Topic: Fiscal Cliff trade (Read 4198 times)

Nothing is a "sure thing"... I think we all know better than that. You're essentially scolding me for serving coffee without a sticker saying "Hot coffee can burn you".


I'm not selling anyone investment advice so I don't feel like I need to provide a legal disclaimer to share my opinions on the market and describe how to speculate... There's a reason it's called speculation, and why I said "this is how you speculate"... I did not say "this is how you win every time, guaranteed, so do this and you can never lose"... I remember learning in the 3rd grade that the stock market had risks...


I did say either outcome is a fail, and it is... the outcome which ultimately came to be was yet another failure of government. I hope you don't think they "saved" America by moving the date back... I also did not say that the trade was going to work no matter what...


I believe readers are a bit more intelligent than that... I don't see why we should argue about what might happen if the dumbest/most naive person possible read my thread and decided to use it as some form of "absolute" investment advice. If such a person is among us I hope they don't have a brokerage account because it won't be long before they find one of those penny stock websites... 

I don't care what you do with your money in your account.  Get rich, go broke, doesn't matter to me.  My issue is with someone creating a post on a public forum telling others what they should do, while hyping up the idea as a sure thing, and avoiding any suggestion that it could go sour.

The outcome you declared would happen is going off the cliff.  Every statement you made was talking about what was going to happen WHEN (not if) we went off the cliff on January 1.

Furthermore, when I suggested that going off the cliff wasn't necessarily a bad thing, you claimed that "Either outcome is a big, fat FAIL" creating an impression that your advice was good regardless of what happened with the Fiscal Cliff, demonstrating further that your statements weren't based on "IF we did go off the Fiscal Cliff".

As I said earlier, perhaps a little more caution and a willingness to consider the possibility of a downside would add some perspective to your opinions about the directions of various markets.  If you are going to say something "will happen", be sure that it "will happen", otherwise you're better off saying that it "might happen".

Note, if you were paying attention you'd see there was no "contextomy".  In every instance you'll find that I offered a suggestion on an improvement to what you said.  Plug my suggestions back into your original statements (in their original context) and you'll find that they all fit very well with the context and offer a more realistic statement of the situation.  Furthermore, I included the link back to the original post with every single quote so anyone can see the complete context if they care to.  I only shortened the quotes because there were so darned many of them and it would have been a mess for others to read through if I hadn't.

Very true, i bought a lot of Apple september 660$ puts in late august. Should have paid the extra premiums for october or "doubled down" in september, but didn't.

I can't control what other people do with their money. I just talked about what I was doing with mine and why I thought it was a good trade. If an inexperienced investor tried to follow me into a trade like that then I feel sorry for them but they should've read the standard options disclosure packet from their broker and did their homework. Inexperienced investors shouldn't be toying around with options, and no one should make a trade based on what I (or anyone else...be it Jim Cramer or David Einhorn) says.


You're absolutely right. I'm actually eyeing this big gap up in S&P 500 futures from 1424 to 1441... gaps in futures prices tend to almost always get filled back in quickly. So let's keep an eye on that. Definitely expecting some volatility sometime soon, but it's too early for me to get back in just yet.

Danny, why exactly do you have a problem with what I do with my own money in a personal brokerage account?  

The outcome I expected was Congress failing to do anything and going off the cliff... so every statement I made I was talking about what was going to happen IF we did go off the Fiscal Cliff, as I expected. I think you know this, but choose anyway to commit an act of contextomy?

We didn't go "off the cliff", though we came very close and are still in danger of it. So the market rallied in my face. I'm a big boy and I accept my loss. That's how trading works.

No, I understand your position I just think like DannyHamilton, it may have attracted the inexperienced investor with the lure of big gains.  Options are complex for the average investor and due to their leverage, you can make fantastic gains but that pendulum also swings in the other direction.  I'm not knocking you for the bad call, it happens, I just wanted to throw out some disclaimers.

As for the "Cliff" I do agree with you, the can has just been kicked further down the road.  However, I've also learned two frequently used sayings through my career, "the market can stay irrational longer than you can stay solvent" and "don't fight the Fed."  The problem with options is you not only have to be right about the direction of the stock, you also have to be dead on about the timing.  That's the tough part.  BAC could plummet on the 14th but by then your options are already expired.  Options certainly serve a purpose, and I use them often, but people also need to be cautious and aware of the downsides.   

I saw a lot of definitive statements from you, but I don't think I saw a single conditional statement.  Please point out for me ANYWHERE in this conversation where you used the word "If".  Here is what I saw:

suggestion: "here is one possible move"
suggestion: "we could be going off the Fiscal Cliff"
suggestion: "the banks may get pounded"
suggestion: "consider the possibility of buying the weekly JAN1 13 11 puts"
suggestion: "That could give you a chance at"
suggestion: "The Fiscal Cliff might have a direct, painful impact"
suggestion: "Either outcome has potential to be a big, fat FAIL"
suggestion: The entire system could end up screwed"
suggestion: "we seem to be in WAY over our heads"
suggestion: "the US will eventually have to pay the piper"
suggestion: "equity markets might get slammed"
suggestion: "we have a significant risk of a possible recession"
suggestion: "The very basis of bank revenues could come under fire"
suggestion: "The stocks might go down"
suggestion: "But I personally expect nothing out of it"

True... but I made all of my statements on the basis of "IF x, then y". Had we not had the postponement of the Fiscal Cliff and "fell off" it certainly would've caused chaos in the markets and the "predictions" I made would've panned out almost instantly. And there's still a very high likelihood that it will end up happening, just not right away...the date has been pushed back.


Well, that's why I often trade options, as in this case. I knew my downside from the start: a couple hundred bucks gone if I lost a full 100%. Anytime I trade weeklies I don't put in more than I can afford to burn in full.


I agree. We didn't "avert" anything, just changed the date. And what the market isn't considering yet is that if we do get the "grand bargain" everyone is hoping for that means huge tax increases and other changes which will result in a net loss to economic activity. So no matter which way it goes it's bad news for the economy.

Risk is definitely to the downside and the market, in general, feels very toppy. But it's times like these I love to trade. As soon as we start to break down I'm going to be there on the short side again, as I have been in every market crisis... :-)

there will probably a significant crash this year

short term is harder to predict

Might have been nice if you would have shared with people your thoughts that there was nothing definite about your "predictions" a bit earlier.  Clearly you went into this knowing that "it happens", and that you "just write it off and charge it to the game", but you didn't say anything about that when you were telling everyone that "The stocks will go down", and "banks are going to get pounded".

Perhaps a little more caution and a willingness to consider the possibility of a downside would add some perspective to your opinions about the directions of various markets.

Yeah... my trade is pretty much sour at this point. It happens. That's why I only risk small amounts on these highly risky plays in weeklies, and I speculate with "bundles" of options on various securities. That way if I take a 100% loss on a trade like this, which looks like a possibility, I just write it off and charge it to the game.

Anyhow... We didn't "solve" the Fiscal Cliff, we just pushed it back several weeks and created a BIGGER problem. But markets aren't always rational. This big rally is just a happy-go-lucky reaction to the sense of impending doom being put off a few weeks. It will top out, in which case I'll be ready with an even better trade and we will probably get some extreme volatility at some point in the next 2 months. Playing options on VXX will then become quite attractive.

10 contracts gives you the OPTION to sell 1,000 shares of stock, not 1,000 options.  I'm sure it was a typo but just to clarify for those unfamiliar.  Also, you should probably disclose that your 85% gain will be wiped out by your 100% loss on this position come next Friday.  There is no free lunch people.

My suggestion: start by considering what the state, or government is. Can it be viewed as some entiy, like a company, but with some special treats (tax power, control over the money system). At least around here, folks believe that when the state is rich, they are rich.

Then, search the net for what the market can do, and the meaning of sound money.

I could say more, but this will get you hooked.

Here's an insanely long documentary about all the history etc. behind the idea of money.

https://www.youtube.com/watch?v=HfpO-WBz_mw