Wild, Wild West

Wild, Wild WestI’m known neither for my sense of timing nor my sense of logic.

I still believe Sugar Momma’s past contentions that my sperm must have been very slow swimming and her other assertion regarding her unusually short gestational period.

In the old “phylogeny recapitulates ontogeny” discussion, she is a prime example of our evolutionary link to the hamster.

Maybe it’s “ontogeny recapitulates phylogent,” but either way, the connection is clear. The scattered and partially digested carcasses of some of our offspring offer further testament.

My poor timing extends to most everything in life.

People always look back at their lives and question why they did or didn’t do certain things at certain times of journey. Whether in romance or finance, those feelings are near universal and will typically lead you down a bad path if you don’t resist the game and linger too long in its play.

The CNBC question of the day was “What would you have done differently if you could go back to 1998?”

Presumably they wanted some answer related to finance and they couldn’t have been disappointed, as the predictable responses surrounding Apple and shorting the tech boom stocks were common responses.

The funny thing is that I didn’t even consider investing decisions when it came to that question. I’m so much more of a romantic than one who is so tightly focused on money.

If I could have gone back in time I would have taped all episodes of “Men Behaving Badly.”

But I’ve moved on in life.

What hasn’t yet moved on is the continuing focus on all things labelled with the word “volatility.”

Everyone is expressing some form of outrage, especially related to the Credit Suisse product, TVIX.

I think of myself as a reasonably smart person, albeit lacking in timing and logic, but am also at a loss to understand all of these volatility vehicles.

That hasn’t prevented me from participating, though.

In the past, I’d done quite well with investing in the ProShares Short Term Volatility Index ETF (VIXY) and selling calls on those shares.

But that was back in July or so. In that time that’s passed since then a normally gestating person would have had the opportunity to create that which was conceived.

On a day like yesterday, when the Dow was up 160 points, one wouldn’t perhaps be overly surprised to see the volatility vehicles suffering disporportionately to the rise.


Currently hodling shares in a Barclays Volatility ETN (VXX) for the past 7 trading days, my timing was clearly pretty bad in re-initiating a position, despite the fact that I believed that the circumstances were similar to those in July, with another anticipated low in the index.

Logic was actually on my side, other than the fact that it was clearly wrong.

But still, there was no surprise, because my timing and logic are always flawed.

What did come as a surprise is a day like today, when the market is essentially flat-lined, yet the S&P 500 Volatility Index is up more than 5%.

Similar flat-lining days last week showed equally sized decreased in the index..

I certainly understand how large intra-day moves and reversals could spur on large changes in Volatility, after all, it is a measure of dispersion from the mean, but days like today, when there is little movement in either direction are confusing.

For me, at least.

Much of the outrage that’s going on has to do with the suitability of the various products for being approved as securities. Credit Suisse has particularly caught slings and arrows as it stopped issuing new shares a month ago, essentially turning their product into a closed end mutual fund and devastating the share premium.

Share premium?

Yeah. Share premium. A little understood phenomenon within the world of closed end funds, just as are share discounts.

Go figure, because no one else can.

Despite the fact that I’m currently sitting on a substantial paper loss, I can’t get overly upset, even by warnings by Credit Suisse that investing in its product as a long term strategy would likely result in an asset with no value.

I’m definitely not a libertarian on social aspects of life, but I tend to be much more so in financial aspects, although not in a Ron Paul delusional sense, But admittedly, I do love it when he tries to mesmerize Ben Bernanke by twirling a Silver Dollar among his fingers.

And yes, I understand that kind of laissez faire attitude may very well be responsible for the entire sub-prime crisis, but really, things had been working pretty well up until then.

And maybe until Enron before that.

I truly believe that investing should be like the “Wild, Wild West.”

I think I had made a pretty good argument some time ago when Raj Rajaratnam was in the news as to why insider trading was a victimless crime, but there’s so much more for which we need to take personal responsibility.

But the sudden realization that volatility product carried significant risk wasn’t an issue when they only seemed to carry reward, especially when that reward was too good to be true.

The problem really isn’t the product.

If you had a large enough core of people investing in a product, even if it was known to be entirely fictional, such as NZT-80, which is a favored co-medicant of one of my favorite Twitter people, Dasan, efficiency would be introduced into the marketplace.

People would happily trade, making money and losing money, based upon some sense of demand and interpretation of whatever fundamental metrics might be applied to the illusory.

And charts. There would be charts.

Just as you had to believe in Peter Pan, once people would begin to question the logic and sensibility of investing in an imaginary product, the market would collapse.

Yet, people still willingly pay money for virtual manure, much to Zynga and Facebook’s delight.

However, I do feel obligated to add that Facebook is not without value. For today, I learned from a long ago lost friend with whom I share a birthday, that indeed, according to the Jewish calendar today was our shared birthday. Amazingly, to honor that special event, CNBC ran its stock ticker crawl from right to left.

That’s value.

Whereas I really don’t understand what exactly a volatility product is, or how it’s value is measured, it doesn’t seem terribly different from investing in a company that is selling vrtual products to a community of users that may someday awaken to the fact that they are paying money for nothing.

As an investor, one who is willing to take the glory of a gain, I need to be prepared to take the agony of a loss, balancing the unfairness of having a worthless product come my way with the ability to profit off some other hapless fool seeking to profit from that hapless product.

In the case of the Credit Suisse TVIX, to really spice things up a bit, it’s leveraged two-fold.

But doubling something that’s worthless should really not have a tangible influence on the decision to abandon logic and sensability, unless youu can convince others that the product is not only “not worthless” but deserves to trade at a premium.

In a dog eat dog world, someone was getting pretty fat on a greedy segment of the investing universe, who would have been happy in their ignorance, if their greed was rewarded.

In the WIld, Wild West there was lots of opportunity for great gain, but sometimes you paid the ultimate price, often without any real hope for justice.

Think of the SEC as a hired judge, giving the semblance of law and order, but turning a blind eye when it was called for. Sometimes looking the other way creates a path for progress, despite the short term sacrifice. Think of all of the Robber Barons who later saved their souls by performing good deeds for the benefit of the very society they once trampled.

These volatility products may be monstrosities and have no redeeming characteristics, but they’re our monstosities. We gave them life and we can resurrect them to serve us again.

In the meantime, that little portion of my being that craves a bit of risk gave way to fulfilling my prophesy in this past week’s “Weekend Update” as I purchased shares of Dow Chemical just prior to its ex-dividend date tomorrow.

In a characteristically conservative move, I sold call options and hope to Double Dip by getting the dividend as well. A small measure of victory in the face of my VXX position, just like a bandaid when you have a ruptured aorta.

But like in the Wild, Wild West, think of the sonnet El Paso, by Marty Robbins and the incredible dying breath he took after following his dream.

Too bad it killed him.




Check out Recent PortfolioTransactions and
Transaction Performance 


Recent Trades Security Type Action Type
March 27, 2012 DOW Call STO * Monthly
March 27, 2012 DOW STock Buy
March 26, 2012 GMCR Call STO Weekly
March 26, 2012 ZSL Put STO Monthly
March 26, 2012 MOS Call STO Weekly
March 26, 2012 MOS Stock Buy
March 26, 2012 XLE Call STO Weekly
March 26, 2012 XLE Stock Buy
March 26,2012 CHK Put STO Weekly
March 26, 2012 HAL Put STO Weekly
March 26, 2012 BP Call STO Weekly
March 24, 2012 CHK Call Expired Weekly
March 24, 2012 FCX Call Expired Crumbs
March 24, 2012 GMCR Call Expired Weekly
March 24, 2012 MCP Put Expired Weekly
March 24, 2012 MS Put Expired Weekly
March 24, 2012 SLV Put Expired Weekly
March 24, 2012 VXX Call Expired Weekly
March 24, 2012 BP Put Assigned Weekly
March 24, 2012 MCP Call Assigned Weekly
March 24, 2012 MOS Call Assigned Weekly
March 24, 2012 MS Call Assigned Weekly
March 24, 2012 VXX Put Assigned Weekly
March 23, 2012 ZSL Put STO Monthly
March 23, 2012 FCX Call STO Crumbs
March 22, 2012 ZSL Call STO Weekly
March 21, 2012 GMCR Call STO Weekly
March 20, 2012 MS Put STO Weekly
March 20, 2012 ZSL Call STO Monthly
March 20, 2012 MCP Put STO Weekly
March 20, 2012 BP Put STO Weekly
March 20, 2012 SLV Put STO Weekly
March 19, 2012 VXX Call BTC Weekly
March 19, 2012 CVC Call STO Monthly
March 19, 2012 MOS Call STO Weekly
March 19, 2012 MOS Stock Added
March 19, 2012 MS Call STO Weekly
March 19, 2012 KSS Call STO Monthly
March 19, 2012 KSS Stock Buy
March 19, 2012 KSS Put STO Monthly
March 19, 2012 VXX Put STO Weekly
March 19, 2012 VXX Call STO Weekly
March 19, 2012 VXX Stock Buy
March 19, 2012 MCP Call STO Weekly
March 19, 2012 CHK Call STO Weekly
March 19, 2012 ZSL Put STO Monthly
March 19, 2012 AFL Call STO Monthly