Profit Opportunity #1

[rseiser]

I think it is impossible to recommend anything on the short side without a whole disclaimer and operating manual included. It depends on so many things. First of all on the offsetting long positions, then on the total assets one has, and of course the risk tolerance. Also, any stop can depend on time and cicumstances as well as price, and I am not a good trader capable of using stops. Put options more or less provide an automatic stop, since if you are wrong, you basically lose whatever you put down.
…So I don’t think there is any answer fitting all.

I can only tell you what I am doing and what I think of doing, but don’t blame me if it doesn’t work for you. I myself have a huge tolerance for risk, because I believe in it, and if I am wrong I am willing to pay the price. I have been too often right in the past. But I don’t know anybody else who would short that much except maybe Bill Fleckenstein.

Most of my shorts are QQQQ, CLM, and homebuilders, and lenders, pretty much those dicussed here. I am probably the same amount long in precious metals.
Just to think out loud, these are the things going through my head:
For the short-term top, one could risk an Oct QQQQ put, and if it works use the gains to extend it later. You wouldn’t have to worry about a stop, since your money is gone automatically if you are wrong. I have never bought front month, but I am thinking of Oct 2006 $40 puts for $0.30 if I can get them tomorrow.
For the longer term, a QQQQ Jan 2008 put looks like a steal (Strike prices $40-$45). If the Nasdaq isn’t lower by 2008, it might not gonna happen, but if it does drop now, it might take two years before everything is over.
There are more experienced people for stop losses, but what’s wrong with 2300 on the Nasdaq, $37 for LEND, $420 for GOOG, $62 for MBI. Those would be the stop-losses I would think of. Anybody any suggestions?
Other than that I would just buy in-the-money puts on the housing complex (mid 2007), and just swallow the loss if it doesn’t work out.

Again, this is what I do with my money only. For my friends and family I use the same long-only positions as those of my investment club. (user: guest, password: guest, to see all positions)

[anxvariety]

How about today?? LEND announced its going to miss forecasts… shares down 13% so far today.

[anxvariety]

I am looking at NEW for a future short prospect. NEW is another sub-prime lender and has been very resilient to the bad real estate news.

LOL I sure hope you did more than look at it.. because you’d be doing nicely today!!! BAHAHAH! +200-500% today on this months puts??

[sdappraiser]

How are your BBBY BBY and OXY puts treating you? Be honest, did you hold or bail out when they were rallying?

[anxvariety]

How are your BBBY BBY and OXY puts treating you? Be honest, did you hold or bail out when they were rallying?

The BBY was a short lived experiment that was something of a wash… My BBBY puts expired worthless… and I have never owned any OXY puts, only calls which along with a couple of other lucrative successes have funded my investing entertainment expenses and then some 😉

[anxvariety]

How is this thread dead?

RightSide KILLED it with his LEND prediction.. and Deadzone killed it even more with his NEW prediction..

Lots of people were picking the subprime lenders to go down.. but where are all the crap talkers now?

My favorite is this lendingbubbleco character who was ragging on RightSide.. but lendingbubble is no where to be seen now? Presumably writing blogs and hoping his Google stock will double?

Submitted by lendingbubbleco… on June 6, 2006 – 10:10am.
RightSide-you are certainly welcome to join in (assuming you can get enough people to toss coins into your roadside cup to meet our minimum funding standards).
Good luck with that trade (paper?) in LEND!!

[Anonymous]

I have NEW puts with $20 strike price and LEND puts with $30 strike price that I bought last summer. Staring at >500% gain is fun!

There is still a lot of profit opportunity ahead folks. I think the subprime meltdown is officially kicking off the final slide for the homebuilders. The market is just starting to come to grips with the fact that as the lenders go under, the demand for new homes is going to grind to a halt.

So get out there and short these bad boys. Also, the beauty of Puts is you can do option trading from your retirement accounts…

[Wiley]

I thought about shorting NEW months ago when someone mentioned it on this board. Didn’t do it and went with BKUNA instead. Not because I researched the financials of each, just read a compelling story about BKUNA on another financial site.

Curious if anyone else has looked at them? The stock certainly isn’t performing as bad as the others so wondering if they are takeover target or something. If not they should be plunging shortly I hope.

The technicals don’t bode well for it but hey, what do I know, I missed the awesome NEW trade.

Wiley

[Cow_tipping]

OK I’d like to buy some gold funds (or is it better to buy actual gold ??) and short some stocks via puts (AKA trading options not equities). My question is, what online trade company is the best for the options trading and what gold fun to buy and with what company if its even needed.
Cool.
Cow_tipping.

[noone]

Since I know nothing about how to “short” stocks, I’ve been reading these posts with great interest. I’m curious about something now though. Since the SEC has put a freeze on NEW, where does that leave you? Similarly, what happens if NEW goes bankrupt? As I understand it, you’ve sold something which you do not have, and now cannot buy at any price. Are you liable for anything?

[Cow_tipping]

Not quite … you have sold something, which now is worth less. Essentially you buy it at $0 and hand it back to them … Trading halted dont mean squat … worthless paper is floating around … and can be bought for nothing.
Buying a Put … you’re buying the right to sell a stock at the strike price. Whatever happens to the stock … not your problem, the transaction happens anyway. BTW in a market, equity trades out number options trades 10 to 1. Buy options outnummber puts prolly 3 to 1. So when the put call is being excercised, the brokerage is raking in the big money on the worthless buy options. They have very sophisticated software that lets them finely manipulate their exposure that if you’re making money on 1 … you can bet they are taking it in on 100. They are also so braced against the “armageddon scenario” … that if it tanks … they make the most $$$. There is a yeild curve called a condor … it moves significantly in any direction, they make like bandits.
You want to cry now … OK here it is …
An out of the money put (stock selling at 50 and you buy a put for under 50, but typically say 40) will cost you 25 cents per contract. If the stock tanks like it did … you stand to make $40 per 25 cents you spent.
When I used to watch my old friend play options, he had ~7-8K split in ~20-30 companies in various sectors. 200-300 each. 90% os them expired worth less … and the other 10% doubled his $$$ and armageddon scenarios are the bread and butter. If he had a few of those … he’d have made like bandits.
Cool.
Cow_tipping.

[noone]

Thanks for the explanations Cow_tipping.

[cashman]

Cow_tipping, my advice for a gold fund is UNWPX. It’s diversified into silver, gold, and some other industrial metals. It also pays dividends. It’s got a great track record over the past several years. However, there is one caution flag I have to point out. If the stock market in general crashes, this will probably fall as well, even if gold and silver do better than the overall market. In a dangerous equities environment such as we have today, I wouldn’t invest in this fund just yet. If you want to own precious metals, then trade the ETFs GLD and SLV. They should move in step with the metals, not the general market. When the dust settles with the market, then jump into UNWPX. At that point it will net you more than the ETFs.

[anxvariety]

Deadzone, no more recommendation?? Are you sticking with your one blockbuster??? Who’s the next NEW? 🙂

I’m going to ride CFC and HD for a while and see how things go…

[Anonymous]

Anx, CFC is the next logical move, and so is HD so I like your strategy. The pure subprime short opportunities are pretty much over. I wouldn’t say I had just one blockbuster, I actually had more puts on LEND than NEW and that is actually turning out to be more lucrative. Also got in to FMT and NFI a month ago and got some good quick profit out of them, but again, subprime is pretty much played out now.

Here are the next moves:

1. CFC

2. Homebuilders (pick any, or pick an ETF like XHB. My favorites are SPF, CTX and KBH but any will do).

3. Homebuilder suppliers (HD, LOW, BDK, MAS)

4. General Mortgage Companies (WM, DSL, AHM, etc.)

[Author]

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