That’s what Makes a Market

There are a lot of insipid expressions out there.

I know, because I was the one credited with the 2012 CNBC word of the year, “Eurosis,” replacing last years’ “Hopium.”

Lately things like “catch a falling knife” a “rip your faceoff rally” and “kicking the can down the road” have been used to describe one thing or another. Some of those expressions seem like good ideas, but most fade away, never having the cultural staying power or applicability to other situations.

Of course, there are always the tried and tested expressions that have meaning through all eternity.

“Bulls and bears make money, but pigs get slaughtered.”

RIght? You know that one.

A polite way of expressing the fact that someone did something stupid or the fact that the action was incomprehensibl3e is to say “Well, that’s what makes a market.”

That observation is always going to be correct. There has to be someone on both sides of any deal. Theoretically, depending on the time scope, they could both be on the right side of the trade, but let’s be honest.

No one cares about the other guy. Win-win is another of those insipid expressions.

That's what Makes a MarketYesterday, I got a glimpse into the incomprehensible.

Following a minor procedure for which I had some sweet, sweet sedation, I began having some significant pain.

May the Good Lord have mercy on Dr. Conrad Murray, but I think I see what Michael Jackson found appealing about Propofol.

From the time of the onset of my kidney stone and its few  moments of intense pain, I’ve had a prescription for the narcotic analgesic Percocet. In that three week period I hadn’t taken any of those pills until yesterday afternoon.

About an hour after popping a pill, the pain was gone, but a strange feeling came over me at about the same time.

I felt as if I had no affect, at all.

None. Even less than I usually am in possession of and believe me, there have been times that Sugar Momma has poked me to see if I was still alive, despite my eyes being wide open and speaking.

After the effects starting hitting I found myself moving at something significantly less than breakneck speed and actually had a tough time getting thoughts out of my mouth.

On a positive note, the altered reality made the filtering of urine to find those pesky stones less noisome and I did end up finding that misplaced lithium battery, although I’ll never understand how it got in there.

Or out.

Fortunately, between the time that I’d gotten home and taken the drug, I’d made all of my trades for the day, replacing most of the 30% of the portfolio that had to be replaced after assignment of shares.

I’m a pretty bad judge of what makes a good stock and I’m not particularly known for my trade timing, but I can only imagine how hideous things might have turned out if I was operating under the influence.

The warning not to drive or operate heavy machinery should have been extended to include heavy financial lifting.

For some bizarre reason, I decided to start my 2011 taxes. What better perspective could I have for coming up with some “out of the box” deductions.

I don’t know what a Percocet goes for on the street these days, but I do remember a time when working in an inner city emergency room in Boston that Percocet was the drug of choice for guys coming in off the streets looking for something good.

I’m sure that the world has taken the beat form Huey Lewis and moved onto a new drug, but back then, it was on top of everyone’s lists.

“No man, codeine doesn’t work for me, but that other stuff, Perco…, perco… perco something, yeah, that’s good. That works good.”

After the experience yesterday, I have no clue what anyone sees in it, if they’re not taking it to actually treat pain.

But that’s what it takes to make a market.

I don’t get it, but someone else does.

Now, I grew up in the 60’s and understand the concepts espoused during those summers.

And I also understand that addiction makes you do things that don’t necessarily seem to make sense to a casual observer.

And that brings it right back to stocks.

In the past I’ve written about how difficult it is for me to  resist the temptation to trade when I have cash in my accounts. Sometimes I even make what turn out to be supid decisions all in the name of needing to make that trade.

Do you want to talk addiction?

Today I spent the greater part of the day mulling over whether to place a straddle trade on Amazon which reports earnings at the close of the day. That, despite the fact that the Urologist told me to not straddle anything for at least a couple of days.

In case you don’t know, a straddle is a strategy that you use when you expect a large move in the share price, but have no clue in which direction.

Some stocks like Google, Apple, Green Mountain Coffee Roasters, MasterCard and Amazon are good for those kind of price spasms.

To capitalize on that possibility you buy both a call and a put at the same strike price and expiration and hope that the move is really exaggerated after earnings are released. At some point, you then close out those positions, with even morer cash in hand to fuel your next foray into addiction.

What’s nice is that with the weekly options you’re not paying for much time premium.

The point is, that although I’ve looked at executing straddles over the past couple of years, I’ve never pulled the trigger, as I really am a pretty conservative guy, other than for the occasional “what was I thinking” kind of event.

Just as I understand addiction, as well as the lure of an altered sensation, I understand that “the perfect investment” is rarely such once I get involved.

Straddles are perfect, as long as the move is really big and sometimes, it just doesn’t work out that way, in which case all of the volatility that was priced into those option premiums that you just paid disappear faster than flushing a crack rock or kidney stine down the toilet.

I followed the same watchful path for years before I finally started on the current road and have since become addicted to the need to sell a call on absolutely every holding as quickly as I can.

I don’t know if I’m ready for another addiction to a new strategy.

“I want a new drug.”

Sometimes you pay a price for that addiction, too, but like all the rest, it’s just hard to stop once you get a taste of the options income premium. Not only is it hard to stop, but you find yourself needing more to get the same thrill.

“I want a new drug. One that won’t go away.”

Last week I sold puts on Netflix right before earnings. That worked, but the feeling is now gone.

Microsft is great for its reliability, but that makes it boring, too. If you want a really great premium you go with the “go-go” stocks like Netflix or MolyCorp and the thrill of feeding your greed is realized.

The problem, as with all addictions is that there’s an inevitable crash ahead.

For the most part, I’ve been able to resist the momentum kind of stocks with just a few exceptions, mentioned above, save for MolyCorp, which tried to entice, but couldn’t break through the shield of fear that protected me.

But still, it’s hard to sit idly by while everyone else is having fun.

What makes a market is someone doing something ill advised and the other party to the trade taking advantage of the opportunity.

With about 90 minutes left to go until Amazon announces its earnings, I still have no idea of what I’ll do, but I feel as if I’m talking myself out of the straddle trade.

I suppose I could do what evryone says when they want to rationalize reckless behavior. Maybe I’ll just go in part of the way.

That usually doesn’t work out really well. If you’re going to be an addict, at least show some commitment.

Of course, if I doresist the temptation and I see everyone else partying after the pop up or down, there’s always Green Mountain tomorrow.

The one nice thing is that there’s never a shortage of opportunities to feed the beast and keep that market breathing while you gasp for your last…..


Post-script: At 3:10 PM.and again at 3:45 PM executed the straddle trade at a $190 strike price, but did so without showing the commitment of a real addict. Either way, I’ll probably end up with regrets and remorse. The spirit was strong, but the mind and body were weak.


Check out Recent PortfolioTransactions and Transaction Performance 


Recent Trades Security Type Action Type
January 31, 2010 AMZN Straddle BTO Weekly
January 31, 2012 AXP Option STO Weekly
January 31, 2012 BP Option STO Weekly
January 31, 2010 AMZN Straddle BTO Weekly
January 31, 2012 HAL Option STO Weekly
January 30, 2012 XLF Option STO Weekly
January 30, 2012 XLF Stock Buy
January 30, 2012 MS Option STO Weekly
January 30, 2012 FMCN Option STO Monthly
January 30, 2012 FMCN Stock Added
January 30, 2012 GS Option STO Weekly
January 30, 2012 GS Stock Buy
January 30, 2012 HAL Option STO Weekly
January 30, 2012 HAL Stock Buy
January 20, 2012 MOS Stock Buy
January 30, 2012 V Option STO Weekly
January 30, 2012 V Stock Buy
January 30, 2012 RVBD Option STO Monthly
January 30, 2012 RVBD Stock Added