Pigs are lining up for options expiration...I expect more bad news out of this sector in the near future. What a mess though waiting short now...good call on bailing.
It was definitely getting a little too easy on the short side. Seems the squeeze coincided with Cramer's "Dirty Dozen" article highlighting the most popular short plays in the subprime sector.
Yeah, as soon as that douchebag opened his mouth, stocks like LEND shot up. I was gonna try and scalp a few % but held off. I was pissed last week when I couldn't short at 17 and change and now want nothing do do with this sector. I should of dumped DXD today and am down a g today. Market is guaranteed to go up next two days by me holding on to it.
You know more is coming. Too many, "this isn't so bad" releases. For risk management, it's hard to stay in. But we all know what's coming. These bastards bury more bodies than the Gambinos.
I'd love to see another bounce in these stocks tomorrow. By Monday, most shorts will have been wiped out and renewed opportunities may arise. After all, once the buzz dies down and volatility recedes, you're left with an extremely troubled sector with downside potential. AHM at 26+ would be great (a 7 pt increase from yesterday's lows). I'd prefer to buy puts, but the premiums on these stocks are ridiculous. Time will tell...
A bit older so no Dateline specials for us to worry about. Although, that would definitely add to the excitement.
During most secular busts that are deflations of prior bubbles, there is considerable volatility during the decline. We saw major short-covering rallies during the Asia crisis in 1997-98, the tech bust 2000-2002, the general stock bearmarket 2000-2003, the commodity bear of the early 80s also had some spectacular rallies. I don't think this time will be different with lenders/reits. When sentiment is extremely bearish, and a large downmove has occured, it can get tricky because the two most likely scenarios are further serious declines, or a very sharp and fast snapback rally. I have two ways to try to cope with this. The first is to not go naked short if at all possible. Instead, I try to use rolling put ladders to play the longer-term move. Buy somewhat out of the money puts, and as they get into the money, exit them and roll some of the profits back into further out of the money options. This way you profit from an extended decline, and you book some winnings and are somewhat protected if a sharp rally occurs. A bonus is that if you buy puts on rallies, you benefit from volatility expansion during any subsequent decline. This helps compensate for time decay and the high spreads on options. The second tactic is to become more cautious after a serious decline which has caught the news headlines. Once everyone is talking about how bad the sector is, book some profits, don't stay in such big positions. Use your puts and roll them down to keep profit potential, but take some money off the table once the bearish sentiment becomes dominant and the market extended to the downside. Bruce Kovner had a down year in 1981 despite being a commodity bear. His comment was that in a bear market that followed a major bubble, it was characterised by these big swinging moves. Rather than getting short on downmoves, he said it was better to use the counter-trend snap rallies to start putting on short positions. When there's been a sharp rally, the market is at or above the upper Bollinger bands, and sentiment is no longer bearish (and ideally has become complacent or even bullish), that's the time to start putting on the out of the money puts again. My experience from prior bubble deflations is that puts which seem hopelessly unlikely to come into the money, often do, as long as you go far out enough in time. You don't put on 3 month option positions, you go out 9 months, or even 2 years using synthetic puts via LEAPS. That strategy would have worked beautifully in 2000-2003, whereas I tried just shorting and didn't actually make that much money (in fact I made much more buying the dips during that bear market, than I did on my shorts, despite making some beautiful entries shorting stocks like JNPR 10% from their all-time highs). It is just too tricky, for me at least, to stay short when stocks can rally 30%, 50%, even 70% in your face after a major downdraft. The mathematics of short selling really do make it difficult to take an outright position and hold on during the majority of a volatile downtrend. Finally, in a secular bear, rallies don't usually last for more than a few months. There is normally more than one major down wave, and it normally lasts more than the countertrend rallies If a rally has lasted say 3 months, and sentiment is complacent/bullish, this is normally an excellent time to start putting out shorts again. The subsequent decline will usually last longer (double or triple as long for example), and often go significantly lower than the prior lows. If you look at the HGX, it had a base in the summer, then rallied for 4-5 months into early Feb. That's quite an extended rally, but now there's been this bad news and an associated sharp correction. IF the secular bear thesis is correct, then ultimately you would expect this index to not only go back to the old lows, but to go significantly lower, and for the decline to last longer than the rally. My working hypothesis would be that this index tanks for the rest of the year, a decline lasting say 8 months or even more. Yes, there has been a sharp recent decline, so a short-term bounce is quite possible. But the decline has only been 10% or so, and only lasted a month. The index is 25% off its high. In a secular bear market, a sector index like this would typically go down at least 50%, and often 75%, before you would be likely to see a bottom. So, in the medium and longer-term, I see considerably more potential downside for this sector. If my bear thesis is correct, you could be looking at 150 or even 100 for this index. Individual stocks can do even worse (but obviously carry more risk), several are going bust and more are likely to follow. I think you're wise to exit longs, and if anything I'd be looking to buy puts on a regular basis until the market either collapses, or stays strong enough for long enough to show that the bear market is not actually going to happen.