Slope of Hope Blog Posts

Slope initially began as a blog, so this is where most of the website’s content resides. Here we have tens of thousands of posts dating back over a decade. These are listed in reverse chronological order. Click on any category icon below to see posts tagged with that particular subject, or click on a word in the category cloud on the right side of the screen for more specific choices.

Stocks or Options

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From time to time, I get an email asking why I choose to buy an option instead of shorting a stock.

There are any number of reasons I would buy an option:

  1. Percentage Gain – this is the most obvious. If you short a stock, the most you can possibly make is 100%, and even that is virtually unheard of. I mean, if General Motors is still trading with a $428,000,000 market cap (as of today's close), how likely do you think you'll find a stock that has gone to $0.00? Anyway, as of this moment, my best short gainer is symbol BOOM (a 28% gain) whereas my best option gainer is RIMM September $100 puts (a 64% gain). Both of these happened to have been bought on June 11th, but the option position has over twice the percentage gain of the short.
  2. Stock Isn't Available -there have been more than a few occasions when I was salivating to short a stock but it was nowhere to be found. Often in these cases, the bid/ask spread is wider than Christine Romer's elastic waistband, but I succumb in any case, because I really want to be positioned for that stock's supposed fall.
  3. High-Priced Stock -this is really a cousin of reason #1, but I like to own puts on multi-hundred dollar stocks like CME and BIDU since there is such a good opportunity to get a lot of "juice" out of the stock's fall. This is particularly attractive as in recent days when the VIX is pretty low.

One other thing – – the single most encouraging indicator for me is if my portfolio value goes up even in the face of a market going the other direction. In other words, I was almost completely short today, and even though the Dow kicked up 44 points, almost all my positions moved in the right direction. (It was a lot more in the right direction earlier in the day, but I'm not complaining).

I really like what the market is doing right now. I think a bad storm is coming for equities, and I feel comfortably positioned to take advantage of it, particularly if we click below that all-important 875 on the S&P 500.

It’s All About 875

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It was a good day today, in spite of the late-day PPT rally. The /ES banged around 884 for virtually the entire session, but it finally launched higher near the end.

I got out of my OIH puts, some of my GE puts, my SKF longs, and a few other odds and ends earlier in the day. I've still got 160+ positions, almost all of them bearish. The lottery plays are kind of stinking up the joint, but there are only a handful of them.

At this point, it's all about 875, folks. The bulls are going to defend this line like mad. If we crack below it, the low 800s are going to be here in no time.

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Are Bears Evil?

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A couple of items in the comments section caught my eye last Thursday:

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I know these comments were (probably) offered tongue-in-cheek, but the implication generally seems to be that people who profit from reductions in equity prices revel in the misfortune of others.

Indeed, as the equity market plunges later this year, the scapegoating of short-sellers is guaranteed to happen again. Barney Frank, himself a paragon of moral probity, is already eager to reinstate the uptick rule. And remember, the market is down only a little bit. Just imagine what kinds of crosses will be burning on my lawn when the Dow is under 5,000!

I bristle at the notion that short-selling is un-American or malicious. We didn't cause these problems, but I have no compunction about profiting from them. I personally find bulls these days to be much closer to the definition of "Evil" (lying/manipulating/deceitful) than bears. Bernie Madoff was the king of the bulls. Even his huge yacht was named "Bull". The main difference between Bernie and other permabulls is that he got caught. The same goes for Mr. "Cheesy Moustache" Stanford, currently incarcerated.

And don't simply think that I'm only a doom 'n' gloomer. This beautiful house my family lives in was built on bullishness – – namely, optimism surrounding the growth of the company I started, Prophet.net. It grew, prospered, and profited, and I sold it – – – but my faith in the virtue of small business is far afield from the blind notion that equities must go up all the time.

I think the core difference is whether or not one celebrates the hardship of others or simply profits from it. Let's take 9/11/2001, for instance. Suppose the week before you loaded up on puts on American Airlines and United Airlines based strictly on your chart-reading abilities. September 11 comes along, and once the market finally re-opens, your puts up are hundreds of percent.

I see absolutely nothing wrong or immoral with the fact that you've made money. You had absolutely nothing to do with the death and destruction which caused your profits. It just so happens that your assessment of the charts was accurate.

Now, I think it would be callous, stupid, and impolitic to revel in your profits publicly – at a minimum, it would be in horrible taste. You might even decide to take a portion of those profits and contribute to the Red Cross (or, if you're feeling particularly patriotic, donate all of your windfall). But, I say again, your analysis led you to a profitable trade: you did nothing to add evil to the world.

I hope this doesn't come off as amoral-sounding; my Jesuit education is bubbling to the surface, since I enjoy philosophical discourse. But I'm not going to let bears get the blame for the mess that the bulls themselves created.

OIH Vey

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Happy New Week, everyone. I'm ready to tackle the first full week of trading with my big honkin' monitors and my big honkin' ambitions.

It looks like energy is going to grab the market by the throat this morning. Judging from the very nicely-formed head/shoulders pattern on OIH, I'd say we're heading for ~$70 before any real strength re-appears.

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