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considering shorts in the financial sector...
    #9629002 -

I took some of my insurance settlement money from my recent claim and wired it into e-trade.
I wired in $2500 and now have that cash, plus $5000 that i can trade on the margain.... with that i am considering some long and short term trades.... I would really like any input i can get on them, as im going to start looking for opportunities to make my move asap, during extended hours trading before the market opens tuesday (monday is mlk day)

The banks keep getting hit harder and harder as of late, particularly Citi (c) and Bank of America (bac)

while Citi seems like it might be towards the end of its free fall, i think that bank of America still has a way to go. I am considering shorts on these 2 companies as i feel they still have many many outstanding losses to realize.

Im thinking $500 short per company

also considering a short on Kellog, as they issued a recall on several of their products due to a recent salmonella out break

on the long term side of things....

Furthermore, in the banking sector, I am considering a potential purchase of wells Fargo stock, as they seem to be on top of their game, being AAA rated. Furthermore while other banks are struggling to show profits on their quarterly earnings Wells Fargo bought wachovia. i feel that their future and survival as a company is more than likely.

I have also been debating getting in on a purchase of GE stock, back when it was $18 everyone was buying it as it was such a DEAL. now it is around 14 or so.... is it that much better of a deal?

as these are longer positions, im thinking of investing perhaps a total of $800

anyone have any advice? geo? im talkin to you! :smile:


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PEACE

:mushroom2:zippoz:mushroom2:



"in times of widespread chaos and confusion, it has been the duty of more advanced human beings - artists, scientists, clowns, and philosophers - to create order. In such times as ours however, when there is too much order, too much m management, too much programming and control, it becomes the duty of superior men and women and women to fling their favorite monkey wrenches into the machinery. To relieve the repression of the human spirit, they must sow doubt and disruption"

"People do it every day, they talk to themselves ... they see themselves as they'd like to be, they don't have the courage you have, to just run with it."

Edited by Capatalistc nomad (01/18/09 01:00 AM)

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Re: considering shorts in the financial sector... [Re: ZippoZ]
    #9631020 -

Now I'm not saying you couldn't get lucky with a momentum trade in the early opening... but there's some things you should be mindful of.

> im going to start looking for opportunities to make my move asap, during extended hours trading before the market opens

In my opinion, this is setting yourself up for disaster.  When I first started investing, I lost a lot of money precisely because I was so eager to put it to work quickly.  For misguided reason, I felt that the opportunity cost of holding cash was too great and therefore strove to place almost all my available funds into an active investment.  I've learned over the years that the smart thing to do is bide your time.  Do not feel like your money needs to be constantly invested.  The smartest thing you can do is have a hoard of cash available in order to take advantage of market extremes, which WILL always occur but you have to be patient.

Right now, we have bounced off of the S&P 500's 820 - 825 support level.  It is typically not a good idea to go short only a day or two after we have started to bounce.  It is worth noting that the day after options expiration (which Monday will be) is typically a down day.  However, given the oversold readings the market was showing going into mid last week, the bounce we saw on Thursday and Friday could continue on for a few days.  In other words, we are in a space where we are not particularly oversold or overbought - and therefore any money you put to work, should be done cautiously and in small increments.  As the market continues to move, you can react in time, adding to short or long positions as the market goes either higher or lower, respectively.

I noted my intention to short Bank of America (BAC) stock last Wednesday, and I even had a sell short order in on Thursday morning at $10.  Unfortunately, the premarket session only got as high as ~$9.70, so my trade was not triggered.  I was disappointed to see that the stock then fell some 20% or so and is presently about 26% below the Thursday open.  While I still believe we are in for a terrible quarterly report on Tuesday, the easy money on the BAC short trade was made on Thursday and Friday.  You may get lucky, but the gap between the risk/reward has narrowed, and I would be very cautious.  If you do end up putting that short on, you must be quick and nimble with your exit strategy.

I agree that Wells Fargo (WFC) is a good bet for when we emerge from the current financial turmoil.  It seems that Wells Fargo and JPMorgan (JPM) are the only banks worthy of an investment at this point - I own a (thankfully) small position in JPMorgan, and am down a whopping 45%!  I am in no hurry to add to the position however, as I do not see a rapid improvement for the banks and there should be plenty of time to build a position over the next year.  To offer a contrary opinion to the Wells investment, be mindful that just because Wells purchased Wachovia does not mean that they are all wavy gravy.  Remember that Bank of America was able to purchase Countrywide and Merril Lynch, and look where they are now!  We won't know how the Wachovia integration is going for Wells until they report on the 28th.  Personally, I believe it will be a blemish on their record near term - so again I will emphasize that there is no hurry to build your positions in the financial sector!

I still hold General Electric (GE) in my retirement portfolio.  It is ashame that the market is myopically treating this stock as a financial, but you can't fight the trend.  I would be a buyer of GE here for a multi-year position.  They have committed to their dividend through the end of 2009, so it will produce income while you wait.


Well nomad, that should give you something to digest.  My cautions are not meant to discourage but to prepare you for an unpredictable market.  Build your positions slowly and under no circumstances should you chase a stock (on the up or downside) in this environment, things are changing just way too quickly for that.  When the market fundamentals improve (i.e. earnings estimates have come down to a point that companies can actually beat them), then you can be a little more aggressive.  Until that happens, tread lightly my friend and for crying out loud DO NOT USE MARGIN IN THIS MARKET!


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┼ ··∙   long live the shroomery  ∙·· ┼
...╬π╥ ╥π╬...

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Re: considering shorts in the financial sector... [Re: ZippoZ]
    #9631034 -

I'd advise patience - every day, there are thousands of opportunities to trade, if you miss a good one, no big deal. OTOH, it really sucks when you fuck up.

Some points to consider are:
1) The markets are reasonably efficient most of the time; usually, if you read an article about e.g. product recalls, this information is already factored into the price.
2) Shorting is harder than going long; if you bet $100 short your max. gain is $100 but you have unlimited potential losses - if you're long $100, your max loss is $100 but you have unlimited  potential losses gains. Short ETFs fix this, but you pay a price - the cost of some kind of fancy option - that you can see clearly in the long term charts of any of these instruments.
Given this, I'd be far more comfortable being long C now than short (I have no position).
3) Trading and speculating is, by its nature, 0-sum and involves transaction costs that can easily add up to thousands of dollars a year. Over half of all people who try it under-perform the indexes.
4) There are tax consequences to short term trading. If you have a short term macro thesis, use futures or find an ETF that passes through the gains and losses from futures contracts, because these benefit to a degree (40 or 60%, can't remember off hand) from long-term capital gains. If you want to speculate on commodities over a longer period, consider an index linked ETN to take advantage of long-term capital gains. Of course, your counter-party might go bust in this case...
5) Given 1 and 3, it's best only to speculate when you have a reasonable expectation of winning. It takes experience to know when this is the case, and until then I suggest keeping your positions small. If you miss out on some potential gains, just smile at what you have and keep clear in your mind what your reasonable expectations of the trade were ahead of time, so that you don't get too greedy the next time and burn yourself.


edit: thanks to geokills
edit2: another problem I've had recently when shorting is having my shares called back at the worst possible moment - if your broker can't find the shares to borrow, you might have to buy back at a time not of your choosing.

Edited by phi1618 (01/18/09 04:14 PM)

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Re: considering shorts in the financial sector... [Re: phi1618]
    #9631190 -

I do see your points on waiting for the right moment. truth be told, i have jumped the gun before, and it has cost me...

as for using my margin abilities, i dont plan on investing more than i have available in cash, however knowing i can go buy and sell a stock in a day if i should choose to, and not have to wait for the trade to settle before i can have those funds available to use is nice.

another thing that came to mind is that Tuesday is the inauguration, and i would be willing to bet that the hope and positive feelings for the day, and new president very well might get carried over to the market...


--------------------
PEACE

:mushroom2:zippoz:mushroom2:



"in times of widespread chaos and confusion, it has been the duty of more advanced human beings - artists, scientists, clowns, and philosophers - to create order. In such times as ours however, when there is too much order, too much m management, too much programming and control, it becomes the duty of superior men and women and women to fling their favorite monkey wrenches into the machinery. To relieve the repression of the human spirit, they must sow doubt and disruption"

"People do it every day, they talk to themselves ... they see themselves as they'd like to be, they don't have the courage you have, to just run with it."

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Re: considering shorts in the financial sector... [Re: ZippoZ]
    #9631334 -

> another thing that came to mind is that Tuesday is the inauguration

I was thinking about that.  A valid thesis that I forgot to mention.

Yet another reason why a BAC short at this time does not carry a particularly favorable risk/reward ratio. 
However, if there is exceptional strength in the stock it may offer you a good entry point.

Make sure you read through the quarterly report and listen to their conference call.


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┼ ··∙   long live the shroomery  ∙·· ┼
...╬π╥ ╥π╬...

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Re: considering shorts in the financial sector... [Re: ZippoZ]
    #9632253 -

If you're looking for short theses, here's one:
http://www.calculatedriskblog.com/2009/01/bad-cre-loans-threaten-regional-banks.html

Many smaller, regional banks have large books of commercial (CRE) loans.

Find ones that have funded large quantities of land development, condo (depending on the area), shopping mall (depending on the area), and whatever other loans are particularly likely to go bad.

In the past, I've shorted Silver State Bank (which closed) and Republic Bankcorp (my shares were recalled at a loss for me).

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Re: considering shorts in the financial sector... [Re: phi1618]
    #9633429 -

Yeah, the fact they can call in a short anytime they wish makes them especially risky. If a stock goes up, that's when the real owner of it is most likely to want to sell so if you are shorting it, you take it in the shorts.


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“A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship.” (attributed to Alexis de Tocqueville political philosopher Circa 1835)

Trade list http://www.shroomery.org/forums/showflat.php/Number/18047755

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Re: considering shorts in the financial sector... [Re: Stonehenge]
    #9644529 -

wow, i wish i had gotten up in time to short the hell out of these things this morning on the after hours trading.


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PEACE

:mushroom2:zippoz:mushroom2:



"in times of widespread chaos and confusion, it has been the duty of more advanced human beings - artists, scientists, clowns, and philosophers - to create order. In such times as ours however, when there is too much order, too much m management, too much programming and control, it becomes the duty of superior men and women and women to fling their favorite monkey wrenches into the machinery. To relieve the repression of the human spirit, they must sow doubt and disruption"

"People do it every day, they talk to themselves ... they see themselves as they'd like to be, they don't have the courage you have, to just run with it."

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Re: considering shorts in the financial sector... [Re: ZippoZ]
    #9645063 -

I just made a substantial purchase of ebay stock since I saw it at the lowest point it's been in months. I'm going to wait for a small profit and grab it.


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“A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship.” (attributed to Alexis de Tocqueville political philosopher Circa 1835)

Trade list http://www.shroomery.org/forums/showflat.php/Number/18047755

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Re: considering shorts in the financial sector... [Re: Stonehenge]
    #9645503 -

interesting, E-bay....
who is the whole owner of Paypal...

now, i can see that the average price for items sold on e-bay might have fallen slightly, but as the majority of their fees are collected from the seller, and not necessarily based on selling price.

in this economic climate, i know that alot of people are looking for extra ways to make cash, and e-bay is an excellent option for many people to liquidate assets and property. I as a matter of fact know of many people using it for that purpose.

furthermore, paypal takes a pretty straight 3% of all recieved funds. while i can imagine that is a very significant portion of their income, I think that it might be off set by the increased amount of auctions.

although, paypal is a giant chunk of e-bay. i recall that it made a quarter million in a single quarter a year or 2 ago...

personally, i think that the stock price is being driven down by panicked sellers before they release their earnings TOMORROW. furthremore i think that it is taking a general hit thanks to the banks. honestly i thought that they might have an upswing thanks to the inauguration.

with all of this in consideration , i bought some e-bay today at 12.70 a share, which i hope to be somewhere near the bottom.... but time will tell.

best of luck to you all.
--------------------------------------------------
as for my hopes to short the big banks, I should have gotten in in early hours trading. The fact that RBC was taken over by england (as the majority stock holder at 77%) and their mention of guaranteeing loans, really did smell of nationalization of the banking system which we can thank for the continued down turn of BAc HSBC WFC and C (big banks) today.

personally, I agree with what GEO stated that there will most likely be a bounce back to the positive at some point in the near future before we see it all take another dive.


--------------------
PEACE

:mushroom2:zippoz:mushroom2:



"in times of widespread chaos and confusion, it has been the duty of more advanced human beings - artists, scientists, clowns, and philosophers - to create order. In such times as ours however, when there is too much order, too much m management, too much programming and control, it becomes the duty of superior men and women and women to fling their favorite monkey wrenches into the machinery. To relieve the repression of the human spirit, they must sow doubt and disruption"

"People do it every day, they talk to themselves ... they see themselves as they'd like to be, they don't have the courage you have, to just run with it."

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Re: considering shorts in the financial sector... [Re: ZippoZ]
    #9652627 -

Cap, you got it a little cheaper than I did. I see it closed today at 13.28 which is a tasty profit of about 6 bills if I were to sell now. I think I'll hang in for a larger score.


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“A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship.” (attributed to Alexis de Tocqueville political philosopher Circa 1835)

Trade list http://www.shroomery.org/forums/showflat.php/Number/18047755

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Re: considering shorts in the financial sector... [Re: ZippoZ]
    #9653539 -

Here's a short idea:
AIPC
American Italian Pasta Company
Fine company, profitable. Lousy business, dried pasta - so-so margins, requires significant capital to expand. Very expensive, lots of debt to refinance in the next 0-3 years.
I'm short with an average price of 24.8.
Standard shorting risks apply, this is not advice, I won't tell you when I cover, do your own research.

Edited by phi1618 (01/21/09 07:05 PM)

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Re: considering shorts in the financial sector... [Re: phi1618]
    #9659132 -

Cap, it looks like we didn't do too well today. Fortunately, I don't have to sell right away. In fact, I bought another 500 shares at 11.57. I'll either go down the drain or will make a nice score.


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“A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship.” (attributed to Alexis de Tocqueville political philosopher Circa 1835)

Trade list http://www.shroomery.org/forums/showflat.php/Number/18047755

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Re: considering shorts in the financial sector... [Re: phi1618]
    #9659173 -

phi1618 said:
Here's a short idea: AIPC
American Italian Pasta Company


Hmm... I did not do a lot of research on this but I would like to offer a contrarian opinion.  While not well positioned with respect to expansion, I don't think that really matters since growth is not the name of the game these days so much as survival!  For the near term, pasta seems like a good space to be in.  It's a consumer staple and a cheap trade-down product.  As people are laid off and struggling to pay bills, I would be inclined to believe that we (as a nation) will be eating more cheap and belly-filling foods such as pasta.

To the nomad, bummer on your eBay long.  I would be looking for an exit.

If you are determined to play long side tech, I would look at MSFT now that it is trading a 5x EBITA (earnings before interest, taxes and amortization).  For a company that is much better off, consider HP.  Even Apple at $85 after their impressive quarter and guidance that while not strong, seems a little stronger relaive to Apple's consistently ultra-conservative guidance.  If Apple can post one more positive quarter now that Steve Jobs is on leave, the issue of his health shouldn't affect the stock to the degree that it has over the past year.


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┼ ··∙   long live the shroomery  ∙·· ┼
...╬π╥ ╥π╬...

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Re: considering shorts in the financial sector... [Re: geokills]
    #9665066 -

geokills said:
phi1618 said:
Here's a short idea: AIPC
American Italian Pasta Company


Hmm... I did not do a lot of research on this but I would like to offer a contrarian opinion.  While not well positioned with respect to expansion, I don't think that really matters since growth is not the name of the game these days so much as survival!  For the near term, pasta seems like a good space to be in.  It's a consumer staple and a cheap trade-down product.  As people are laid off and struggling to pay bills, I would be inclined to believe that we (as a nation) will be eating more cheap and belly-filling foods such as pasta.

To the nomad, bummer on your eBay long.  I would be looking for an exit.

If you are determined to play long side tech, I would look at MSFT now that it is trading a 5x EBITA (earnings before interest, taxes and amortization).  For a company that is much better off, consider HP.  Even Apple at $85 after their impressive quarter and guidance that while not strong, seems a little stronger relaive to Apple's consistently ultra-conservative guidance.  If Apple can post one more positive quarter now that Steve Jobs is on leave, the issue of his health shouldn't affect the stock to the degree that it has over the past year.



I wouldn't short any spaghetti or beer or cigarette companies given our economic situation.

I am considering going long MSFT after their bad beatdown yesterday and almost pulled the trigger this AM at under $17 but watching it for now.  Seems cheap to me and even though they aren't growing they still have a commanding position and a great balance sheet. 

Why would you want to mess with CRAAPL?  Steve Jobs and his health or lack thereof is going to be an issue for quite some time.  When it becomes clear he is really sick and not just having "hormonal imbalances" whatever that means look out BELOW.


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Anxiety is what you make it.

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Re: considering shorts in the financial sector... [Re: LunarEclipse]
    #9733635 -

Well, I closed out my ebay position this morning at 12.92 for a profit of about 765 minus 3 commissions. Not bad considering I was down over 1600 at one point. I then shorted it, 1000 shares, and it went through at 12.75. It's down already.


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“A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship.” (attributed to Alexis de Tocqueville political philosopher Circa 1835)

Trade list http://www.shroomery.org/forums/showflat.php/Number/18047755

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Re: considering shorts in the financial sector... [Re: ZippoZ]
    #9757020 -

First, how can you short with that amount of money?  Or is the $25,000 requirement for day trades only?


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I keep it real because I think it is important that a highly esteemed individual such as myself keep it real lest they experience the dreaded spontaneous non-existance of no longer keeping it real. - Hagbard Celine

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Re: considering shorts in the financial sector... [Re: phi1618]
    #9757335 -

First, just as you can set a stop-loss for a long trade gone bad, you can for a short.  With the complex order types most brokers provide now, even the gap isn't going to prevent you from getting out, so I don't buy this infinite risk of short.  Not unless you're a complete moron could you have unlimited risk.

Second, trading and speculating is not a zero-sum game.  The stock market is especially not.  Yes some markets are, but not what is being discussed in this thread.


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I keep it real because I think it is important that a highly esteemed individual such as myself keep it real lest they experience the dreaded spontaneous non-existance of no longer keeping it real. - Hagbard Celine

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Re: considering shorts in the financial sector... [Re: HagbardCeline]
    #9759150 -

You can change the shape of your gain/loss distribution using options. No kind of fancy order will protect you from a loss of liquidity, either on the long or short side. You might squeeze out on the existing book of orders, but maybe not - definitely not if your position is anything other than tiny.

The stock market isn't 0-sum because of IPOs, new share issues and employee options, repurchases, and dividends. The output of the stock market to owners is limited by the profitability of the corporations behind the equity, which is limited by economic growth. Benefiting from short term stock movements is 0-sum, and extraordinary gains are matched by extraordinary losses elsewhere, either in time or space.

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Re: considering shorts in the financial sector... [Re: phi1618]
    #9762929 -

Well, sure the lack of liquidity could effect you, but as you said that would happen either way.  Shorting any stock that doesn't trade on heavy volume is foolish though.  My point was to say that just because you're shorting you aren't exposed to infinite risk like you said above. 

The stock market isn't zero-sum simply because stocks can rise in value.  You could issue 100 shares at $1 and the demand pushed the price up to $5 and everyone sold, there were no losers so it can't be zero-sum.  Same way with short term movements.  I don't know why you believe it suddenly becomes zero-sum because of the time frame.


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I keep it real because I think it is important that a highly esteemed individual such as myself keep it real lest they experience the dreaded spontaneous non-existance of no longer keeping it real. - Hagbard Celine

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