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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: John Pitera who wrote (10283)	10/14/2008 8:24:39 PM
From: Stoctrash	1 Recommendation Read Replies (1) \| Respond to of 33421

Taleb's `Black Swan' Investors Post Gains as Markets Take Dive By Stephanie Baker Enlarge Image/Details Oct. 14 (Bloomberg) -- Investors advised by ``Black Swan'' author Nassim Taleb have gained 50 percent or more this year as his strategies for navigating big swings in share prices paid off amid the worst stock market in seven decades. Universa Investments LP, the Santa Monica, California-based firm where Taleb is an adviser, has about $1 billion in accounts managed to hedge clients against big moves in financial markets. Returns for the year through Oct. 10 ranged as high as 110 percent, according to investor documents. The Standard & Poor's 500 Index lost 39 percent in the same period. ``I am very sad to be vindicated,'' Taleb said today in an interview in London. ``I don't care about the money. We're proud we protected our investors.'' Taleb's book argues that history is littered with high- impact rare events known in quantitative finance as ``fat tails.'' As the founder of New York-based Empirica LLC, a hedge- fund firm he ran for six years before closing it in 2004, Taleb built a strategy based on options trading to bullet-proof investors from market blowups while profiting from big rallies. Mark Spitznagel, Taleb's former trading partner, opened Universa last year using some of the same strategies they'd run since 1999. Pallop Angsupun manages the Black Swan Protection Protocol for clients and is overseen by Taleb and Spitznagel, Universa's chief investment officer. ``The Black Swan Protection Protocol is designed to break even 90 to 95 percent of the time,'' Spitznagel said. ``We happen to be in that other 5 to 10 percent environment.'' Options Strategy The S&P 500 dropped 18 percent last week, its worst week since 1933, on concern that the credit crunch would cripple the financial system and trigger a global recession. ``We got a lot of giggles when we said we're targeting 20 percent moves,'' Spitznagel said. He and Taleb declined to confirm the investment returns listed in the documents, which were reviewed by Bloomberg News. Taleb's strategy is based on buying out-of-the-money options -- puts and calls whose strike price is either lower or higher than the market price of the underlying security. A put option gives the buyer the right, though not the obligation, to sell a specific quantity of a particular security by a set date. A call option gives the right to buy a security. The Black Swan Protection Protocol bought puts and calls on a portfolio of stocks and S&P 500 Index futures, along with some European shares. The Black Swan Protocol doesn't rely on commodities, currencies or insurance on bonds known as credit default swaps, Taleb said. ``We refused to touch credit default swaps,'' Taleb said. ``It would be like buying insurance on the Titanic from someone on the Titanic.'' White Swan The Black Swan strategies are designed to limit losses to a few percentage points. Some investors did better than others depending on when they decided to lock in profits, Taleb said. The returns have enabled Universa to line up more money from investors in the next month, Taleb said. As a trader turned philosopher, Taleb has railed against Wall Street risk managers who attempt to predict market movements. Even so, Taleb said he saw the banking crisis coming. ``The financial ecology is swelling into gigantic, incestuous, bureaucratic banks -- when one fails, they all fall,'' Taleb wrote in ``The Black Swan: The Impact of the Highly Improbable,'' which was published in 2007. ``The government-sponsored institution Fannie Mae, when I look at its risks, seems to be sitting on a barrel of dynamite, vulnerable to the slightest hiccup.'' Taleb said the current crisis is a ``White Swan'', not a Black Swan, because it was something bound to happen. ``I was expecting the crisis, I was worried about it,'' Taleb said. ``I put my neck and money on the line seeking protection from it.'' Taleb is angry that Wall Street is continuing to use traditional tools such as value at risk, which banks use to decide how much to wager in the markets. ``We would like society to lock up quantitative risk managers before they cause more damage,'' Taleb said. To contact the reporter on this story: Stephanie Baker in London at stebaker@bloomberg.net

To: John Pitera who wrote (10283)	10/14/2008 10:42:03 PM
From: Stoctrash	1 Recommendation Respond to of 33421

Natural Gas ETF call action points to higher prices Tue Oct 14, 2008 2:23pm EDT By Doris Frankel CHICAGO, Oct 14 (Reuters) - Option investors on Tuesday appear to be betting that natural gas prices will heat up within the next few months as they accumulate call options on an exchange-traded fund tied to the commodity product. Shares of the United States Natural Gas Index UNG.A rose 1.58 percent, or 47 cents, to $30.20 in afternoon trade. The fund, which tracks natural gas prices through futures and forward contracts, notched a 52-week low of $29.02 on Friday. The ETF has shed 114 percent from its July high of $63.75 as of Monday's close. In the options market, volume swelled to double the normal daily turnover as 44,000 call contracts changed hands vs. only 2,339 puts, option analytics firm Trade Alert data show. Investors often turn to equity call options allowing them to buy the company's stock at a given price and time, to speculate on share price appreciation. Players focused on the November $31 call strike. More than 36,700 contracts traded in that strike price against existing open interest of 823 lots, indicating fresh positions were initiated, according to Reuters data. The November $31 call option fetched $2.20 a contract, up 30 cents on the day. "Today's activity appears to reflect some speculative call buying on expectations natural gas prices might heat up between now and November options expiration," said Frederic Ruffy, options strategist at Web site WhatsTrading.com in New York. Front month November natural gas futures on the New York Mercantile Exchange NGX8 rose 9.7 cents to $6.785 per million British thermal units, lifted by prospects of cooler weather in consuming regions in the U.S. Midwest and Northeast and stirring tropical activity in the Atlantic Basin. "We are seeing some activity in the call options but not necessarily institutional, said Chris McKhann, an analyst at Web information site optionmonster.com in Chicago. "Natural Gas prices can be extremely volatile and traders are looking to profit from an upside bounce in the fund." The options barometer of perceived risk or overall implied volatility on the fund

To: John Pitera who wrote (10283)	10/15/2008 7:25:04 PM
From: Hawkmoon	1 Recommendation Respond to of 33421

John.. would appreciate your comments on this PR from the DTCC: Reported estimates of the size of the credit default swap market have so far been based on surveys. These surveys tend to overstate the size of the market due to each party to a trade separately reporting its own side. Thus, when two parties to a single $10 million dollar trade each report their “side” of the trade, the amount reported is $20 million, which overstates the actual size by a factor of two since both reports relate to a single $10 million contract. When examining the outstanding amount of actual contracts registered in the Warehouse (not separately reported “sides”) as of October 9, 2008, credit default swap contracts registered in the Warehouse totaled approximately $34.8 trillion (in US Dollar equivalents). This is down significantly from the approximately $44 trillion that were registered in the Warehouse at the end of April this year. dtcc.com