“Selling naked call/put premium gets you this guy!”
We now know, the extent to which $80 - $150 million dollars in hedge fund
money went … POOF! “Aaaaaand it’s gone”!, in about 48 hours … the fund
manager sold both out-of-the-money [OTM] calls & puts in Nat Gas [NG], for
Jan, Feb, March, & April 2019 … “with Winter officially approaching, you go
naked on both sides of the market equation, in the most historically volatile
commodity known to mankind, and expect the market to not move the entire
winter, all the while you collect fat premium via time [theta] decay? … Sure
Skippy, and I got some beachfront property in fucking Kansas I’d like to show
you … for sale cheap … how ‘bout it”?
And these are the “smartest people in the room”? … these are the kind of guys
who end up burying money so fast when SHTF, they simply shrug it off as a
“one off”, go someplace else, rename a new fund, and are back at it peddling
the same horseshit to brand new wealthy chumps investors, who haven’t a
clue. “The mistakes made here , by the fund’s manager, are legendary … you
wanna be an options trader millionaire? … you wanna get rich trading options?
… then listen up, cuz you don’t do what these “experts” preach … not now, not
ever! … they simply have no fucking clue what they are talking about, and I
don’t care how many books you write, how many videos on YouTube you got, or
how many testimonials you collect … their premise is flawed, the market logic
makes no sense, and sooner or later you go bankrupt … and investors did”!
Before I get into specifics, what common sense does it make to expect Winter
to play out exactly as averages say it will, and then compound the problem
with being “naked” on both sides? … it makes zero sense.
They sold naked calls & puts … they got unlimited risk on both sides … any
market move over the next couple of months, either up or down, with even the
tiniest of volatility spikes, will hurt both sides of the position … whatever you
think you’re gonna get with theta decay, is more than made up by any spike in
vega [volatility]. Instead of being short naked both OTM calls & puts, which is
the riskiest strategy known to man, there was a far better way to achieve what
they wanted with very limited risk … SELL the at-the-money [ATM] calls &
puts, and BUY the OTM calls & puts … if the market stays calm, the ATM
calls & puts which have the highest time premium cuz their deltas are around
0.50, will decay faster and farther … the OTM calls and puts which you’re
long will NOT suffer time decay as much cuz of 2 important factors; 1) their
deltas are much smaller, and 2) nobody is gonna sell OTM options “in the
hole” [meaning cheap], with the entire winter ahead of us. And so, the options
you’re short decay, while the ones you’re long don’t … that equals profit.
If SHTF, which it did natch, the short ATM calls & puts lose a ton of their
time value going in-the-money [calls ITM] or OTM for the puts, while
volatility spikes the OTM calls & puts which you’re long … if you don’t want
to do the “straddle”, do the “strangle” … in any event, the market can’t be on
both sides of the equation at the same time, so what you lose on one side, you
gain on the other … combine the net premium you collected from the positions
and subtract it from the width of the strike prices … THAT’S YOUR MAX
THEORETICAL LOSS POTENTIAL AT EXPIRATION … NOT A PENNY
MORE! … and if you did it right, that means any losses would be very small
from a big sigma move in the underlying … your gains would be about 80%
of being totally naked and exposed … “somebody tell me again how smart these
guys were/are … I’m not flaming the manager cuz he was wrong … I’m flaming
the manger cuz he’s an idiot, and should have known better … he hangs his hat
out there as an “expert”, and then promptly proceeds to make a rookie mistake
that cost investors $80 million, & buries his fund … this is worse than stupidity
… this is gross negligence of the highest order”!
Rules # 1 and 2 in options trading; 1) ALWAYS KNOW YOUR RISK
BEFORE YOU PUT THE POSITION ON, and 2) never forget rule #1. And
that means never accept open ended risk, no matter how much the premium is
or how good it looks, or how much of a genius you think you are … the
premiums are “fat” for a reason!
If there’s one constant in trading it’s this; “shit happens” all the time, and the
unexpected is to be expected, and when it comes to options trading, the mantra
of “just sell premium, book it, and laugh all the way to the bank” is pure bullshit
… “I can’t tell you all of the gazillions of people I’ve known that have seen
accounts destroyed attempting to collect “easy” premium dollars, or all of the
hedge funds that blow the fuck up every few years, for the exact same reason
… more than you can imagine”.
And despite what every options book ever written says, which is, “the way to
make consistent money in options is to be a seller of premium”, over the course
of my trading career which spans decades, the key to making money is THE
EXACT OPPOSITE! … simply put, you want to BUY volatility when it’s low,
and SELL volatility when it’s very high, through appropriate reduced risk
strategies … however, most of the time volatility is normal to low in most
markets, which means selling premium becomes a trip to the poor house!
… and just cuz volatility may be high in a market [think stock indices right
now, as the NDX100 VIX is at 7 year highs around 35 - 40], doesn’t mean it
can’t go higher still and literally kill option writing strategies.
This is why I have always preferred BUYING volatility, and using strategies
where any increase in VIX [general term for volatility in any market]
produces profit … time your strategies correctly, and you make staggering
sums of money, with reduced risk … and for the record, that’s what I’m
attempting to do in the C2 options signals advisory for gold [via GLD], and the
SP500 [SPY], which are both ETF’s traded on the NYSE.
Turning to today’s gold market … “natch, a bucket of warm bat guano” … why
is this shit even open today? … once again, Asia & Europe dead meat, as far as
range is concerned and trading activity … all there is are dealers trapping
longs/shorts and running tight stops … quick trips up followed by quick trips
down, and then sitting for minutes on end where the market can’t move 30
cents to save its life.
And then comes the inevitable headline [to save stocks don’tchaknow] from
MNI [Market News International, that “unnamed” senior FED officials are
considering stopping rate hikes in the Spring of 2019 … and if you think this
headline isn’t a plant, then I got the same beachfront property in Kansas I’m
offering the defunct option hedge fund guru’s … gold benefits, but it isn’t
about gold, it’s about floating the proverbial “trial balloon” to gauge market
reaction to the unfounded rumor.
Which brings us right back to gold, cuz it goes from coma status to mini melt
up in a couple of seconds … natch, you could buy the rally, but I’ve warned
before what happens when you buy rallies in gold, and it ain’t pretty … and
sure enough, ticking off some juicy buy stops above yesterday’s high, is just
what the dealers want and need to slam it lower … “welcome to the
retracement that now won’t rally”! … and it’s back to the same old same old,
being stuck inside a relatively tight range with no place to go, with very small
incremental price moves that generate panic among both longs and shorts
… in other words, specs lose.
As I pointed out yesterday, at present there is no “flow” to gold as it trades
… from a dead stop it either skyrockets, goes “Thelma & Louise”, or can’t
move 30 cents in an hour one way or the other … everybody gets bullish at
once, everybody gets bearish at once, or everybody looks at it and says it’s
dead, why fool with it? … and lately, there hasn’t been anything else in this
market. Our algorithm has been virtually silent for days; either can’t generate
enough intraday volatility to escape the “false positives” and get long, or the
market dies in its tracks … simply put, no “Hoover Dam” trade flow. Get this
Thanksgiving Holiday out of the way, and things should return to normal
[hopefully].
The thing that makes gold as treacherous as any market traded, is the fact
that when the dealers turn it lower, the red spikes down are vicious and quick
… many times you see hours of price appreciation get evaporated within
seconds … that in turn kicks off sell stops which make the decline worse, and
if you overstay your long position by simply a few seconds, that profit has
turned into a nice loss, thank you very much gold dealers … what we need to
see is generally higher ranges, and away from this $5 - $8 range bullshit, where
it’s nothing but dealer manipulation for their benefit and your loss … given the
massacre in stocks & credit markets, gold should be seeing $15 - $20+ ranges
every day, with appropriate order flow that lessens dealer impact upon price
… so far, we haven’t seen this, but I can assure you that time is coming.
And as I write while gold is sitting doing zip, out of the blue comes a $2.50
straight decline in 4 minutes to wipe out a few more longs that have been
HODL since the high … no warning, no nothing, just a straight shot lower on
“vapors” … it’s what dealers do, and just to rub salt in your face, it’s right
back up to where it started after the stops are cleaned out … is it any wonder
why this market drives people insane? Like I said before, when it retraces you
don’t want it anymore, cuz you got no place to go with your long positions.
Yesterday, I made a copy of the monthly gold price … directly below, with
commentary.
click to enlarge
And when this trend line band is broken, all hell is gonna break loose on the
upside … “oh, we’ll get the ranges all right … be careful what you wish for”!
Mid afternoon in New York, and it’s an all too familiar pattern in gold of
market punishment … it simply can’t hold gains or breaks and follow
through anywhere that compensates for the risk you’re taking by being long
[or short for that matter] … risk 1, lose 5 ...what the hell is that?
No PAMM trades today. It is what it is folks, and when there’s nothing to do,
we just sit patiently and wait it out.
No trading tomorrow, I’ll be back at it early Friday morning … I’m outta
here … until Friday mi amigos … Onward & Upward!!
Have a great Thanksgiving Holiday everybody!!
-vegas
OUR TURNKEY FOREX “PAMM/MAM” IS OPEN AND
OPERATIONAL, AS WELL AS OUR C2 OPTIONS ADVISORY
SERVICE. DETAILS IN “DOWNLOAD LINKS” SECTION IN
RIGHT HAND COLUMN. START YOUR JOURNEY FROM
WHERE YOU ARE AT TO “ESCAPE TO SUCCESS”!
