Tuesday, January 26, 2010

An Invisible Hand to Slap the TSA

Anybody who has ever flown or willfully engaged themselves in an argument with a TSA officer over why dress from a more widely recognized religion need not be removed while that of an unknown (made up) belief system must be put through the metal detector can attest to the stupidity of those working the security checkpoints at our airports. Not only are the TSA largely of menial intelligence (what do you expect for $25,00 a year), but the policies are reactionary rather than proactive - think removing your shoes AFTER the shoe bomber has made an attempted strike. Next time I fly I would like to separate my 1 liter bottle of water between twelve 3 oz bottles just to show the idiocy of the policies.

What is the solution? Go private. Impose on the airlines a mandatory payment of $5 million for every passenger killed on a flight as the result of a terrorist attack, then let them handle the security of every passenger getting on their plane. The payment would take care of the incentive, and competition among airlines for service would ensure that security lines were run efficiently.

Of course airlines would likely outsource the security to specialized firms, but this would increase efficiency as well. Instead of the government watching over these firms, a capitalist business with an eye on the bottom line and competition would be. Further, we should force the airlines not only to assume the risk of $5M per person, but also be insured for that risk. That way the insurers would be tasked with making sure that the security procedures were adequate while the airline would be pushing for an easy experience in the security line to keep up with competition.

For all you socialists out there, this would likely INCREASE the pay of workers - those performing the security procedure - as there would be a demand for competent employees rather than government lackeys. For those who ring their hands and say that you can't put a price on human life, you may be right. However, policies put an implicit price on human life every day. If we slowed the speed limit to 5mph, we would have less traffic deaths, but the economic consequences of decreased mobility would be catastrophic. $5M is largely an arbitrary number to get the airlines' attention. It should be high enough that they (or their insurers) would never want to incur the cost, yet low enough that insurance premiums would not be too high. Who would likely do a better job with the security screening? An airline security team with an insurance company that is worried about losing hundreds of millions of dollars if it fails, or a government branch full of underpaid employees?

Monday, January 25, 2010

Why I Like UNG

Over the past two years, UNG would have been a terrible investment. Even as the stock market has retraced some of its losses, UNG stands at 15% of its peak.

 

However, even with the uptick of implied vol in the equity markets, the VIX is still at around 25. This doesn't compare with the hefty 45% implied vol in the UNG options. Here is the trade:

 

Sell February UNG 10 Puts at $0.33. With UNG at $10.32, it will have to fall 6% before you start losing money. If, on expiration, UNG has fallen, the implied vol will still let you either roll down those puts at a credit or let you sell calls against the stock. Here are some scenarios for the March options at February option expiration at 45% implied vol:
Even with a big selloff, you can still sell 10 calls against it and take in a premium of >1% a month. This also discounts the fact that negative moves are generally negatively correlated with implied volatility, so the premium would likely be more.

 

If it were to move down, I would roll down as much as I could while still being at a credit. For example, if UNG was at $9.50 and the puts were worth $0.50, I would buy back 2 of the Feb 10's and sell 1 of the March 10's and 1 of the March 9's at a credit of -2*$0.50 + $0.77 + $0.25 = $0.04.

Sunday, January 24, 2010

The Situation

Sometimes I wish Wolf Blitzer would just get it over with and invite the Situation into the Situation Room. I wonder if he will bring his brother, Circumstance.

Wednesday, January 20, 2010

Cheap Vol.

After touching a dizzying height of 80, the VIX has steadily declined the last 15 months. All this despite 10% unemployment and a great deal of uncertainty as to how this scenario will play out. The VIX measures the annual implied volatility derived from options prices on the S&P 500. If you believe the VIX will rise, you can buy a VIX future. These, however, rarely trade at par. You could also buy a variance swap, but this gives you exposure to future realized volatility as well as implied volatility. With the stock market looking a bit heady, I think that the best trade is to go long at the money long dated SPY options and short short dated SPY options at the a slightly lower strike. That is:

Buy SPY Sep 113 Puts at $7.90
Sell SPY Feb 111 Puts at $1.32

Looking at the Greeks, for the put option you are long:
7.7 Theoretical Price
-0.46 Delta
0.02 Gamma
0.38 Vega
-0.01 Theta

For the put option you are short:
-0.35 Delta
0.07 Gamma
0.01 Gamma 1%
0.11 Vega
-0.04 Theta

You are net short the market (good thing), long gamma (good, but this can change), long vega (the original goal), and the theta shows that you are capturing time decay on these options.

As the short dated option expires, I would sell a March option a couple of points out of the money (but never higher than the strike of the long dated options). If the option is set to expire in the money, I would try to roll down at a credit. In all, these types of trades could prove to be profitable with an uptick in implied volatility or with a market drop. There is also a limited downside to this, as your total loss is capped at $7.90 - $1.32 = $6.58. This does not even take into account that $1 - $1.50 that you can take in every month until expiration.

Tuesday, January 20, 2009

Interesting Post by an Old Friend: Worst President Ever

An old friend of mine, Eric Ewing, recently posted this note on Facebook. I can't say that I agree completely with him, but his insight and willingness to cite facts makes for an interesting read.

The worst president ever? Well maybe since James Buchanan.

Does anyone remember the slogan at the 2000 Republican National convention? Reformer with Results? Does that ring a bell to anyone?

Let us see the results of his last eight years.

1) No child left behind.

The act was a well conceived but poorly executed plan, which has made certain that children will never learn anything in school. American students still perform more poorly on average than most in the rest of the industrialized world. Oh, but don't worry, the smart ones have to get held back too since this thing was enacted.

2) The Afghan War

No one has successfully subjugated Afghanistan since Alexander the Great (except maybe the Mongols), and he was only able to do it because in those days, an acceptable way to end a war was to marry into the family of your rival. If only things were so simple these days. Democracies require far too many marriages to have the electoral effect necessary to change policy between feuding nations. Given that context, it would be arrogant to assume we should do any better than the Persians, the Mughals, the Mongols, the British, and the countless other forces witch have wasted their time on this wretched swath of land. Therefore, it is no surprise to me that as many before have had early success preceding failure, we now struggle to hold our previous gains. It seems that President Bush has been content to watch the situation fester over the last seven years. Some explain our failure to close the deal in Afghanistan with the necessity to deal with Iraq. It is a stupid argument. As Hitler would have had better results if he had finished off the UK before invading the USSR, we may have done better without a two front war. President Bush's haste to invade Iraq matches the stupidity of Hitler's decision to invade Russia.

3) Gulf War II

Do I need to even mention this? It should suffice to say that early failure has barely been mitigated in the later years of this war. Essentially we are where we should have been four years ago. Early declaration of victory followed by obstinate denial about a degrading situation destroyed possibilities of keeping the country stable. Secretary Rumsfeld refused to adapt to changing situations, and after all this wasted time, we have worn out our welcome. That time and a few trillion dollars we had to help are lost. The Iraqis rightly want us gone, and now we must leave without confidence that our meager accomplishments as of late may bear fruit in Iraq.

4) Hurricane Ivan and Katrina

People forget that a year before Katrina hit, Hurricane Ivan devastated Pensacola FL, Mobile AL, and other large towns along the Gulf Coast. While it is true that the majority of the responsibility for what happened to New Orleans lies with her idiot mayor and Louisiana's incompetent governor, it must be noted that the President had ample warning to streamline FEMA into a useful organization. He did not heed any warnings presented by this earlier disaster. In fact, when I left Pensacola four years after Hurricane Ivan, there were still plenty of places that looked like a bad day in Bosnia, and there were still a lot of FEMA trailers and people living in squalor.

5) Immigration reform

There was no immigration reform, and the President failed to lead his retarded party's members to compromise their illogical policy of xenophobia, which was founded on fear and stupidity of the voting populace. Being that the President had no leadership skills at all, he was unable to get his own immigration reform passed.

6) The Financial Crisis

President Bush was presented with an unprecedented opportunity. He had a real chance to set precedent. He could have showed everyone that it is not the responsibility of the Federal government to pick up the slack of private citizens. However, he showed no leadership. He allowed the bailout of AIG unnecessarily. The final nail in his legacy's coffin was his failure to veto the Detroit bailout. He allowed Congress to postpone our problems for the next generation. I could spout out all the economic theory that supports this assertion, but the bottom line is this. The bad debt that out government bought in these bailouts will have to be purged eventually, another financial crisis of equal or greater magnitude is in the mail already.

What I've outlined here are only the highlights. There are plenty more reasons to be irritated about George W. Bush's presidency, global warming, torture, etc. In 2000, I was excited to vote in my first election, but the stupid Republican televangelists thought it made the most sense to have an inexperienced governor with no leadership experience lead the US. Needless to say my excitement vanished, and subsequently, I have been unimpressed with the results. I thought maybe we learned a lesson, but as usual I have overestimated the intelligence of the voting populace. John McCain was unable to win the votes of as many stupid people as Barack Obama. They decided to replace the inexperienced governor with an inexperienced Senator with no leadership experience, and after he fucks up, they will probably pick an inexperienced Congressman.

In a way, we deserve the last eight years. We deserve the economic crisis, the wars, the patriot act and all the other disasters of this last eight years. We got lucky for a while with the Clinton years. We picked a draft dodger over a true leader, and it worked out for a bit, but our mistake showed on Sept 11 when it became apparent President Clinton and his successor were sleeping at the wheel. They just decided to ignore that the World Trade Center had already been targeted. We've picked shitty leaders for a long time now but are undaunted by shitty results. In that regard, our President's obstinacy mirrors our own. We're going for 20 straight years of incapable Presidents. Maybe we'll get lucky again with Obama, but I'm not counting on it. I bet we'll deserve what we get.

In our history, there have been only 11 presidents who have not served in the armed forces. Six of those were the presidents that lead the country into the Great Depression. What does it say about our country when we choose the flashy and the trendy over the proven and the austere? What does it say to me when our president elect holds the most opulent, most expensive (by over 4 fold) inauguration party in history during a period of financial crisis and overwhelming deficits? What does it say to me when the captains of industry take private jets to Washington to ask for a bailout, and then get it? What does it say about our country when the people who really care about our country enough to risk their lives for it are ignored? What is says to me is that America no longer deserves men like Bob Dole, and John McCain. It says to me that we are heading to the same place (a world war and a depression) where we were when the voters last chose to ignore such people. It tells me that no one actually gives a shit about myself and the men and women who serve with me. They feign respect and admiration because they're just glad it isn't they who are in our shoes. They're happy someone else pulls their weight. They feign respect just as GW Bush and Obama feigned respect for John McCain, a better man than they.

When Comrade Obama takes office tomorrow, much of the hope I had for this country when I took my first oath of office in June of 2001 will be dead. Instead I will only have the resignation that we are most likely beyond our zenith, and if we hold or lumber forward, it will be by luck and not by the merits of our people. All you who voted for GW and/or Obama should be ashamed of yourselves.

Back in the Market

I had been scared of the market for a while, specifically selling naked options. They had blown up in my face too many times with the realized volatility that we have seen. Recently I have converted everything to a covered call write program on a basked of indexes through etf's.

After a while I couldn't resist playing the options market. I had watched crude fall from ~$140 per barrel down to the mid 30's. I am not well versed in the supply and demand of oil, but it can't go to zero. Plus, with the implied volatility in the market right now, there is a huge premium for options.

I couldn't get involved in the crude futures because of the size (plus I don't want to screw up and have to take delivery of 1,000 barrels of oil somewhere in Texas), so I am using United States Oil, USO, which tracks the price. About two weeks ago I sold 2 Jan 31 put options for $0.65. Unfortunately, they expired in the money. Because of the vol, though, on expiration, I was able to sell deep in the money calls (Jan 25 C) for $5.90, bringing my cost per share to $24.45. Oil may continue to sink lower, but unless USO goes much lower than $20, I will be able to roll down again.

Friday, January 16, 2009

People I Never Found Funny

  • Steve Martin
  • Wanda Sykes
  • Dave Letterman
  • Ice Cube You went from "Boyz in the Hood" to "Are We There Yet," come on!
  • Ray Romano
  • Sarah Silverman

Take it Easy, Mike

This morning I was watching the news and the big subject was, naturally, the crash landing of the US Airways flight into the Hudson. I normally like Mike Bloomberg; he seems intelligent and rational even when it is not immediately advantageous politically. For some reason, however, he decided to speak Spanish in the press conference this morning.

I like how he starts out by saying, "..to help wrap up for those who speak Spanish easier to understand." What follows is him butchering the accent. I am not a fluent speaker, but I know a gringo accent when I see one. He has a worse accent than most English people, and they sound terrible when they speak Spanish. It is also a pointless exercise as virtually any Spanish language channel will have translators who can translate everything that he has said virtually instantaneously. How much does he hope to get across in the 40 seconds that he speaks Spanish? Is his Spanish that good that he can summarize an entire conference in just 40 seconds? Or have I just watched a half an hour worth of something that could be summarized in 40 seconds.

Friday, November 7, 2008

Karaoke

Last night my friend was DJ'ing at a bar, and we decided to follow it up with the only logical thing to do at 2 am on a Thursday: karaoke. Initially, songs were pretty quite and generic - U2, Red Hot Chili Peppers etc. This just wasn't doing it for me, so I decided to take it up a notch and put on Changes by 2Pac. As I drunkenly belted out the lyrics, I realized that the song had the n-word numerous times. I figured it would be worse to change the lyrics to 2Pacs masterpiece than to say the word, so I went for it. After all, 2Pac must have forseen this scenario when he was writing his music: drunken white kids singing his songs at karaoke. I hope I didn't offend anybody. The women in our group were probably more disgusted as I took on Ja Rule's "Always on Time."

Bitch, you know better, either M-O-B
Money Over Bitches, Murder I.N.C
I got two or three hoes for every V
And I keep 'em drugged up off that ecstasy

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