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Game Over For The European Ponzi Scheme?.

  • Written by Syndicated Publisher No Comments Comments
    August 5, 2011

    The following are illustrative setups based on SPY options with some actual plays based upon my European Bank Run Research (see list at the bottom of this article). This was written yesterday evening, French time, as the S&P was at 124.60, trending downward. (Note: the market has literally collapsed since then).

    The SPY is an ETF (trust) that tracks the S&P 500. I will be focusing on the FIRE sector in both Europe and the US, but the broad market will (is) probably fall first. These trades are presented to give some illustrative guidance to retail subscribers and more advanced setups to Pro subscribers.

    The Tech Outlook


    Regarding the tech outlook, I’ve turned actively bearish on the broad market a few days before the guys that I use to assist in the volatility setups, hence my collecting of the armageddon put above. Siince we broke major support, everybody is now on board. The issue is the fundamentals and the macro outlook are leading the technicals in bearish outlook, then again, they have been doing so for two years now – for what its worth, despite the fact the market has shot up nearly 100%!

    As you can guess after such a move, vol went quite a bit up, but chances are there’s much more room for vol expansion, if we just reverse to 2010 levels (that and because were breaking a 2 year long trend line). I fully expect the downtrade to be quite violent, like what were seeing in CAC as of late (referenceObservations Of French Markets From A Trader’s Perspective) with but a small respite and or the requisite short squeezes – which should be fewer and farther between since fundamental shorts have been beaten up and driven out of the markets.

    My Vehical Of Choice For BoomBustBlog Retail Subscribers Looking To Capture Volatility Moves In The Broad Market

    The SPY is an ETF which quotes 1/10 of the SPX index. I find it ideal for retail investors who don’t have the capital to commit to the larger blocks required of the e-miini and can be easier to get out of considering the homicide spreads forced upon SPX option buyers who don’t have the inside Squid track.

    The vols are directly comparable as both indexes are just proportional.

    First thing, looking at ATM vols on the 4 next expiries (Aug, Sep, Oct, Nov), the structure is slightly inverted (vol on aug > vol on sep > vol on oct > vol on nov) cause the mkt expects move to be shortlived and/or decreasing in intensity. I don’t necessarily agree, which is what makes a market.

    What It Takes To Actually Make Money

    ATM (annualized) vol (125) is around 24% on Aug, 23% on Sep, 22% on Oct and 21.5% on Nov. (these are approximations, rule of thumb: the implied daily move (in %) is (annual) volatility / sqrt (250) if we count 250 biz days every year). So 24% is roughly a 1.5% move a day. More adequately speaking, roughly, an options trader who is delta hedged and long options, needs the mkt to move more than 1.5% a day to make money. As implied is, because of risk premia, often 10% or 15% more than (expected) realized vol you see vol is not cheap against recent history, but compared to 2009 early 2010 it is quite cheap. So if you are of the mindset of our last few posts (see list at end of this article), there is upside there.


    Any reversion to bank collapse volatility makes even today’s option prices look cheap. You have to be careful, though. The global financial planning cartel has other plans.

    Reference Do Black Swans Really MatterNot As Much as 

    I have always been of the contention that the 2008 market crash was cut short by the global machinations of a cadre of central bankers intent on somehow rewriting the rules of economics, investment physics and global finance. They became the buyers of last resort, then consequently the buyers of only resort while at the same time flooding the world with liquidity and guarantees. These central bankers and the countries they allegedly strive to serve took on the debt and nigh worthless assets of the private sector who threw prudence through the window during the “Peak” phase of the circle of economic life, and engaged in rampant speculation. Click to enlarge to print quality…

    The result of this “Great Global Macro Experiment” is a market crash that never completed. BoomBustBlog subscribers should reference File Icon The Inevitability of Another Bank Crisis while non-subscribers should see Is Another Banking Crisis Inevitable? as well as The True Cause Of The 2008 Market Crash Looks Like Its About To Rear Its Ugly Head Again, With A Vengeance.

    Spreads on these contracts are tradable through my broker but liquidity on SPY options is palapable, so let’s keep it simple and just buy naked puts, even after this market selloff.

    To Achieve This End, We Are Illustrating 2 Strategies For Subscribers: Gamma and Vega play

    A gamma play attempts to benefit from a quick and violent move. Short term expiries are favoured. As the break of the trendline is fresh, we have to bet on a quick move, so the options to most fit to employ are…


    All subscribers are welcome to download this full document file icon This is the introductory post to a series of trade setups for European Bank at Risk, complete with sample trade setups. Professional and institutional subscribers can access additional volatility strategies over the next 72 hours as well as a more indepth view of the new faux pax we discovered in our Bank Run At Risk subject. Basically, they’re replicating Lehman Brothers more now than ever. Now, that’s not a good idea, is it?

    The macro/fundamental outlook as Reggie sees it:

    1. The Mechanics Behind Setting Up A Potential European Bank Run Trade and European Bank Run Trading Supplement
    2. What Happens When That Juggler Gets Clumsy?
    3. Let’s Walk The Path Of A Potential Pan-European Bank Run, Then Construct Trades To Profit From Such
    4. Greece Is Fulfilling Our Predictions Of Default Precisely As Predicted This Time Last Year
    5. The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!
    6. The Fuel Behind Institutional “Runs on the Bank” Burns Through Europe, Lehman-Style!
    7. Multiple Botched and Mismanaged Stress Test Have Created The Makings Of A Pan-European Bank Run
    8. Observations Of French Markets From A Trader’s Perspective
    9. On Your Mark, Get Set, (Bank) Run! The D…

    Update as written by Eurocalypse:

    game over, everything sold off, gold soaring… system is imploding

    USSR 1989, EURO 2012, and i think we might well add US & Japan to the list as well.

    even though in the short term time frame, i think if tomorrow CAC sells off a bit more (BNP as well) it makes sense to take partial profits (selling options or delta hedge), as its 2010 lows was the target and were oversold in daily.

    seems to be big govt intervention now. weve seen BOJ on the ccy markets. ZH headlines about cancelling auctions in Italy, short selling might be soon suspended etc… caution there advised.

    on the other hand SP has way more to go and yday bounce @close was the last for a while i think, it was there to test the patience of bears…and buy those SP puts timely ! mkt hammered immediately tells it all i think

    Now it gets truly interesting. We’re in Pan-European, pandemic, bank run territory boys and girls, and I believe I may have caught the number bank run subject lying about thier position risk, ala Lehman and Bear. Yes, outright lying. I will give an update to Pro and Instititional subscribers when its ready. In the meantime, refresh your memories. Let’s Walk The Path Of A Potential Pan-European Bank Run, Then Construct Trades To Profit From Such

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    Investment research | Game Over For The European Ponzi Scheme? Monetizing Pan-European Sophisticated Ignorance Via US Options,.

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