Discussion in 'Options' started by RobtF, Dec 13, 2008.
MT Options. Anyone with any experience with this advisory outfit? I think they charge $99 per mo.
If you were able to predict which options are going to move higher - on a consistent basis - would you sell that information for 99 bucks (or any price)?
to be able to consistently get results., the only strategy so far. known was used by Madoff.. see article at bottom.
now we know why !..
I have come to the conclusion. you can play all the options you want and do all the technical analysis you want,
finally at the end of the day. you may make money.. for a certain period of time. and then give it back. if you keep doing it .
final conclusion. : and reason why I keep playing.: saves me my flight to VEGAS. 12 fridays a year, I get my high from successful option plays!
Madoff Ran Vast Options Game
Firm to Shut, Wife's Role Questioned; Volume Made Strategy Impossible, Traders Say
A federal judge ordered the U.S. operations of Bernard L. Madoff Investment Securities LLC to be liquidated, as fresh details emerged of trading discrepancies that offer clues as to how the New York broker may have run the epic scam alleged by authorities.
On Wall Street, traders started picking apart Mr. Madoff's investing strategy based on client statements -- which they said raised red flags that should have been obvious to the banks and investment firms that promoted Mr. Madoff. Several concluded that while Mr. Madoff's stated strategy was valid, it would have been impossible to execute with the amount of money he was managing.
Mr. Madoff told clients he was using a fairly common options-trading strategy to generate modest but steady returns for more than two decades. The strategy involved buying stocks, while also trading options -- which grant the right, but not the obligation, to buy or sell securities at pre-established prices in the future -- in a way designed to limit losses on the shares.
People who analyzed client statements said Mr. Madoff's firm couldn't have bought and sold the options he claimed because those totals would have outstripped total trading volume those days.
Some investment advisers steered clear of Madoff funds, in part because of discrepancies like these. "It seemed implausible that the S&P-100 options market that Madoff purported to trade could handle the size" of Madoff's estimated $13 billion in assets, wrote James Vos and Jake Walthour of advisory firm Aksia LLC last week in an explanation of why they didn't recommend funds that invested with Madoff to clients.
Other traders said that while the strategy, when properly used, does limit volatility, it generally wouldn't produce gains in a declining stock market. Account statements from Mr. Madoff's firm show small, steady gains each month, regardless of the market's direction.
A typical account statement provided to clients by Mr. Madoff's firm showed him buying shares of blue-chip companies such as Intel Corp., AT&T Inc. and IBM Corp. and also trading options on the Standard & Poor's 100-stock index, which tracks the very largest stocks. Then, at the end of each month, all of the stocks are sold, and the cash put into Treasury bills.
That was another red flag, because the options strategy he used, when practiced by others, typically held its investments for longer periods, says Millicent Holmes of Crowe Wealth Management, who had researched Mr. Madoff's firm as a possible investment but ultimately steered clear.
In the so-called "split strike conversion" strategy used by Mr. Madoff, an investor tries to balance these maneuvers to generate predictable returns and minimize losses. The investor holds a portfolio of stocks, then sells "call" options on a stock index, and buys "puts" on the same index.
[Beating the Odds]
For example, a client statement reviewed by The Wall Street Journal for last month showed that on Nov. 12 Mr. Madoff moved $500,000 out of U.S. Treasury bills, as well as $1,460 out of a Fidelity Investments money-market account. That cash was invested in nearly three-dozen stocks, such as Exxon Mobil Corp., Proctor & Gamble Corp. and Microsoft Corp.
That same day, Madoff bought 11 "put" option contracts on the S&P 100 for $19,591 and sold 11 "call" option contracts on the S&P 100, which took in $17,369.
During this time, the stock market was in a steep decline. By Nov. 19, when the firm next did a trade, the S&P 500 fell nearly 10%. On Nov. 19, Mr. Madoff closed out those particular options trades, making $14,000 on the "call" and $21,000 on the "put" for a net $35,000 profit.
On the surface, this was a straightforward example of the strategy. However, the problem is that if Mr. Madoff replicated the trade firmwide, as he was thought to be doing, the trading wasn't showing up in the options market. On Nov. 11, if it took 11 contracts to hedge a half-million dollars, it would have taken 22,000 contracts to protect $1 billion. Mr. Madoff claimed to be managing $17 billion.
But on Nov. 11, only 393 of the "call" contracts the firm sold actually changed hands, according to the Chicago Board Options Exchange. And trading totaled 183 in the "put" options he bought. The so-called open interest in both those contracts -- the measure of contracts outstanding -- was just 4,639.
Madoff records from another client suggest a similar discrepancy in 2007. According to a copy of the client's statement reviewed by the Journal, Madoff bought 114 options contracts based on the S&P 100, while selling 114 others at a different price. The 114 "call" contracts Madoff entered into represented about 10% of the trading volume recorded that day for that contact at the Chicago Board Options Exchange. The 114 "put" contracts represented about 20% of the volume, meaning that if Madoff would have executed similar trades for five other clients, the firm would have made up the entire trading in the options contract that day.
[Entrepreneur Carl Shapiro, at Hebrew SeniorLife in Boston, had $545 million invested with Mr. Madoff.] Ronald Tee Johnson/Palm Beach Today
Ask them why they are so anxious to help pond scum , and not just trade their genius.
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