- Never, NEVER cancel a stop loss. I know, I know, every time you have a stop loss in the market, the market moves just enough to stop you out, right? Well it might mean that you should evaluate where you place your stops (this is where good trading journals come in handy), but once you’ve done your analysis and placed the trade, you need to be committed to the trade and your plan. The only adjusting you should do is to lock in your profits.
. - Always have your broker or your trading desk number handy, even if you trade electronically. This is really important for the day trader who is trading leveraged markets. It is easy to get a little too comfortable when your trading platform and internet connection are running smoothly, but once you drop your guard that inevitable lost connection will happen…a lost minute, even seconds could be an expensive lesson!
. - Always check your open orders. This can be done a few different ways depending on your trading platform, but if your intention is to be flat in the market, always double check! (more…)
Archives of “derivatives” tag
rssWhy Do More People Just Not Say: Hypocrite
From Bloomberg Nov 4, 2011:
From BBC March 4, 2003:
He might be rich, but let’s face it: he is one manipulative character. |
Buffett's 2010 Letter To Shareholders
For those who care what the man whose corporate existence is intimately tied to the government’s bailout of the financial system, has to say, below we present Buffett’s 2010 letter to shareholders.
The only section that is relevant to us, and which continues to demonstrate why Berkshire is a walking moral hazard (contrary to his conedmnation of financial weapons of mass destruction), is the disclosure on derivatives.
Derivatives
Two years ago, in the 2008 Annual Report, I told you that Berkshire was a party to 251 derivatives contracts (other than those used for operations at our subsidiaries, such as MidAmerican, and the few left over at Gen Re). Today, the comparable number is 203, a figure reflecting both a few additions to our portfolio and the unwinding or expiration of some contracts.
Our continuing positions, all of which I am personally responsible for, fall largely into two categories. We view both categories as engaging us in insurance-like activities in which we receive premiums for assuming risks that others wish to shed. Indeed, the thought processes we employ in these derivatives transactions are identical to those we use in our insurance business. You should also understand that we get paid up-front when we enter into the contracts and therefore run no counterparty risk. That’s important.
Our first category of derivatives consists of a number of contracts, written in 2004-2008, that required payments by us if there were bond defaults by companies included in certain high-yield indices. With minor exceptions, we were exposed to these risks for five years, with each contract covering 100 companies. In aggregate, we received premiums of $3.4 billion for these contracts. When I originally told you in our 2007 Annual Report about them, I said that I expected the contracts would deliver us an “underwriting profit,” meaning that our losses would be less than the premiums we received. In addition, I said we would benefit from the use of float. (more…)
Gold 75% Underowned In 20 Years, Or Exter's Pyramid For Gen X/Y
Kedrosky has posted an informative chart from JPM’s Michael Cembalest indicating that ownership of gold in dilutable terms (aka dollars), as a portion of global financial assets has declined from17% in 1982 to just 4% in 2009. And even thought the price of gold has double in the time period, as has the amount of investible gold, the massive expansion in all other dollar-denominated assets has drowned out the true worth of gold. Were gold to have kept a constant proportion-to-financial asset ratio over the years, the price of gold would have to be well over $5,000/ounce.
Of course, the chart above pales in comparison with the true Exter pyramid, which incorporates all those wonderful JPM/Goldman inventions known as derivatives, amounting to $1.8 quadrillion, which certainly did not exist in 1982. If one were to factor the above table to include this Exter securitized credit money as well, then the true constant worth of gold would be well north of $10,000.
Top Ten Trades of All Time
What were the greatest trades of all time? Who made them? Here is a list of the who, what, when, where, and how of the greatest trades that were ever made.
While the risk management while executing many of these trades is not what many traders would want, we can see many of these as trend trades and the dangers of fighting the trends. These trades were not all entered into at one time, most of them were built slowly and grew by adding as profits accrued. Livermore made many probing shorts that he had to stop out as the bull market reversed off support and continued upwards. Some of these traders had the sell button ready in case a reversal knocked them out. Some could have been ruined with a little blind sided government intervention that modern day traders are faced with now. But you can not argue with the profits and many of these traders have very long proven records, these were not random trades and they did not just get lucky, most of these were the great play that they landed after decades of research, study, and trading.
1. John Paulson’s bet against subprime mortgages made his hedge fund a cool $15 billion in 2007, that is billion with a ‘B’. he is only one of a very exclusive club that was able to make this call and win with it. That was a call of a lifetime that everyone was blind to even deep into the crises.
2. Jesse Livermore’s call on the Crash of 1929, Jesse Livermore did not need any computer models, technical indicators, or derivatives to make $100 million dollars ($1.2 billion in today’s dollars) for his own personal account during a time where everyone was bullish and then everyone lost through shirts. It is an amazing day when you come home and your wife thinks you are ruined and you had the second best trading day of anyone in history.
3. John Templeton’s invested heavily into Japan during the 1960s, when Japan was beginning its three-decade long economic miracle, Templeton was one of the country’s first outside investors. At one point, he boldly put more than 60 percent of his fund in Japanese assets.
From its foundation in 1954, his Templeton Growth Fund grew at an astonishing rate of nearly 16 per cent a year until Templeton’s retirement in 1992, making it the top performing growth fund in the second half of the 20th century.
A $100,000 stake invested in 1954, with distributions reinvested, would have grown to $55 million in 1999.
4. George Soros’ breaking of the bank of England by shorting 10 billion worth of pound sterling and forcing the U.K. to withdraw from the European Exchange Rate Mechanism (ERM). Soros made $1 billion in the process, which was an unimaginable sum back then. (more…)
Niall Ferguson, the Ascent of Money: A Financial History of the World
The Ascent of Money: A Financial History of the World by Niall Ferguson
“The shadow world of derivatives, credit-default swaps, the sales of U.S. bonds to China ; all seem to bring brilliant results, until they get too big.”
Great book ; go out there and buy it, thank me later 🙂
ISDA, Which Refuses To Declare Greece In Default, Has Given The US A 3 Day Grace Period Before A CDS Trigger
ISDA is rapidly deteriorating to rating agency status when it comes to credibility. After it made it all too clear in the past few weeks that no matter what happens it would never “determine” Greece (or any other European insolvent country) to have breached a CDS trigger (as that would apparently destroy the world), the same trade association (logically enough comprised of the same firms that make up the heart of the status quo) has joined the rating agencies, and as of last night the CME, in making it all too clear that a debt ceiling plan (preferably Reid’s because it achieves absolutely nothing) has to pass, or else, after it earlier announced that the US has precisely 3 days to cure any missed debt payment before US CDS are triggered. Obviously this can not be allowed to happen, so expect this latest development to be used by the president in his nighlty scaremongering session.
From Reuters:
The United States would have at least 3 days to make up for any missed debt payments before it triggered payments on its credit default swaps, according to trade association the International Swaps and Derivatives Association. (more…)
10 Great Trades
What were the greatest trades of all time? Who made them? Here is a list of the who, what, when, where, and how of the greatest trades that were ever made.
While the risk management while executing many of these trades is not what many traders would want, we can see many of these as trend trades and the dangers of fighting the trends. These trades were not all entered into at one time, most of them were built slowly and grew by adding as profits accrued. Most were also watched closely with and eye on the exit button when a true reversal began. Livermore made many probing shorts that he had to stop out as the bull market reversed off support and continued upwards after appearing to roll over. Some of these traders had the sell button ready to push at a seconds notice in case a reversal knocked them out. Some could have been ruined with a little blind sided government intervention that modern day traders are faced with now. But you can not argue with the profits and many of these traders have very long proven records, these were not random trades and they did not just get lucky, most of these were the great play that they landed after decades of research, study, and a life time of great trading.
1. John Paulson’s bet against sub-prime mortgages made his hedge fund a cool $15 billion in 2007, that is billion with a ‘B’. he is only one of a very exclusive club that was able to make this call and win with it. That was a call of a lifetime that everyone was blind to even deep into the crises.
2. Jesse Livermore’s call on the Crash of 1929, Jesse Livermore did not need any computer models, technical indicators, or derivatives to make $100 million dollars ($1.2 billion in today’s dollars) for his own personal account during a time when everyone was bullish and then almost everyone lost their shirts. It was an amazing day when Jesse came home and his wife thought they were ruined and instead he had the second best trading day of anyone in history.
3. John Templeton invested heavily into Japan during the 1960s, when Japan was beginning its three-decade long economic miracle, Templeton was one of the country’s first outside investors. At one point, he boldly put more than 60 percent of his fund in Japanese assets. (more…)
Govt. Opening New Front in the "War on Wall Street," WSJ Reports
Federal prosecutors are conducting a preliminary criminal probe into whether several Wall Street banks misled investors about their roles in mortgage-backed deals, The WSJ reports.
The banks in the early stages of scrutiny are: JPMorgan, Citigroup, Deutsche Bank and UBS. Under similar preliminary criminal scrutiny are Goldman and Morgan Stanley, as The WSJ reported yesterday.
As our guest Todd Harrison, CEO of Minyanville.com, explains, these probe leaks are part of a larger, growing attack against Wall Street. (See: The War on Capitalism)
The focus of the inquiry are mortgage-backed collateralized debt obligations or CDOs and whether banks misled investors about these bets.
So why the focus on these specific derivatives?
“Presumably what’s closest to home, no pun intended, for a lot of people is their mortgages and foreclosures that we’re seeing,” Todd tells Aaron in the accompanying segment. “So those are the instruments that kicked Main Street in the groin pretty much. That’s where the line was drawn for a lot of the populace anger to really start to percolate.”
Harrison, who warns against the unintended consequences of Wall Street reform in an earlier segement, says policymakers risk going down a “slippery slope” by attacking financial instruments they don’t understand in an effort to score political points.
The Top Ten Trades of All Time
What were the greatest trades of all time? Who made them? Here is a list of the who, what, when, where, and how of the greatest trades that were ever made.
While the risk management while executing many of these trades is not what many traders would want, we can see many of these as trend trades and the dangers of fighting the trends. These trades were not all entered into at one time, most of them were built slowly and grew by adding as profits accrued. Most were also watched closely with and eye on the exit button when a true reversal began. Livermore made many probing shorts that he had to stop out as the bull market reversed off support and continued upwards after appearing to roll over. Some of these traders had the sell button ready to push at a seconds notice in case a reversal knocked them out. Some could have been ruined with a little blind sided government intervention that modern day traders are faced with now. But you can not argue with the profits and many of these traders have very long proven records, these were not random trades and they did not just get lucky, most of these were the great play that they landed after decades of research, study, and a life time of great trading.
1. John Paulson’s bet against sub-prime mortgages made his hedge fund a cool $15 billion in 2007, that is billion with a ‘B’. he is only one of a very exclusive club that was able to make this call and win with it. That was a call of a lifetime that everyone was blind to even deep into the crises.
2. Jesse Livermore’s call on the Crash of 1929, Jesse Livermore did not need any computer models, technical indicators, or derivatives to make $100 million dollars ($1.2 billion in today’s dollars) for his own personal account during a time when everyone was bullish and then almost everyone lost their shirts. It was an amazing day when Jesse came home and his wife thought they were ruined and instead he had the second best trading day of anyone in history.
3. John Templeton invested heavily into Japan during the 1960s, when Japan was beginning its three-decade long economic miracle, Templeton was one of the country’s first outside investors. At one point, he boldly put more than 60 percent of his fund in Japanese assets.
From its founding in 1954, his Templeton Growth Fund grew at an astonishing rate of nearly 16 per cent a year until Templeton’s retirement in 1992, making it the top performing growth fund in the second half of the 20th century. (more…)