoples money think, act and justify their behavior. Edward Harrison on the herd chasing the bull market.
The central truth of the investment business is that investment behavior is driven by career risk. In the professional investment business we are all agents, managing other peoples’ money. The prime directive, as Keynes knew so well, is first and last to keep your job. To do this, he explained that you must never, ever be wrong on your own. To prevent this calamity, professional investors pay ruthless attention to what other investors in general are doing. The great majority “go with the flow,” either completely or partially. This creates herding, or momentum, which drives prices far above or far below fair price. There are many other ineffciencies in market pricing, but this is by far the largest. It explains the discrepancy between a remarkably volatile stock market and a remarkably stable GDP growth, together with an equally stable growth in “fair value” for the stock market. This difference is massive – two-thirds of the time annual GDP growth and annual change in the fair value of the market is within plus or minus a tiny 1% of its long-term trend as shown in Exhibit 1. The market’s actual price – brought to us by the workings of wild and wooly individuals – is within plus or minus 19% two-thirds of the time. Thus, the market moves 19 times more than is justified by the underlying engines!
-Jeremy Granthan, Quarterly Newsletter, April 2012
Here’s the chart he gives, demonstrating the volatility of herding.
Master of HFT
According to themselves, they add liquidity, improve transparency, and create a net good for the markets and society. Whatever you think about HFT, this guy is the master of HFT. From Huffpost.
Mark Gorton is sitting in the Zen garden on the roof of his office in downtown Manhattan, squinting into the sunlight and telling me he’s not evil.
“If you listen to some of the rhetoric in the press recently, you’d think we were killing babies,” Gorton says, in between sips of organic blood-orange soda as he leans forward in a wicker chair. He’s upset that his business is being “tarred” by the bad publicity plaguing the rest of Wall Street. “What we’re doing is a net positive for the world.”
This is an interesting complaint because in many ways Mark Gorton is the new face of Wall Street. Gorton is a high-frequency trader. His company, Tower Research Capital LLC, with its 275-person global staff of engineers and computer science and physics majors, is part of an industry that today is responsible for more than half of all stock trading in the United States, according to the Tabb Group, a financial markets research and strategic advisory firm. Gorton’s is an industry under scrutiny.
Essential Chart Update
Equity markets have been rather active over the past sessions. Further Eurozone troubles have absolutely crushed the Spanish and Italian markets. Both these markets are now at our projected short term target levels. Momentum is still weak, but we should be getting a slight bounce from these levels. Note how close the IBEX is to the 2009 “bottom” levels. We are not turning bullish, but see a possible short term bounce as these indices have reached support levels around here.
Both the Dax and the Eurostoxx are also reaching some short term support levels, while some risk off ratios are at extreme levels. Charts below.
Vicious Circle of Bankster Huddles
Matt Taibbi on high finance crime. One thing is sure, Taibbi won’t be joining the BAC bond team.
Video worth watching below and Taibbi interview starts 12 min into the show.
Did Bernanke save us?
We have heard it many times, Bernanke had to go all in and stimulate the economy the way he did. The question is, did he avert the great depression 2.0? Guest post via von Mises Institute.
In a lecture given at George Washington University on March 27, 2012, the chairman of the Fed said that the US central bank’s aggressive response to the 2007–2009 financial crisis and recession helped prevent a worldwide catastrophe. Various economic indicators were showing ominous signs at the time. After closing at 3.1 percent in September 2007, the yearly rate of growth of industrial production fell to minus 14.8 percent by June 2009. The yearly rate of growth of housing starts fell from 20.5 percent in January 2005 to minus 54.8 percent in January 2009.
News That Matters
All you need to read and some more below.
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