<p>Its that time again. I think I’ll sell some spy 132 weekly puts, iwm 76 weekly puts, aapl weekly 545’s later today or lower strike prices if we head down later in the afternoon. I’ll probably also buy iau june 14 calls.</p>
<p>I have some offers in some puts that don’t expire until july and I am not going to chase them down…too much. ;)</p>
<p>I only did one trade today…and it was definitely a peanut trade…</p>
<p>I can’t trade too many weeklys options. I am not going to be around next Thursday or
Friday.</p>
<p>Last week I had sold some puts in my company that expire next week. The price was getting close to the strike price and I was concerned that I was going to be assigned and was preparing to roll them out. I decided to wait and see what happens. Looking at the stock price today, I wish I was assigned, the stock just keeps going up.</p>
<p>:)…</p>
<p>Slightly different…I don’t want to sell so many puts that I can’t buy the stock…</p>
<p>Example…
Let’s say a stock is 30…I sell the aug 27 puts…in a month the stock drops to 27…</p>
<p>Now I am in a quandary. I wanted to buy the stock at 27… But I have these puts…and I don’t want to buy those in at a loss…</p>
<p>So do I keep the short puts? Roll them? Cover them and buy the stock instead?</p>
<p>One thing about the short puts…we don’t make a lot on each sale…</p>
<p>I am selling puts for .25 to .30. I would guess if the stock dropped to 27… The puts would be closer to 1.25.</p>
<p>Do I cover those and buy the stock?
We can make a lot more buying stock.</p>
<p>Anyway…</p>
<p>The puts I am selling …I don’t care if the stock drops…because I am
only selling about 10 a day…actually today…nothing…and I want to sell more puts over the next month.</p>
<p>I say that now…but if the stock really dropped fast…who knows…psychology can be a
tricky thing. :)</p>
<p>Would there be a way for the banks to tie the traders’ comp to returns after deducting for level of risk taken, to encourage less risky but still profitable trading??</p>
<p>Actually…there may be clawbacks this time. Some people may have to return some of their pay. I thought I read that somewhere.:)</p>
<p>Performersmom…your post is kind of interesting…</p>
<p>The compensation packages do lead to excessive risk taking.</p>
<p>What percentage of bank earnings since 2008 have been from trading? Proprietary? Treasury? Hedging?
What percentage of their earnings are “protected” by “hedging”?
Have these gone up or down since before 2007 and 2008???</p>
<p>What exposure do the banks have to the euro? to european credit? to european securities? to european depositors??</p>
<p>How much can we citizens tell about the banks? or are they allowed to hide stuff in weird accounts, off BS, etc. because they are so crucial to our economy?</p>
<p>Hellooooo regulators and agencies for whom we pay so many taxes to do this job…</p>
<p>Yep…performersmom…post 908 is a good post.</p>
<p>dstark, I learned back in dino days in B-school that there are ways to measure risk: volatility, beta, liquidity, blah blah.
You are a trader - what is going on these days in measuring risks with the mega-computer power we have? I realize that regressive analysis has its risks and inaccuracies, but it should also be possible to plug in when huge positions are being taken, when trading dries up, when a trade requires a big price move, when a security reacts more than average to news, etc.
You talk here about measuring the potential gain vs the potential loss, and then one can add (estimated) probabilities to each, but there are warning signs .
These banks should be using these formulas to MANAGE how much risk is needed to get a return or protection. They are supposed to be look at how much risk the overall capital of the banks is exposed to. But it becomes the wild west, as more and more risky trades are put on to “hedge” risk- CUCKOOO. So should the regulators be involved here.</p>
<p>I always think about compensation, because Wall Streeters are motivated to make money, period.</p>
<p>“I always think about compensation, because Wall Streeters are motivated to make money, period.” </p>
<p>I think that is correct…I try to tell my friends who aren’t in this business what you wrote…but they have a hard time comprehending this.</p>
<p>There are so many different traders and different styles…and what one trader thinks has a poor risk reward ratio…another thinks differently.</p>
<p>I actually am pretty sure…JPM thought they had the issues you brought up, performersmom, covered.</p>
<p>The problem I see is that traders use mathematical models…and think they work like natural science models…but they don’t.</p>
<p>Everything you mentioned…I think is being done…maybe not perfectly…and some traders do trade by their seat of their pants…</p>
<p>We are going to take risk as a society. It is ok to take risk.</p>
<p>But…blowups can’t be eliminated…so we have to eliminate systemic risk. </p>
<p>You mentioned liquidity…that is such a big factor in trading. These traders that are getting into trouble are trading too big in several markets. Also…if it is easy to put on a trade…and many participants want to trade with you…you have to back off and question what you are doing …instead of trading bigger.</p>
<p>As a very experienced broker told me many many years ago:
“NJres, the traders hall of fame is not made up of guys who make money.”</p>
<p>In case it is not obvious, what he meant was to a broker, the most important customer is the guy who did a lot of volume. Lots of volume may have nothing to do with profitability, but it sure does grow the ego. This “whale” guy I am sure enjoyed being a “Big swinging Richard” but gosh! Now his strategies are being called “poorly executed” (duh!) </p>
<p>The simplest way to adjust trading performance for risk is to charge the trader for capital used. More risk = more capital. Paying for capital reduces the profit. In fact, a risky trade that produces a small profit for the firm could produce a loss for the trader’s own book after he is appropriately charged for capital. This type of system falls right in line with Bank’s capital requirements, as they are required to hold different percentages of capital to support assets of varying risk.</p>
<p>Send this idea in right away to the Fed, NJres! Make it a Bank industry comp measurement requirement. None of the banks will do anything like this unless the gov makes them or gives them an incentive…
You know if trading stops being so much fun and so expensive to monitor, maybe the banks will cut back… It is a natrul expetnsion of the capital requirement rules.
If there are no penalties for losses (bail-outs, no claw-backs, continued access to bank capital, high comp), why stop taking insane risk? That is moral hazard operating both on the industry and on the employee level…</p>
<p>This is what I meant by confusing free markets with a managed economy…
I am all for free enterprise and the right to get rich by competing, but let’s clear up what is REALLY going on here with the banks.</p>
<p>The Volcker Rule seems too complicated and too misunderstood/tainted to pass. We need more ideas, and fast.</p>
<p>No wonder John Q Public stays aways from the stock market…</p>
<p>[Why</a> Don’t We Know More About the ‘London Whale’? - Yahoo! News](<a href=“Why Don't We Know More About the 'London Whale'?”>Why Don't We Know More About the 'London Whale'?)</p>
<p>In case you missed any of the details here…</p>
<p>Great article, performersmom.</p>
<p>I think Jaime Dimon will survive.</p>
<p>I think between Jamie Dimon, Achilles Macris and the other Greeks in Greece, they’re trying to destroy the world economy (LOL)</p>
<p>Hmmmmm…I can’t remember. Doct, are you Greek?</p>
<p>Yes - my friends and I are very disappointed in how Greece is handling their economy.</p>
<p>I am sorry to read that. My boss is Greek. :)</p>
<p>This is a good article…kind of hard to argue that JPM was hedging…</p>
<p>[In</a> JPMorgan Chase Trading Bet, Its Confidence Yields to Loss - NYTimes.com](<a href=“In JPMorgan Chase Trading Bet, Its Confidence Yields to Loss - The New York Times”>In JPMorgan Chase Trading Bet, Its Confidence Yields to Loss - The New York Times)</p>
<p>"Mr. Dimon knew about the expansion of the unit, whose increasing risks didn’t raise concerns presumably because its profits were rising.</p>
<p>In 2009, the unit’s net income peaked at $3.7 billion, up from $1.5 billion the previous year. The jump in earnings in 2009 resulted from large purchases of mortgage-backed securities guaranteed by the United States government, according to a company filing. Net income for last year totaled $411 million.</p>
<p>Last summer the chief investment office began calling brokers at several Wall Street banks, the brokers say. The office was offering to sell insurance on an index of big American corporations like General Mills, Alcoa and McDonald’s — known as CDX IG Series 9. If the companies in the index went bankrupt, JPMorgan would have to pay out, but if the companies continued to do well JPMorgan could rake in the fees from financial firms that bought the insurance.</p>
<p>The strategy initially made money for JPMorgan and its position began to grow, as did an appetite for it among a tight-knit segment of hedge funds focused on credit opportunities. The large scale of the trade was permitted as a result of an expansion in the limits placed on the size and the scope of securities the unit could trade in that were adopted after JPMorgan acquired Washington Mutual in the financial crisis. Those limits have now been scaled back.</p>
<p>By January, these hedge funds were getting calls nearly every day from brokers representing the chief investment office, according to hedge fund managers and brokers on the calls."</p>
<p>“I think Jaime Dimon will survive.”
But will the financial system?</p>
<p>Lots of detail in NYT article, dstark- thanks for posting.
Fox has been the hen-house…</p>