Options Trading — Adam’s Options — iBankCoin

Remember the fortune that the Evil Financial Short Cabal and the Equally Evil Oil Speculators were minting? The one that inspired 1000 Congressional hearings?

Not to worry, nothing to see here, they have given it all back the past week and a half, as per Jimmy Ray (hat tip AllanF).

OK, I will say it, this is the greatest short squeeze I have ever seen, and it is based on the coming dramatic drop in gasoline. There’s just no place for it, no place to put it. And it is entirely unexpected. No hedge fund was prepared for this.

………The stuff that is down, which has no bottom: ag, oil, gas, oil service, coal, minerals, steels.

We are seeing the unwinding of everything that has been going on for the last year. It is vicious, and it overwhelms the fundamentals like Washington Mutual (WM) — a really bad quarter — or Costco (COST).

These are gigantic moves, and they relate to a hedge-fund community that has completely and utterly been on the wrong side of the trade.

I have never seen anything like it. So much money, so wrong, so poorly positioned, producing an exact inversion of the gains that were made for the last year.

Just repealed.

First off, we need to investigate all the Naked Shorting that has clearly gone on in the Energy patch the past week. Secondly, we need to reign in this irresponsible speculation in the financials. They’re using play money to drive up the cost of all the financial capital raising secondaries I plan to load up into this strength. I was going to finance it by siphoning out the gas in our cars and re-selling it, but that market has literally gone dry.

OK, seriously, could this be a tad hyperbolic, to say the least? Kind of speaks to why the complaining about the shorts (however merited the complaints about the actual cheating may be) missed the bigger picture. Namely, those same shorts eventually get squeezed and chase us the other way. Always.

I realize there is a very real herd mentality, but I’m fairly certain some hedgies rode the long energy/short financial train well and are still way up. And others jumped in way too late. And still others didn’t have it on in any meaningful way. Or faded into it too soon. Or got long financials and short energy at a very good time. Point being, like anything, there are winners and losers. Clearly we had a major squeeze going on, but even of that subset, some still booked major profits and are just giving a little back, while others just got whipsawed every which way.

OK, enough Voldemort, how ’bout that VIX? Got 10% below the SMA. And kept going before it turned a bit. Again, I would look more to the market behavior WHEN the VIX gets overbought and oversold as the important takeaway, as opposed to seeing the VIX go overbought/oversold and fading against that. In a pathetic bear market rally, an oversold VIX will stop a rally in it’s tracks. All we’ve seen so far on this though is maybe a slowing of the pace of the rally. 

This entry was posted on Thursday, July 24th, 2008 at 8:12 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.