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For the Love of Money Is the Root of All Evil
Aloha All, with multiple blessings for happy, healthy, joyful prosperity in the New Year and onward.
For the love of money is the root of all evil: which while some coveted after, they have erred from the faith, and pierced themselves through with many sorrows.
1 Timothy 6:10 (King James Version)
Stick with us, dear readers, family, friends, students and subscribers.
We navigated safely through the lows of 1974, 1982, 1987, 1990, 1998, 2002 and 2009, along with the highs of 1973, 1976, 1987, 1990, 1998, 2000 and 2007, buying when most sold and selling when most bought. It is hard to overcome the despondency at the bottoms, and the greed at the tops:
http://stockcharts.com/charts/historical/djia1900.html
If we are neither fearful or greedy now, then let us pray think on it that we may be the more successful.
Some of our best clues to market turning points are sentiment extremes reflected by option buyers.
While writing (selling) naked (uncovered, unhedged) option derivatives can be a source of fairly steady income with the occasional terminal wipeout, buying options may be the converse. Ask Warren Buffett, who called derivatives weapons of mass destruction, then proceeded to take a 96% BRK earnings write-down after writing naked puts on the markets, treating them as selling insurance premiums and marking them to market unlike the big bad banks.
What happens when option buyers default or exercise their right to sell above current prices? We noted option sellers may become gamblers, increasing losing positions.
Unless option buyers have sure-fire inside information, which is illegal, like the Contac Tylenol contamination and 9-11 put buyers, which also provided an electronic trail to the perp, option buyers en masse may be prototypical plungers who end up being wrong-way Corrigan’s. At the worst possible time.
