Friday, September 11, 2009

How to make a living without any productive work!

Capitalism is cool. To many though, especially the poor and the weak and the disadvantaged, it often seems evil and anti-social and destroying people's lives and should be dropped. Unfortunately, capitalism goes hand in hand with freedom and democracy, and as bad it may be, it's still way better than any other alternative that we've seen in the last 10 thousand years on Planet Earth, including Plato's Utopia.

It is a challenging statement that this blog has started with, innit? Imagine Johnny boy having a great life, in terms of income that is, while he don't need do no shit to earn a living. All it takes is surfing the net, watching the market, and doing some online day-trading. If you know what you are doing, you are da man! You can make a living with dough others sweat blood and tears to get any near to!

An example! Late July 2009. Johnny boy's watching AAPL moving south. He knows he needs to check upon AAPL's Puts. He likes trading options short term, so he looks no further than August / September expiries, less than one and two months down the road respectively. He decides to sell 10 August and 30 September contracts, breadcrumbs really, both @ 160 strike. AAPL is trading at 167 at that moment, give 'n take. Johnny thinks AAPL will move up. He feels August might be rather tricky for the strike to hold in the clear, but he's rather confident about the September expiry. Johnny will soon make, give'n-take 15 big ones on this transaction. Time needed to make it happen: 6 'productive' minutes. The time to search real time data on some gazillion free of charge URLs, make the sell decision, evaluate risks and send an SMS to his banker, some place out there in the banking universe, waiting for more of his Johnny clients to tell him what to do with their money. In the next 15 minutes Johnny gets a confirmation that the transaction got thru and placed a fresh 15 grand 'n change on his current account. Deal done. Let's go eat supper now, Johnny boy!

Johnny goes on with his life. He hasn't started spending his cash, as it's not earned yet for sure... there's always the risk options end "in-the-money" and then his buyers will come running, but that's ok. Johnny's got a few alternative strategies if things get ugly. Happened before. When things turned out bad, he used to go for some new similar 'sells' at distant future expiry dates. With the proceedings, he then covered his current open positions before too late. And so on. Eventually the stock does a turnaround (they always do) and Johnny wipes away his losses, hands down. In fact, his best bets work when, at expiration, his target stock falls sandwiched in between two rates at which Johnny sells Puts (@ the lower) and Calls (@ the higher). The narrower the spread between the two the better the dough. The higher the risk though. Johnny swears by Apple and its products, but bleedin' AAPL is much too tricky to handle short term. Don't even get me started on medium term! It's a high volatility stock, like the experts use to call it! Anyways, sometime in the past, Johnny tried buying options at "some" price, putin' his cash on the table, hoping for obnoxious percent returns if the stock moved in the right sense but he always screwed this up, big time. There were other Johnnies then, who were singin' their way to the bank, with his money. So, he decided once and for all to only do 'sells' in the future, and avoid 'buys' of derivatives like hell.

Anyways, about early August AAPL suddenly headed south and Johnny felt like his first bet might squeeze him to some panic recovery strategies with the stock closing @ just above 159 bucks, for just a single night. That one was a slight shock. His banker however got cold sweat running all over him, even more than Johnny himself, but... never mind. That's why the bank pays him, poor sod. To 'empathize' with his customers!

Long story short, eventually Johnny secured the cash of his August bet, following expiry Friday on the third week of the month, with AAPL trading safely far above 160 bucks a share. One down, one more to go, Johnny thought. He also treated his woman to a fancy dinner that Friday evening! In the meantime, Apple has been heading north from that moment onwards and never looked back. Analysts have been upgrading the stock almost daily. New targets started with a "2". Cool! El Jobso takes stage at the 09-09-09 event! All the way back from Hades. He's alive and kickin' ass! September Puts @ 160 strike seem a small dot in the southern horizon. Johnny sold them @ 4.4 bucks a share in July and they are trading @ 24 cents as we speak. Do the math! Another week and Johnny's about to pocket the cash for the remaining 30 contracts. He suddenly feels a wee tiny bit of sympathy for those morons who paid him 15 grand to buy his Puts, but he instantly decides to give no shit whatsoever. That's the name of the game. Capitalism is cool for clever and lucky bastards, he thinks. Life is good!

Sad story!

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