January 27, 2008
A Good Time to Buy Financials?
The Volatility Index (VIX) spiked up last week nearly hitting 40 — it’s been years since I’ve seen it up there. You’ll recall back on August 1st I wrote the now infamous post: Tip the Chairman and Discover His 10 Favorite Financial Stocks. I’ve been called a fool for it (not at the time of course, only by people with 20-20 hindsight), am personally sitting on large losses in many of the stocks picked, and I apologize to the many people who followed my suggestions and were, like me, subsequently buried.
The Regional Bank HOLDR (RKH) fell around 25% since I grew enamoured of it back in August. Last week its snap-back was both violent and dramatic. In any event, the RKH closed the week ending August 3rd, 2007 at 139.86 and last week (January 25, 2008) at 127.58, which is about a 9% drop. It’s a terrible feeling when you believe that “values” are on your side, that you’ve timed something right, and then it all goes in the crapper anyway.
January 27th, 2008 at 5:08 pm
June 3, 2007 at 5:19 am
Good luck. I would put my money elsewhere.
August 3rd, 2007 at 11:02 pm
All I know is that my charts tell me to stay out of the homebuilders and financials.
My opinions haven’t changed. ;)
January 27th, 2008 at 8:28 pm
Not all volatility spikes are created equal. Did you know that you can estimate the market top from volatility spikes as well?
January 27th, 2008 at 11:16 pm
@Brian: Tell me when you finally buy so that I can attach a timestamp to it. :)
@Tom -D: I know that things get pretty complacent at tops, that’s all.
January 28th, 2008 at 1:36 am
Good to know smart traders on the opposite end of the learning curve from me can get beat up by an unfriendly market. I spent that weekend watching my SSO trade turn hideous. Tuesday morning I remained calm and the Vix got my money back as I remembered you tend to wait a couple hours to get market ranges ect….It’s so much more natural to panic!
January 28th, 2008 at 3:38 am
Volatility spikes in a bear market (that also come after a good drop) tell you that it is time to close your shorts and wait for a good opportunity to re-establish them - especially with a sector that leads the indices on the way down - i.e. the banks now, hi-tech some years ago - playing against the trend is the surest way to lose your $$$$$
January 28th, 2008 at 7:11 am
I saw the scary US obesity map on your del.icio list.
http://www.cnn.com/SPECIALS/2007/fit.nation/obesity.map/
Since this a cultural site not interested (ha!) in filthy and evil money, I thought this modern update of a classic sculpture would appeal to this cultured group:
http://jeffnovick.smugmug.com/photos/241342059-XL.jpg
January 28th, 2008 at 7:25 am
Chairman, As you know, I have a long term inflationary bias, and I believe that the US Treasury long bond yield is near a long term double bottom. Given that bias I won’t be buying financials for a long, long time except possibly as short term bounce candidates. There will always be companies which can buck their sector trend, but this sector will underperform.
January 28th, 2008 at 7:50 am
TomD: Love the Fat David. :)
January 28th, 2008 at 11:35 pm
The only financial I have is WB, which I got in about 4 weeks ago. Apparently still too early. :)
January 29th, 2008 at 5:22 am
Whether or not financials are a good buy will probably depend largly on your views of a successful bailout of the mortgage insurers.
Many large banks are holding large amounts of bad debt that they don’t yet have to write off because it is supposedly insured by the likes of ABK and MBI. If these insurers collapse, the banks’ books are going to look bad and a more than a few might not meet their capital requirements.
Personally, I’d wait until the situation with the mortgage insurers becomes clearer before taking a bite.
January 29th, 2008 at 7:10 am
CM: From the TA perspective, it looks like capitulation. I would bet that this is the bottom as long as the price of RKH does not head lower than $104.84 from now on. ;-)
January 29th, 2008 at 7:54 am
brandon: Let’s hope so (though hope is a four letter word :) ).
January 29th, 2008 at 10:47 am
i believe it’s still too “dangerous” to stick more than a little toe into the water, and i’ll test out the theory that this might be the bottom for financials by buying a few April 27 calls….
January 29th, 2008 at 11:07 am
andrew: Aren’t you going to be paying a massive premium for options here? If volatility contracts, you’re going to lose money even if you get the direction right, no? Anyway, a lot of people still think it’s “dangerous” out there … only time will tell if they’re right.
January 29th, 2008 at 1:22 pm
High vol = high theta = high time value.
You want to be a seller of vol, not a buyer.
January 29th, 2008 at 2:01 pm
Cap: I don’t speak Greek but I know that people usually get killed fooling with options.
January 29th, 2008 at 2:07 pm
Yes, you certainly need to pick your fights with care.
January 29th, 2008 at 2:34 pm
Cap: I’ve found that most people who fool with options don’t even attempt to price them, they just wander into an illiquid market and take the offer — crazy. I worked with a lot of rich guys in Chicago who made their fortunes with options: *selling* them.
January 29th, 2008 at 3:08 pm
Ah, the “one option is as good as another” warriors.
Pure comedy.
The danger with selling premium to hope-buyers is eating like a mouse and shitting like an elephant.
January 29th, 2008 at 3:22 pm
Cap: Yes, but if you eat enough mice, shitting the occasional elephant doesn’t matter. :)
January 29th, 2008 at 4:56 pm
Just ask Niederhoffer.
January 29th, 2008 at 5:13 pm
Jim: Ask him about mice or shitting elephants or mispriced options? Can you clarify?
January 29th, 2008 at 6:30 pm
i hold options i buy for durations of only a few days for leverage. holding common in quantity for short-term plays are scary due to gap down issues (viz AAPL).
mostly though, i rather sell options for time value.
January 30th, 2008 at 1:42 am
Victor Niederhoffer = naked gamma seller = blowout = shitting like an elephant.
January 30th, 2008 at 8:40 pm
Yes: blowout. Shitting elephants does matter. You can’t eat enough mice, in the long run, to overcome the risk of ruin.
January 30th, 2008 at 9:32 pm
Jim: Maybe their condors ate the mice or scared off the elephants. Has this thread degenerated into silliness yet? :)
March 17th, 2008 at 1:08 pm
So, how are your “bargains” doing, Mr. Chairman?
March 17th, 2008 at 2:30 pm
The Piker: They’re getting cheaper every day, and I look forward to reviewing your ideas the minute you make them public. :)