Option Call Pricing Spreadsheet.. (please – a work in progress)

Hi guys, many people have mailed as regards to more detail on options.. I am in the process of writing a pdf that will hopefully contain the key points re calls puts and covered options.  All are very useful for particular market moments and should be a part of the arsenal of instruments we should use to protect and grow our capital. As i say its a work in progress but i stick up here a very basic spreadsheet that i used to evaluate my recent entries into various miners. My various personal positions are detailed with my upside jan 2013 targets. You will see the targets are high as i am super bullish re the pm miners. (Recognizing it is a patient trade). Don’t get carried away by my personal nos.. My point in posting this up is purely to enable others to more easily model these things. The spreadsheet framework is the point.. Effective use of this framework should enable us all to model our own entries and targets as well as compare different the calls on the different miners. Friends helping friends is what we should do more of, not less.

As i say, this is by no means the finished spreadsheet.. the final will be much easier to use and much prettier etc.. But time is marching on so i stick this up as an early draft.. please view it accordingly.. Ill come back with much more information very soon on the options markets and how to use them.

All the best

Option Pricing calc

Rich

UBS Technical Update – Continuation of Cyclical Bear, Near Term key Level SP500 1230, DX to rise.

UBS-Weekly06-09

A pretty bearish report with no change to the sell the bounces view. A likely top for gold and tactical lows for equities coming end sept. Asian in process of making ‘final leg down’ before rejoining secular bull. Re Asia – “In the next 2 to 3 weeks we would prepare to start buying into further weakness or a potential final shakeout/capitulation”.

As always, take these technical views with a pinch of salt. News events can change things very quickly.. Having said this the UBS pair have done a good job in calling these levels and timings thus far. Their levels/methodology is pretty sound.

Rich

Switzerland CHF – Another Store of Value Destroyed by Central Bankers – SNB Balance Sheet Expansion – ‘Unlimited’. Pegs to the Euro

The Swiss Central Bank has declared an “unlimited” expansion of her balance sheet to prevent continued appreciation of the chf.  The euro and yen surged 10% at times this am vs the chf as the Swiss Bank sold newly printed CHF’s and purchased Euro Usds, GBPs, Yen, adding them to her hugely bloated balance sheet. Of course capital holders desire a safe store of value and so they rushed into AUDs and NZDs and Gold. With negative rates and bonds at 30 year high valuations its very easy to see the challenge capital has to stay intact. This is again very bullish for precious metals.

http://uk.reuters.com/article/2011/09/06/uk-swiss-snb-idUKTRE7851LF20110906

http://www.marketwatch.com/story/euro-soars-as-snb-sets-floor-versus-franc-2011-09-06

I hope no one has been caught by this move. The 10% move was against the technicals and occurred lightening fast. ‘Its no good being right but the governments being wrong’. We have central bank and government intervension in capital markets at unprecedented levels. These interventions can and will destroy capital in moments. Diversification the key. Emerging markets face less interventions then developed markets. Allocate assuming continued interventions because as Bunker Hunt discovered, ‘they change the rules of the game’.

Rich

“Progressive” Socialist Victory in German State Elections..

The big losers on Sunday’s state German Elections were the conservative CDU and business friendly FDP.

The big winners were the center left SPD, the far left party and the green party.

As before, with center left and far left parties gaining share of the votes in germany you have to ask whether this vote was a boast or defeat for euro integration. Imo, it signals more monetary lose conditions and an increased likely hood of euro integration.The finance ministers of all these leftist parties believe in ‘progressive’ keynesian policies and higher taxes for corporates and the rich. They are all firmly wedded to the principle of supply side push. (This mirrors what is also occurring in France ie a shift to the left. Europe’s core is moving left not right. This has significant investment implications. Cash is always trash under left, progressively minded governments).

http://www.spiegel.de/international/germany/0,1518,784333,00.html

This is a victory for inflation and euro integration despite the headlines you may read in your newspapers.

‘The SPD, the Greens and Die Linke explicitly and robustly support the development of a real economic and political union, including the genuine co-ordination of economic policy, the harmonization of social and tax policy, and the comprehensive regulation of financial markets. In other words, in addition to criticising Angela Merkel’s stance for not being pro-European, their proposals reflect their location on the Left-Right axis and the (more or less) explicit acknowledgment of the failure of the neoliberal paradigm. For the German social democrats in particular this marks a return to their roots: they had called for the establishment of the United States of Europe as early as 1925’.

http://www.opendemocracy.net/openeconomy/dionyssis-g-dimitrakopoulos/german-left%E2%80%99s-defence-of-europe

Ask yourself what are the monetary implications of such a set of ‘progressive’ policies towards a comprehensive welfare state system. The implications are very clear for those with a minor understanding of re-emerging power of the German progressives.

Rich

Gold Breaks Out Again Friday.. New All Time Historic Euro, GBP, BRL, MXN, SEK highs..

Gold had a very strong close into Friday challenging her USD all time highs with the equity indexes a long way from their recent lows. For those that measure things in pounds, euros, Mexican pesos, Brazilian Reals and Swedish Krones  gold made fresh all time historic highs on friday. As usual almost totally unreported by the international press.

The relative strength of gold and silver continues it seems. This week their miners joined the move. Usually pm miners fall with the indexes as all equity is shunned. This week the pms miners added weight and in some cases out performed their underlying metals. This is noteworthy. Is it the start of something significant or simply noise? We shall see. Indicators have been flashing over bought for weeks on the precious metals. The miners are late to the move and under performing their underlying’s move. Is this the same old pattern of being late to the party? Time will tell.. What i can confirm is that the HUI has finally broken out of her 10 month long range. The HUI hit 590 last oct 2010 when gold hit 1400 usds. With Gold at close to 1900 usds or 35% higher the HUI is around 4.5% higher and finally recording a breakout.

For those interested, Gold made new all time historic highs in euros and gbps and a few other currencies on Friday. She is close to another breakout in USDs. The move is parabolic here but the recent 12% sell off seems to have supported another push onward. Sept could be a very strong monetary and fiscal month with upside parabolic implications for gold and silver.

Latest UBS Technical Update – Cyclical Bear Market with SP500 Target 1018

We have featured the UBS technical review three times on the site in the last couple of months. The record, thus far, has been stella in terms of timing and levels. The team have been on leave until this latest report from a couple of days ago.. (apologies on the late posting – i’ve marked the next issue in the diary so will be a little sharper next time to post up). Like all technical views take it with a pinch of salt but their record recently has been good.

The summary is:  On the 30th of August they anticipated a little more strength from the index to sp500 1230. At this level they recommending selling. The index did indeed march on hitting 1230 (exactly) on the 31st and then rolled over from there – currently 1175. 1018 is the medium term target for UBS from this move which they term a cyclical bear market. For Gold they are forecasting 1950 to 2000 before a meaningful correction to h2 2012 but the secular bull to remain intact. They don’t forecast a breakout for silver topping out at 45 or so. Note Dax reached bear market status already losing nearly 30% from her high with the breakdowns in her industrial sector. VW trading on a pe of 4.4 or Man at 6.4 or Infineon 4.9, all on friday and many many more issues.

UBS-Weekly30-08

Rich

 

 

The Hunt Brothers Remembered & Regulatory Lessons

This report below details some of the history surrounding the Hunt Brothers attempted cornering of the silver market.. Whats very interesting here are the rapid regulatory changes that were applied in order to ‘save’ the comex and Cbot exchanges. Its hard to imagine what such changes could do to today’s silver markets. Possibly a black market for silver could emerge if similar price moves occur. As Faber rightly says.. ‘its no good being right if governments are wrong’.Price controls, capital controls, the courts are all part of the establishment’s tools. We should not underestimate the power of the elite’s ability to defend itself. It is why we should not place all our resources into pms no matter how compelling the fundamentals are.  Rich

silver-huntbrothers

Here an interview with the man from 2009.. ‘No regrets’ and ‘they were gunning for us pretty hard’.

http://www.txcn.com/sharedcontent/dws/dn/latestnews/stories/032209dnprobunkerhunt.3d93ff8.html

And from 1980 sept..

http://www.sharelynx.com/papers/BunkerHunt.php

Rich

Credit Suisse – Secular Commodity Bull Intact but Volatile..

According to Credit Suisse commodity markets can move higher under their own weight due to the supply demand imbalances that exist in the world. They go so far as to say, commodities will, over time, remain uncorrelated with equity and other asset markets, to the upside.. (Indeed as they have been for the last decade or so).

They present volatility as an opportunity for active management but recommend long term allocations as the ‘best’ approach due to short term shocks etc. Recommend a basket approach to commodities. I agree with CS for the supply demand issues they sight but also, very importantly, the monetary issues all around us.

This the summary, in their own words, from Credit Suisse..

‘We believe recent increased levels of volatility are indicative of a longer-term, secular shift in commodity price volatility, driven primarily by tight supply/demand conditions and further compounded by exogenous factors. While investors may be understandably nervous, in our view, increased volatility may present increased opportunities, particularly with this asset class and its return drivers, which are quite distinct from traditional markets. We believe generally tight supply conditions and continued global growth should exert further upward pressure on commodity prices’. Credit Suisse Aug 2011

Credit-Suisse-Volatility in Commodities-Markets

The super secular commodity bull is intact and will get another leg up soon enough.

All the best

Rich

All Eyes to Dc Ben ‘Will he or won’t he’

Once again its fed monetary policy that is the main driver in this market. We have a likely big day before us in either direction depending on Ben’s actions. Jobs and asset prices will be on Ben’s mind. He wants inflation as well as a lower USD so in spite of the worries, imo,  it is likely he will act in some way.. All eyes to the fed.. Rich

Silver Momentum Crushed (in the nick of time) Paper vs Physical & technical implications..

I said the bullish move in silver would need to be significantly crushed in order to prevent an attempt on 50 and more.. The ‘crush’ came with an enormous paper tidal wave of selling starting on Tuesday and sustaining into today, thus far.. She has fallen from 44.3 to 38.8 or 5.5 points 13% in 50 hours or so. The technical damage is immense signifying a failed rejoin of the parabolic move. Where now for silver is less certain. The low supports of the prior period from 33 to 35 look to be line of sight and a period of rebuild for the instrument would be a ‘normal’ scenario. This rebuilding period would be damaging for silver miners. If the support is knocked over its anyone’s guess where next for silver. Against this we have very tight physical markets for silver.

Its an interesting dynamic this between paper markets and the physical markets and particularly how this plays into technical trading issues. We have been trained to read technicals over the last few decades. This technical trading, in a limitless paper world, is a dangerous thing as it can be manipulated. We are at a time in our history where paper is coming up against physical constraints. The breakdown of paper’s power will be immense volatility in the technicals where we swing from technical bull to bear market and back and forth. The end game in this process will be a loss in power of the paper to assert direction to markets.. This is yet to come of course.. for now we have paper looking very strong and able to direct things.. we have to respect this with our leveraged trades of course. With cash i would be happy to doubt it but make sure you get paid to wait as the process may take some time to unfold.

And so cameras, action.. over to Dr Ben..

Rich

M2 Surges.. Good news for makers of wheelbarrows..

http://www.zerohedge.com/news/m2-surge-moderates-only-increases-422-billion-past-week

The ratio of cash and near cash to new money off the printing press is all important to dc ben. With $9.5 trn as m2 this invites qe3. So, good luck to those deposit accounts.

This wall of cash will mean huge forward volatility. Its worth noting that order books can be massively overrun with such liquidity around. This sort of systemic threat is also why news events will be flagged in advance to primary dealers etc who will be asked to manage order books to avoid ‘melt up’ scenarios. Note, front running is inevitable i’m afraid.!

Rich

Free Markets – to a lesser (& lesser) Extent..

Hey guys, everything moving ahead perfectly isn’t it.. no one should be too surprised by any of the price action we can see before us, imo.. I’ll do a technical and macro comment on another post but firstly price controls/free markets..

I’m not sure who else is trading the softs here but anyone close to these markets must have little (NO) faith in the USDA claims. In fact i find it almost comical they way they try and play follow the leader with agri prices. Its a complete joke for anyone involved. The USDA should be embarrassed by their various releases, imo. US Ministry of Agriculture propaganda, for sure.

http://theswash.com/2011/06/30/party-over-for-corn-market-bulls-after-usda-acres-stocks-surprise/

 

In truth the USDA’s various price control tactics are simply part of systematic and repeated attempts to control all sorts of prices in our markets. This must be the conclusion for anyone involved at the sharp end. You cannot trade these markets day in day out and not be shocked at the level of massaging on a week by week basis of all sorts of prices from interest rates to agri prices to energy prices to direction of investment flows from housing to green matters.

In summary, the band, within prices are free to move, is becoming thinner and thinner as time moves forward.

Why is this happening?

There is a wealth of data and writings as to how economies get themselves into these positions. Even our own recent history, in the 70s, provides a wealth of evidence with everything from price to capital controls being applied as money supply grew. Very simply if you operate an economy on extreme ratios of savings/capital to debt the system becomes extremely susceptible to shock. On ratios of savings to debt in the DM markets, here and now, we are the 70s on steroids.

 

Free markets contain plenty of shocks unfortunately. Therefore to sustain an economy at the extremes of savings to debt prices must be controlled. Its as simple as this. Nothing complicated here. We have been these roads so many times through history again and again and again and again. From the Roman coin clipping to ‘copper nose’ Henry. In our age of immediate gratification, so few seem ‘bothered’ to investigate to understand these things.  All it takes is a quick google search. All the information you need is at your finger tips.

We are where we are.. There is no turning back now. So, to sustain the system, as it is, prices must be controlled to some degree. This control creates all sorts of side effects or unintended consequences. These consequences demand more control and so it goes on. Of course the real problem with this approach is that the system becomes less and less efficient as time marches on as layer and layer of control are applied. This is why stocks generally do badly in these non liberal markets/ inflationary periods. It is also why it is important to maintain a portion of your assets in pms no matter how accomplished a trader you are.

Having said this stocks are a far better place to weather the centrally planned system than cash or bonds for obvious reasons. Fortunately half of the world has the western ratio in reverse. ie high savings and low debt. So this area will demand less planning and inevitably more freedom of capital will be allowed.

So it is that, short term, prices must not drive your allocation too sternly. Given the above we must allocate more capital to areas of the world where a positive ratio of savings to debt can be seen. There are plenty of states where this occurs. These markets will be free and operate far more efficiently that planned markets where capital will be attacked and even seized remorselessly.

Some readers here must suggest this is waffle. They might turn away at this point to watch the next market watch video. The immediacy and availability of ‘fast food’ information encourages a lack of patience and thought on these things. I ask you to switch off from these for 30 minutes at least.. consider the big picture here.. ignore the short term for a moment.. Think big not small. Look at your assets and how and where they are allocated. Consider the next ten years and start to position for what is about the occur.

In my humble opinion we are entering a decade where we will see a sustained wealth transference from developed markets to emerging markets. The trend is firmly in place and in fact the greatest transference is simply beginning. The geopolitical implications of this capital transference are very serious and very likely to provoke some sort of future armed conflict within this decade, imo.
Rich