Year: 2010

I have a PhD in Theology: Would you like fries with that? (The education bubble V)

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Well, I’ve never waited on tables.  But I have driven a delivery truck all around the provinces of Ontario (Nakina, Geraldton, North Bay, Ottawa) and Quebec, (Quebec City, Montreal, Amos, Maniwaki), and as far south as Piqua, Ohio.  So far my total gross pay for work related to my field of study, theology, has been $21,600–or less than the cost of my first-year at Cambridge.

The Chronicle of Higher Education has an article about how 17 million people with a college education are doing menial jobs.  An astounding 8,000 PhDs in the US are are working as waiters and waitresses.

Hattip:  The Business Insider

Rolling over puts: when to buy to close a put option

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I use the following spread sheet to determine when and whether to buy back a put option (please note that commissions are calculated into the costs and original premium):

expiry symbol market strike # Current
premium		 comm cost original
premium		 gain/
loss		 % gain/
loss		 days at
start		 days
remaing		 time
remaining		 composite
Jan 2012 abx $47.02 $45.00 3 $5.95 $13.74 $1,798.74 $2,656.21 $8.85 $857.47 32.28% 620 446 71.94% 104.22%

The number in red is the price to buy back the option, and $857.47 is the difference between the original premium and the cost to close.  The composite number in the last column is the percent gain or loss plus the percent of time remaining.  When that number is at 100% the buy back is neutral.  You neither win nor lose on the contract.  If the number is negative, I would normally not buy back the option for I would sooner take possession of the underlying upon expiry–I should be comfortable owning the position in the underlying or I wouldn’t be selling the put option in the first place.  If the final number is above 100% then buying back the put can be done without disadvantage, because the time decay and percent of gain still add up to 100% as on the day the put was sold.  Here are the circumstances I use to buy to close:

(1) Buy to close a put if the composite number adds up to over about 135%.  This means that the premium has plummeted because the underlying has increased rapidly in market price.  At this point it becomes interesting to buy back and realize fast gains and then use the margin value to sell another put.  Gains can be multiplied by doing this.  So for example, I sold 2 puts on RY and bought it back 8 days later as such:

apr 2011 ry $45.00 2 $2.55 $12.49 $522.49 $827.49 $4.14 $305.00 36.86% 233 225 96.57% 133.42%

Less than four percent of the time had passedt, and yet there was 36.9% gain on the position.  The composite was at a very nice 133% and I didn’t have to wait another 225 days to re-risk the capital, which I used in turn to sell a put on PWE:

Mar 2011 pwe $21.43 $19.00 5 $0.70 $16.24 $366.24 983.74 $1.97 $617.50 62.77% 197 161 81.73% 144.50%

The composite number was an astounding 144.5% after only 36 days.  I repurchased the put.  Thus, the total realized gain over $305 + 617.50 = $922.50/$9500 (captial at risk)= 9.7% gain in a period of 44 days, which represents a 80% annualized gain.  This shows how it can be lucrative to buy back a put option.

(2) Buy to close a put when it only costs about $50 and there is more than about 60 days remaining.  Since most of the original premiums for me are in the $700 – $1000 range, it makes sense to buy back something that has so much time left on it but costs so little to buy back–less than $1 per day.  When its more than $1 per day, it’s probably better to let it expire worthless.

(3) Buy to close a put after losing confidence in the underlying.  TA was downgraded at TD Waterhouse and Scotia Capital.  I bought back the position as follows:

dec 2010 ta $21.00 $20.00 5 $0.26 $16.24 $146.24 $508.76 $1.02 $362.52 71.26% 232 88 37.93% 109.19%

The composite number was still at an advantage to me, but I had lost confidence in the underlying and did not want to take the position if the put expired in the money.  I still came out ahead on this one by $362.52.

So far these are the guidelines that I use to buy to close put options and would appreciate any pointers or questions that people might have to make in the comments.

Dennis Gartman’s Third Rule of Trading: A commentary

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Dennis Gartman’s Third Rule of Trading:  “Learn to trade like a mercenary guerrilla.”

A guerilla is a warrior.  A mercenary is a warrior who fights not out of loyalty or patriotism but for money and profit.  So one would assume that Gartman is saying not to stand by a company that you like, nor a trading strategy, if its not working.  Be flexible, because you’re in it not to prove a point but simply to make money.  So he writes, “We must indeed learn to fight/invest on the winning side, and we must be willing to change sides immediately when one side has gained the upper hand.”

I’ve read other financial writers that say that people are often irrationally loyal to a company whose stock they invested in.  My mother-in-law told me once that she thought it was basically immoral to short a stock, like you were betting for the downfall of a company or something.  Regent College professor Paul Williams feels that one of the main problems of the market place today is the disconnection between the people–creditors, companies and clients alike; indeed, the stock market is one big anonymous place where traders can determine the ultimate fate of a company, sometimes in a matter of minutes, and that is all done outside of relationships with the other stakeholders, the workers and the management that may be ruined in the process.  And yet that is the system.  So I suggest that Gartman is correct.  The anonymity of the market means that I can make the decisions that support my own solvency as opposed to what is going to help the companies whose stock I decide to buy or sell.  I am indeed a mercenary ready to switch sides.  This anonymity leads to the greater efficiency–and yes, perhaps, the brutality–of the market; decisions can be made not out of emotion, personal relationships, tribal loyalties, politics, patriotism or idealism, but simply because they are financially viable.  This means that if Nortel, Enron, or BreX go down the tubes, I don’t have to go down with them, but I sell them and find something better to invest in–and hopefully, I do it before it is too late.  This efficiency ultimately is good, in my view, and leads to great prosperity because the winners are the best companies and the losers are not viable.  If you want a road to mediocrity and poverty, then create a system that rewards losers and punishes the successful (such as socialism or bailouts).

I made the decision in 2008 to sell my shares of Microsoft.  Yet my sister works for Microsoft.  I didn’t tell her about my decision to sell, and we are still talking to one another.  Isn’t the anonymity of the market wonderful?

Do you believe in anthropogenic global warming? Did you fail math?

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A response to those who still believe in anthropogenic global warming at City of God.  This post responds to the question of how much man’s contribution is to total greenhouse gases in the atmosphere and whether human reductions in greenhouse gas emission would have any effect on the greenhouse effect.

CO2 is not an issue at all because it is not by any means the most important green house gas; H2O is. Water vapor in the atmosphere causes a noticeable difference in green house effect whereas when there is no cloud cover, it’s as if a blanket has been lifted, causing the earth’s heat to radiate into space. Thus, when all there is are other green house gasses and no water vapor there is little noticeable green house effect. Yet to stop the green house effect of water vapor would require the abolition of evaporation. The theory of anthropogenic global warming is straining the gnat, by fretting about CO2, and swallowing the camel, by ignoring H2O.

Dr. Timothy Ball, whose PhD is in the field of climatology and is a professor emeritus in the field, makes this observation:

FC: In layman’s language, can you describe the role played by water vapour in determining atmospheric conditions?

TB: Water vapour is the most important greenhouse gas. This is part of the difficulty with the public and the media in understanding that 95% of greenhouse gases are water vapour. The public understand it, in that if you get a fall evening or spring evening and the sky is clear the heat will escape and the temperature will drop and you get frost. If there is a cloud cover, the heat is trapped by water vapour as a greenhouse gas and the temperature stays quite warm. If you go to In Salah in southern Algeria, they recorded at one point a daytime or noon high of 52 degrees Celsius – by midnight that night it was -3.6 degree Celsius. That’s a 56-degree drop in temperature in about 12 hours. That was caused because there is no, or very little, water vapour in the atmosphere and it is a demonstration of water vapour as the most important greenhouse gas.

If it is green house gasses that we are worried about then, what is the plan for dealing with water vapor? If we want to “do something” about the Green House Effect, we must abolish evaporation. Since that can’t be done, nothing significant can be done to stop the Green House effect, period.

Now mankind is not the only contributor to CO2 in the atmosphere.  Indeed, Peter Foster in the National Post mentions that humans contribute only about 1/20th of the CO2, and the rest is caused by nature.

Consider this: Let’s say that you, your wife and children are overspending by $100,000 per annum. She (H2O) overspends $95,000; your children (non-man-made emissions) overspend by $4750; you overspend by $250 (man-made emissions). You offer to cut your overspending by 50%– your family now overspends by $99,775. This won’t effect in the slightest your family’s budget woes. It is not a perfect analogy but at least it attempts to deal with the magnitude of the numbers. If man reduced his greenhouse emissions to nothing, the overall green house effect would change by completely insignificant numbers (less than 1/4 of one per cent). The more people that believe this hoax, the more I think we are entering into a kind of anti-intellectual age of anti-reason, a new Dark Ages. At very least, people are just not good at math anymore.

Imagine if a financial planner came to you and said, I have this really risky investment, a gold mine in Timbuktu. If you invest $100,000, you could lose everything. But the rewards are great and, if all goes well, you might just make $125 per annum. You would laugh at him, because you could bank the money at ING and make $1000 per annum with no risk of losing the $100,000.

This is a very simple math problem. Michael Crichton in his novel State of Fear suggests that if the problem were seen in terms of football field, man’s contribution would be one inch of 100 yards. He has developed the math much better than me; man’s contribution to the problem is about 1/3600; i.e., .028% vs. 99.972% caused by nature).

Note:  Foster wrote:  “During his CNN interview, Mr. Gore went through his usual parade of extreme weather factoids, technological wonkery and green stimulus fantasies, while spouting blatant untruths. Asked about the relative contribution of humans to atmospheric CO2 emissions, he claimed that they put up “the majority” (in fact, they are estimated to contribute about one-twentieth).”

The above article is based on comments I made at Craig Carter’s blog.