3 Black Swans

Discussion in 'Trading' started by Cutten, Jun 26, 2008.

  1. Cutten


    These are off the radar for most of Wall Street, but I think they are more likely than people expect:

    1) Oil approaching $200. It might not hit it, but I think there's a higher than expected chance it gets to $180-200.

    2) S&P collapsing to 1000 or close to it, as the economy performs even worse than expected.

    3) A major blue-chip financial going bankrupt.

    These might not happen, but I would say they're worth a punt, because the payoff will be huge if they happen and they aren't as unlikely as the market is currently pricing in.
  2. So what instrument are you going to use to incorporate the above three factors for your punt?
  3. AAA30


    How about economic problems in the Euro zone make the Euro's future questionable? Not happening yet but keep your ears open.
  4. When I win the Megamillions lottery I plan to write books and charge $100,000 for lectures to professional slot-playing groups regarding outlier events and I, too, will be deemed an expert
  5. Cutten


    For the stockmarket, short XLF and XHB, and long December S&P out-the-money puts. I anticipate a possible bounce off the 1250 march lows, so I'll cover some into that and wait for a bounce before reshorting in size.

    For oil, I'm just long the underlying, and got some out the money calls and spreads on. If it is going to 180+ I think it happens by October. I also plan to buy airlines and refiner stocks heavily, along with LEAPs on them for 2010, if oil gets that high. Near $200 I would look to load up on puts and maybe short a little.

    Financial bankruptcy - IMO this is likely to happen close to a bottom so I'll use it as a timing factor. It could either trigger the collpase, or signal the low (gap lower then huge rally on bearish news would be proof that the bottom is in). If it's the latter then I'll cover all my shorts, exit puts, and start backing up the truck on XLF, I-banks etc.

    A more conservative way to play this is to wait to see if we take out 1220 on the S&P. Anything above that, and we could just be looking at a triple bottom. But if it sinks below 1220, it's far more likely to be a new bear leg down, which will probably end in panic. You make less by waiting, but increase the odds.
  6. Cutten


    I think the Euro is pretty entrenched. This *could* happen but I don't see any sign of it happening soon. Whereas the other 3 possibilities look on the cards for Q3 and/or Q4.
  7. 3 of them!?!?


  8. Interesting ideas. Thanks a lot for sharing.
  9. i think the debt swap market blowing up after a major financial goes bankrupt is a bigger "black swan". nothin like an unregulated 65 trillion dollar market where jp morgan is the biggest writer of debt swaps.
  10. Keep in mind....if S&P trades down to sub 1270's and tests the March lows there will NOT be any bounce this time imo. From a pure AMT (Auction Market Theory) standpoint, I think we will ACCELERATE through the March lows to a new lower trading range. LONG positions held from the March lows will dump out fast which will punch us through to new yearly lows.....plus there just wont be enough buying on a third trip down without a major news event imo (something major like a big sell-off in commodities, etc).

    I have longer term Short ES positions that I will not start scaling out until 1270's....I am looking for a new LOWER trading range before the end of summer.
    #10     Jun 27, 2008