Continue reading Bulls Buying Calls in Research in Motion

Bulls Buying Calls in Research in Motion originally appeared on BloggingStocks on Thu, 17 Jun 2010 09:00:00 EST. Please see our terms for use of feeds.

CBOE Volatility Index (VIX) up 3.50 to 20.98, above 50-day moving average of 17.83; S&P 500 recently down 1.71%.

Goldman Sachs (GS) is recently up 81c to $152.88. GS call option volume of 60,274 contracts compares to put volume of 63,724 contracts. May put option implied volatility is at 44, June is at 41; above its 26-week average of 33 according to Track Data. GS June 175 calls volatility is at 37, June 125 put volatility is at 58, suggesting traders taking positions for downside price movement.

Update is by Stock Specialist Paul Foster of theflyonthewall.com.

Options Update: CBOE Volatility Index up 20% originally appeared on BloggingStocks on Tue, 27 Apr 2010 15:20:00 EST. Please see our terms for use of feeds.

The issue of regulating derivatives trading has been festering since last year. The banking industry's lobbying to bury the legislation has been fierce.

So far, derivatives trades, including credit default swaps (CDSs) and collateralized debt obligations (CDOs), have been kept secret between parties. Proposals to make this information public are creating a warlike atmosphere between lobbyists and Congress.

Continue reading Bill Requires Derivatives to Be Traded on Centralized Exchanges

Bill Requires Derivatives to Be Traded on Centralized Exchanges originally appeared on BloggingStocks on Wed, 14 Apr 2010 12:40:00 EST. Please see our terms for use of feeds.

Continue reading AIG Derivative Exit Costs $2 Billion

AIG Derivative Exit Costs $2 Billion originally appeared on BloggingStocks on Mon, 12 Apr 2010 10:00:00 EST. Please see our terms for use of feeds.

Continue reading U.S.: Too Many Financial Engineers, Not Enough Civil Engineers

U.S.: Too Many Financial Engineers, Not Enough Civil Engineers originally appeared on BloggingStocks on Thu, 11 Feb 2010 14:30:00 EST. Please see our terms for use of feeds.

House Financial Services Committee Chairman Barney Frank has a new proposal to regulate bank transactions. Some of it is OK and some of it perpetuates the abuses that brought Lehman and other financial institutions to their knees.

First the OK part. Frank's proposal would require over-the-counter derivatives to be traded on listed exchanges and sold on exchanges or processed through a regulation platform. This is not good enough. We need transparency for each and every trade done by each and every financial institution. That means that all trades must be done on a listed exchange and cleared through a clearinghouse. All of this data can be put on computers and monitored daily. Then if some trader goes beyond established guidelines, he will be shut down immediately.

Continue reading Barney Frank's plan for regulating derivatives comes up short

Barney Frank's plan for regulating derivatives comes up short originally appeared on BloggingStocks on Sat, 03 Oct 2009 12:20:00 EST. Please see our terms for use of feeds.

If you think the health care debate is a big brouhaha, its nothing compared to the behind the scenes battle over government regulation of derivatives.

On the government side we have a proposal that would require the most standard derivatives to be processed through a clearinghouse, whose members would make good on any default. This is the way the commodity markets operate. For "nonstandardized contracts," banks would have to put up more capital or margin.

Continue reading High stakes poker! The government vs. the bankers on derivatives regulation

High stakes poker! The government vs. the bankers on derivatives regulation originally appeared on BloggingStocks on Tue, 01 Sep 2009 16:20:00 EST. Please see our terms for use of feeds.

First of all, let's look at what hedging really is. Take, for example, a farmer who grows corn. He knows that his cost for growing corn is, say, $3.00 per bushel. But he doesn't know what price the price of bushel of corn will be come harvest time. He looks at the September futures contract for corn and sees that the price is $3.30 per bushel.

To guarantee that he will get $3.30 at harvest time, he sells September corn contracts equal to his crop (each corn contract equals 5,000 bushels). When harvest time comes he delivers his corn to the appropriate delivery point designated by the Chicago Board of Trade exchange (CBOT) where the contracts are traded. It should be noted that if the price of the futures contract goes above $3.30 per bushel, the farmer may be called for margin money until he makes delivery, at which time his account is settled out.

Continue reading Should Geithner eliminate speculation in financial derivatives?

Should Geithner eliminate speculation in financial derivatives? originally appeared on BloggingStocks on Sat, 11 Jul 2009 17:30:00 EST. Please see our terms for use of feeds.

If you remember, last year the spike in oil prices to $147.00 per barrel was done through speculation in oil futures contracts. A futures contract gives the trader to right to bet on the prices of various commodities, on whether they will go up or down. Contracts usually last for three months, at which time the longs and the shorts are paired down to zero, leaving the speculators out of the final trading. However, the speculators simply move their positions to another forward contract, keeping their positions in place.

The rub has been on the concept of "position limits." In most commodities the CFTC imposes a limit on the number of contracts that a single person or firm can hold. The real bone of contention is that the CFTC does not impose limits on oil or oil products contracts. That has been left up to the various exchanges.

Continue reading Watch out speculators! The CFTC wants to clip your wings

Watch out speculators! The CFTC wants to clip your wings originally appeared on BloggingStocks on Tue, 07 Jul 2009 13:40:00 EST. Please see our terms for use of feeds.

Are financial stocks a buy now? Jeffrey Palma, a strategist for UBS says yes. He is recommending a modest "overweight" for this sector. He goes on to say that financials had the biggest gains among 10 industry groups in the MSCI World Index in the second quarter.

Let's be clear here. Mr. Palma is referring to the second quarter. The second quarter is done, finished. The real question is whether or not, going forward, the rally will continue.

Continue reading Are financial stocks still a buy?

Are financial stocks still a buy? originally appeared on BloggingStocks on Wed, 01 Jul 2009 12:20:00 EST. Please see our terms for use of feeds.

During the years leading up to the financial meltdown, banks primarily took mortgages and other loans and bundled them together. Rating agencies were called in to bless them -- we now know those ratings were bogus. No one bothered to ask what was in the packages and no one cared as long as the value kept rising. Then when the crash came, it was too late. Not knowing what was in the packages, investors could not sell because no one on the other side of the trade wanted to buy. The markets froze and the meltdown was on.

Now U.S. Treasury Geithner wants to change the rules and force lenders to retain at least 5% of the loans they generate. In a way, this is akin to a margin requirement for these securities. Obviously the banks oppose such a measure because it would tie up a portion of their capital.

Continue reading Treasury to impose the 5% rule on securitized securities

Treasury to impose the 5% rule on securitized securities originally appeared on BloggingStocks on Tue, 16 Jun 2009 13:20:00 EST. Please see our terms for use of feeds.

JP Morgan Chase & Company (NYSE JPM) held its annual shareholder meeting with Jamie Dimon, chief executive officer holding court.

Among his jabs against the Administration he complained that the rules against hiring foreigners was a "complete and utter disgrace." We might ask Mr. Dimon if he plans to hire another Chinese mathematician such as David X Li, whom JP Morgan Chase hired in 2000. Mr. Li developed a formula that created a single number from which traders bet billions of dollars in the past decade in derivatives which eventually brought the country to its knees when the housing bubble burst. This may help to explain why JP Morgan Chase has $87.7 trillion of derivatives "off the books." We might ask Mr Dimon to disclose the exact position in derivatives that he holds "off the books." Wouldn't that make fascinating reading?

Continue reading JPM's Jamie Dimon rambles on at the annual shareholder meeting

JPM's Jamie Dimon rambles on at the annual shareholder meeting originally appeared on BloggingStocks on Wed, 20 May 2009 14:00:00 EST. Please see our terms for use of feeds.

Why is it that bankers will not come to grips with the fact the derivatives are destructive and have taken this economy down and turned it to ruin? Toxic assets are derivatives and we are throwing about $3 trillion of taxpayer money into this black hole.

Instead they are stubbornly holding on to derivatives and playing mickey mouse with a few changes. Listen to this one: -- 1400 banks and asset managers are adopting a new "big bang" protocol to make it easier to know what will happen in the case of defaults. What in the world do they think they are doing -- creating a new universe? This just a sugar coating. Also, the US market will introduce a standardized pricing for CDS contracts which hitherto have been unregulated. The CDS market is not the main culprit. The main culprits are the CDOs and CLO's and the banks don't have a "big bang" for these derivatives.

Continue reading What is the new banking 'big bang' protocol?

What is the new banking 'big bang' protocol? originally appeared on BloggingStocks on Wed, 08 Apr 2009 16:15:00 EST. Please see our terms for use of feeds.

Continue reading Just call it U.S. Government AIG

Just call it U.S. Government AIG originally appeared on BloggingStocks on Fri, 06 Mar 2009 13:30:00 EST. Please see our terms for use of feeds.

Like so many others, you probably wanted to be a fly on the wall when Warren Buffet gave his fourth-quarter report to shareholders of Berkshire Hathaway Inc. (NYSE BRK.A). Well, here's the bad news: Net profit fell 96%, the fifth quarterly straight decline and Berkshire's net worth dropped a whopping $10.9 billion in the final three months of 2008.

Omaha-based Berkshire Hathaway is a diversified company that invests in insurer Geico Corp. and such things as carpeting, ice cream, paint, and real estate services. But to quote Mr. Buffet: "the economy will be in shambles throughout 2009."

Continue reading Buffett suffers big losses at Berkshire Hathaway

Buffett suffers big losses at Berkshire Hathaway originally appeared on BloggingStocks on Sat, 28 Feb 2009 17:40:00 EST. Please see our terms for use of feeds.

Originally a CDS (credit default swap) was a protection against the default of an underlying bond, usually a mortgage. It was a fine idea.

But now enter the speculators who developed a scheme to trade these CDS's independent of the underlying mortgage. This has developed into a $30,000 billion dollar trading market. It is this market that is destroying world economies like they are twigs snapped in the wind.

Continue reading Peterson drafts legislation to end speculation in derivatives

Peterson drafts legislation to end speculation in derivatives originally appeared on BloggingStocks on Tue, 03 Feb 2009 18:00:00 EST. Please see our terms for use of feeds.

Here is a roster of some of the fallen ones.

Jimmy Cayne Former CEO Bear Stearns - latest compensation $32.1 million. He led Bear Stearns for 15 years. He resigned last January. Bear Stearns was acquired by JPMorgan Chase (NYSE: JPM) for $10.00 a share. He and his wife purchased two luxury apartments at the Plaza.

Richard Fuld Former CEO Lehman Brothers - Latest compensation $34.4 million. Subpoenaed by federal investigators to determine if he misled investors at Lehman. Executives at Barclays Capital (NYSE: BCS) bought Lehman's US assets.

Kerry Killinger Former CEO WaMu - latest compensation $4.5 million. He became CEO in 1990 and built WaMU into one of the largest US mortgage writers. He offered sub prime mortgages which led to WaMU's rapid growth. He was ousted in September when WaMU was sold to JPMorgan.

Continue reading In 2008 they all fell down. Who are they?

In 2008 they all fell down. Who are they? originally appeared on BloggingStocks on Fri, 26 Dec 2008 14:00:00 EST. Please see our terms for use of feeds.

Berkshire Hathaway (NYSE: BRK.A) has a very ordinary quarter, but by founder Warren Buffett's standards it was awful. The company's insurance operations were hurt by hurricane claims. The other factor that damaged earnings was losses on derivatives. Buffett is supposed to think derivatives are for idiots, so it is not clear how that part happened.

Berkshire's net income fell to $1.06 billion, or $682 per Class A share, from $4.55 billion, or $2,942, in the period a year ago. Operating profit fell 18% to $2.07 billion, or $1,335 per share, from $2.56 billion, or $1,655. According to Reuters, "It fell short of analysts' average expectation for $1,429 per share, according to Reuters Estimates."

No one in his right mind would go through Buffett's 10-Q. It is as thick as the New York City phone book. The company still has an astonishing $50 billion on its balance sheet, which means Berkshire has a great deal of capital to buy companies it thinks are undervalued during the recession, a favorite Buffett habit.

For anyone who cares, the tiny Berkshire group that controls private jet company NetJets, Dairy Queen, public relations operation BusinessWire, and the Buffalo News did just fine.

How Buffett does it is anyone's guess. Who makes sure BusinessWire is doing OK?

Douglas A. McIntyre is an editor at 24/7 Wall St.

Buffett can't be right every time originally appeared on BloggingStocks on Sat, 08 Nov 2008 07:12:00 EST. Please see our terms for use of feeds.

Continue reading NYT's David Brooks: It's the start of a different kind of economic 'cycle'

NYT's David Brooks: It's the start of a different kind of economic 'cycle' originally appeared on BloggingStocks on Wed, 05 Nov 2008 17:45:00 EST. Please see our terms for use of feeds.

Continue reading Volcker: U.S. needs more civil engineers and fewer financial engineers

Volcker: U.S. needs more civil engineers and fewer financial engineers originally appeared on BloggingStocks on Fri, 24 Oct 2008 15:56:00 EST. Please see our terms for use of feeds.