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Post by jeffi on Feb 17, 2013 8:22:25 GMT -8
WHOA! Intense preoccupation with a narrow subject, one-sided verbosity, restricted prosody, and physical clumsiness are typical of the condition, but are not required for diagnosis.My guess: anyone with over 100 posts here has this problem. +1
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Post by jeffi on Feb 17, 2013 8:32:38 GMT -8
Funny thing is, since market makers hedge, they have little incentive to manipulate price at expiration as they are hedged and therefore neutral to price. Wrong. GAMMA effects -- which explode into OE -- require rebalancing to get back to delta-neutral, which you should know since it's the science behind the pin. I did spell this out in my linked post, using the most literal language possible, avoiding behavioral finance analogies for any readers with Asperger's among us. I'm learning here as we go. I admitted to over simplifying the impact on price because the generalizations are easier to understand and I believe largely correct. Anyway, the Gamma risks can be hedged away as well. Therefore, market makers can if they so chose be neutral to price at expiration. Gamma Neutral Hedging - Definition Gamma Neutral Hedging is the construction of options trading positions that are hedged such that the total gamma value of the position is zero or near zero, resulting in the delta value of the positions remaining stagnant no matter how strongly the underlying stock moves. Gamma Neutral Hedging - Introduction The problem with delta neutral hedging is that even though it prevents the position from reacting to small changes in the underlying stock, it is still prone to sudden big moves which can take option traders off guard with no time to dynamically rebalance the position at all. This is where Gamma Neutral hedging comes in. By hedging an options trading position to Gamma Neutral, the position's delta value is completely frozen and when used in conjunction with a delta neutral position, the position's delta value stays at 0 no matter how widely the underlying stock moves, thereby keeping the value of the position completely stagnant. Such a position is known as a Delta Neutral Gamma Neutral Position. www.optiontradingpedia.com/gamma_neutral_hedging.htm
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Post by qualitywte on Feb 17, 2013 9:15:54 GMT -8
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Post by qualitywte on Feb 17, 2013 9:29:27 GMT -8
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Post by lovemyipad on Feb 17, 2013 10:21:58 GMT -8
I'm learning here as we go. I admitted to over simplifying the impact on price because the generalizations are easier to understand and I believe largely correct. I have absolutely no problems with that. Which is why I take exception to instances where YOU have problems with others when they do the same.
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Mav
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Post by Mav on Feb 17, 2013 10:57:45 GMT -8
The bar is open! Extended hours at the bar! ;D I totally forgot that President's Day was a trading holiday. So we all get Monday off from trading, at least.
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Post by Red Shirted Ensign on Feb 17, 2013 11:00:53 GMT -8
The bar is open! Extended hours at the bar! ;D I totally forgot that President's Day was a trading holiday. So we all get Monday off from trading, at least. Oh, we'll still fret over the price of fruit in Germany tomorrow...
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Post by sponge on Feb 17, 2013 11:02:16 GMT -8
Funny thing is, since market makers hedge, they have little incentive to manipulate price at expiration as they are hedged and therefore neutral to price. Interestingly, since open option interest is transparent is should be relatively easy to be gamed and therefore less violent than if the information was opaque. The fact that a fund has to hedge their long shares to the tune of $14 billion in calls and $10 billion in puts, is evidence that they don't have faith the market will keep the price constant and rational. If you think Blackrock can dump 40 million shares and no one will follow them thereby creating a perfect storm of massive perceived manipulation, then your view of WS as a fair market is why so many try daytrading and options while getting burned short term. Selling by big funds may not be true manipulation but it triggers unnecessary selloffs or run ups when they also buy which generates billions in option trading.
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Post by Red Shirted Ensign on Feb 17, 2013 11:03:51 GMT -8
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Post by Deleted on Feb 17, 2013 11:05:02 GMT -8
Evil manipulation/ conspiracy theories: It boggles my mind that so many are obsessed with conspiracy and evil manipulation. Apple is the hardest to manipulate by market cap and therefore the best bet if one fears this kind of thing. In other words, if I was an evil hedge fund manager I would be more successful manipulating a stock that I could control, e.g., small caps that are lightly traded. In fact, the little guy can front run the big money on Apple and actually outperform him. In other words, the board has it backwards. The little guys have the advantage! Some on this board went off about a week ago regarding Blackrock's Apple position inferring some kind of evil conspiracy to manipulate. Totally without foundation. Clearly group think looking for a scapegoat to blame for AAPL's price drop rather than Apple's declining growth and currently falling profits. I guess it's human nature but I will continue to call out this kind of thinking as it serves no one and buries what otherwise can be learned from ones investing/ trading mistakes. Lastly, stop complaining about option pinning. Since open option interest is transparent you can game it, front run it, and profit from it. In other words you have the advantage! Bravo.. I've said it many times, when a trade goes bad I try to learn what it was that I needed to know, but didn't, in order to avoid the same mistake in the future. I knew the MMs hedged, but didn't understand the implications. Now I do, and I'll be using that knowledge to improve my investing. Thanks again.
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Post by sponge on Feb 17, 2013 11:07:39 GMT -8
WHOA! Intense preoccupation with a narrow subject, one-sided verbosity, restricted prosody, and physical clumsiness are typical of the condition, but are not required for diagnosis.My guess: anyone with over 100 posts here has this problem. No we just love to talk about Apple stock and the company. That is called a hobby that actually makes money not a mental condition.
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Post by Deleted on Feb 17, 2013 11:12:00 GMT -8
It shouldn't boggle the mind. People look to an unknown force as an explanation when they can't explain what they see. Closely linked is people's need to explain things with a singular tidy explanation. It's human nature. To attach a more extreme analogy it's similar to someone seeing something they can't explain in the physical world and using a supernatural force to explain it: e.g. It's a ghost, Gods will etc... Exquisite. Bravo. +1000
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Post by Deleted on Feb 17, 2013 11:17:35 GMT -8
Yes, never. Sorry, but I don't see anything in your post that specifically refutes my premise that the act of hedging an option impacts/ drives the common share price in one direction at the opening and driving price in the other direction at the closing of said option (all things being equal). I understand that it usually is not a one to one exchange (which was not the point). Perhaps because I'm not refuting it? Perhaps because I am completing your incomplete explanation of the science. Perhaps because in your zeal to argue with the masses supposedly suffering groupthink -- as if NO ONE besides yourself properly understands the science -- you continually fail to recognize when SOME people are saying the SAME thing as you versus something DIFFERENT. Uh Oh. Do I see large egos about to butt heads. I hope not, as I value both (and surely have an ego of my own). Let's let this one slide folks. The issue isn't important enough to go to the mattresses.
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Mav
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Post by Mav on Feb 17, 2013 11:21:08 GMT -8
iPad has a large ego?
Maybe a large capacity for patience.
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Post by jeffi on Feb 17, 2013 11:30:21 GMT -8
Funny thing is, since market makers hedge, they have little incentive to manipulate price at expiration as they are hedged and therefore neutral to price. Interestingly, since open option interest is transparent is should be relatively easy to be gamed and therefore less violent than if the information was opaque. The fact that a fund has to hedge their long shares to the tune of $14 billion in calls and $10 billion in puts, is evidence that they don't have faith the market will keep the price constant and rational. Sponge, that is not evidence of anything. You/ I have no idea what the are trying to achieve or why they have those positions as we do not have all of the information. Why would anyone other than the most novice have faith that the price would be constant and rational?
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Post by sponge on Feb 17, 2013 11:46:38 GMT -8
The fact that a fund has to hedge their long shares to the tune of $14 billion in calls and $10 billion in puts, is evidence that they don't have faith the market will keep the price constant and rational. Sponge, that is not evidence of anything. You/ I have no idea what the are trying to achieve or why they have those positions as we do not have all of the information. Why would anyone other than the most novice have faith that the price would be constant and rational? Look I make wild predictions simply because Apple is very volitale and highly traded. Most stocks don't move 15-20% in a span of 3 months. But since Apple does, a big fund can make billions more by taking advantage of these swings or actually help to speed them up. A hedge is insurance against losses. But the insurance company can make money on the losses themselves in this case. It is obvious that any fund who does not attempt to take advantage of these opportunities it is not well run. Blackrock is in the business of making profits. They did not get to manage 3.6 trillion in funds by simply picking the right company and holding the stock for years. They bought and sold the stocks along with options for insurance and extra profits. And so did every other big fund. Apple is one big cash cow for WS. Big swings are better for them. They make billions in both directions. I may be a minority, but I think Apple stock can still be moved in any direction by the big boys when they chose to do so. There is too much money to be made by helping to create these swings.
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Post by jeffi on Feb 17, 2013 11:49:00 GMT -8
iPad has a large ego? Maybe a large capacity for patience. Yes she definitely has a large capacity for patience. She also performs a thankless job that we all should be grateful. If you reread this weekends string between myself and LMI one will see evidence of ego on both our part. LMI as earned her right... Me, not so much.
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Post by Deleted on Feb 17, 2013 12:21:22 GMT -8
I'm convinced it is. It makes sense on so many levels, that it can't help but be correct. Apple sells hardware in order to sell software. By managements own statements, Apple is a software company. Selling the software, its own and that of 3rd party developers (who has more?), Apple enhances the experience on an expensive (low margin) device, using hardware and interface most everyone is familiar with. Just as important, Apple's customer base SPENDS MONEY ONLINE.
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Mav
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Post by Mav on Feb 17, 2013 12:29:18 GMT -8
Wait for A6 to be the baseline SoC. Maybe the A7.
Then IT'S ON.
Apple has a *cough* huge cache of processing power that's still untapped in certain markets and there's very little the competition can do about it if ever unleashed given the tremendous platforms already in existence. Living room gaming/apps is a market Apple could cut ahead of line (not to mention undercut) in mere weeks' time.
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Post by appledoc on Feb 17, 2013 14:02:50 GMT -8
Apple is one big cash cow for WS. Big swings are better for them. They make billions in both directions. I may be a minority, but I think Apple stock can still be moved in any direction by the big boys when they chose to do so. There is too much money to be made by helping to create these swings. Again, why bother trying to manipulate the largest market cap when you can do so with countless other stocks that trade <$10M in volume per day? AAPL trades that volume in the first second of trading each day.
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Post by rickag on Feb 17, 2013 14:52:34 GMT -8
Google may launch retail stores: reportSIAP Thought this interesting. Retail stores specializing in electronics aren't doing so well, other than Apple, so Google may enter the market. Microsoft felt the need, so now Google will show everyone how it should be done. They have the Chromebook and a phone so I would guess they will have to sell other products too, like maybe Samsung, HTC and Motorola phones. Maybe throw in a few computers from Dell, Lenovo and HP. This might work, but I see an epic fail before they turn a profit. Of course this would give more customer information to sell.
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JDSoCal
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Post by JDSoCal on Feb 17, 2013 15:23:21 GMT -8
Per... www.optiontradingpedia.com/market_makers.htm"Market Makers protect themselves from directional risks through "Hedging" and flexible use of synthetic positions. A Market Maker hedges his inventory through buying or selling additional stocks or stock options in order to achieve a position whereby stocks and options falls as much as the other rises in order to maintain the overall value of the account. This is what we call a "Delta-Neutral" position. A Market Maker's positioning strategy, especially in making markets for stock options, is extremely complex and requires to the second calculation and execution. It is because of this complexity in balancing all kinds of risks that some new Market Makers actually lose money to the market despite all the privileges of being a Market Maker." Here's a problem with your rather pompously propounded argument: Market makers can, but are not obligated to immediately hedge all of their positions. MM's do a shitload of naked writes, i.e., holding leveraged positions we'd call margin. MM's would much rather be using their equity to make money, instead of hedging, so they take some degree of risk to allocate the money elsewhere. Also, the hedging occurs over time, months and even years with LEAPS. But the single most concentrated volume of closing options is, of course, closest to expiry, and that's when the MM's (may or may not, depending where they want the price to be) dump the shares they bought to hedge the calls in the first place. This directional volume spike and price drop or gain leads to other MM's and institutional algos triggering (of course the MM's have algos for determining when other algos trigger), causing a cascade of sorts, i.e., more bang for their buck thanks to other market participants following the leader. Such "algo cascades" don't occur when a MM is slowly acquiring hedging shares over months or years, because the volume is magnitudes lower; algos are not linear, or there would be no need to use the hugely expensive, complicated formulas. Obviously a buy/sell algo treats someone buying 1M shares over 18 months differently than it does them dumping all 1M shares at 3:30PM on a Friday. The idea that they (algos, not actual people twirling mustaches and pulling levers) do not time this dump (or lack thereof) at least to some degree to affect price is ludicrous, as it is not illegal. So why the fuck wouldn't they? They are in this to make money. MM's don't sell options for charitable purposes. The price action is f-ing obvious to anyone who watches on a Friday, and the fact that pain so accurately predicts where the close will be cannot be ignored. A recent e-mail exchange with Travis Lewis: The leaking FUD part is obviously a separate issue for another thread.
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JDSoCal
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Aspiring oligarch
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Post by JDSoCal on Feb 17, 2013 15:57:26 GMT -8
Again, why bother trying to manipulate the largest market cap when you can do so with countless other stocks that trade <$10M in volume per day? AAPL trades that volume in the first second of trading each day. Because no other company has anywhere near the options volume that Apple does. MM's didn't single out Apple as some prime target for manipulation out of thin air, "muah ha ha, this looks like a great stock to fuck with (twirling mustache)." Options buyers trying to become the next Snipus created the situation. MM's are just responding to the phenomenon of having to sell massive amounts of AAPL options, rationally and legally. MM's can legally affect price (and option payoffs) by selling and buying shares, so why wouldn't they? Nobody has ever convincingly explained to me why MM's would not do something profitable that is rational, legal, and easy to do. What MM's do - providing liquidity while finding a way to make money doing so - is clearly a conflict of interest. But is there a better way?
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Post by jeffi on Feb 17, 2013 16:31:37 GMT -8
Per... www.optiontradingpedia.com/market_makers.htm"Market Makers protect themselves from directional risks through "Hedging" and flexible use of synthetic positions. A Market Maker hedges his inventory through buying or selling additional stocks or stock options in order to achieve a position whereby stocks and options falls as much as the other rises in order to maintain the overall value of the account. This is what we call a "Delta-Neutral" position. A Market Maker's positioning strategy, especially in making markets for stock options, is extremely complex and requires to the second calculation and execution. It is because of this complexity in balancing all kinds of risks that some new Market Makers actually lose money to the market despite all the privileges of being a Market Maker." Here's a problem with your rather pompously propounded argument: Market makers can, but are not obligated to immediately hedge all of their positions. MM's do a shitload of naked writes, i.e., holding leveraged positions we'd call margin. MM's would much rather be using their equity to make money, instead of hedging, so they take some degree of risk to allocate the money elsewhere. Also, the hedging occurs over time, months and even years with LEAPS. But the single most concentrated volume of closing options is, of course, closest to expiry, and that's when the MM's (may or may not, depending where they want the price to be) dump the shares they bought to hedge the calls in the first place. This directional volume spike and price drop or gain leads to other MM's and institutional algos triggering (of course the MM's have algos for determining when other algos trigger), causing a cascade of sorts, i.e., more bang for their buck thanks to other market participants following the leader. Such "algo cascades" don't occur when a MM is slowly acquiring hedging shares over months or years, because the volume is magnitudes lower; algos are not linear, or there would be no need to use the hugely expensive, complicated formulas. Obviously a buy/sell algo treats someone buying 1M shares over 18 months differently than it does them dumping all 1M shares at 3:30PM on a Friday. The idea that they (algos, not actual people twirling mustaches and pulling levers) do not time this dump (or lack thereof) at least to some degree to affect price is ludicrous, as it is not illegal. So why the fuck wouldn't they? They are in this to make money. MM's don't sell options for charitable purposes. The price action is f-ing obvious to anyone who watches on a Friday, and the fact that pain so accurately predicts where the close will be cannot be ignored. A recent e-mail exchange with Travis Lewis: The leaking FUD part is obviously a separate issue for another thread. 1. I did not write that. I posted it and correctly attributed it. 2. You state "MM's would much rather be using their equity to make money, instead of hedging, so they take some degree of risk to allocate the money elsewhere." Market makers lock in profits through their buy sell spread and by hedging. That is a profitable business. They don't need to take on further risk. How do you know that market makers would rather take more risk to make more profits? They can also take more risk and go belly up. I'm not saying that this does not occur. I am implying that you are exaggerating it and its impact. 3. Please provide a source to back up your claim that market makers leave massive positions unhedged for long periods of time. I think that would be the exception while you imply it would be the rule. 4. You further state... "The price action is f-ing obvious to anyone who watches on a Friday, and the fact that pain so accurately predicts where the close will be cannot be ignored." Nice prose. If its so predictable you must be getting rich by front running the action. Kudos to you. On the other hand, you sound bitter. Maybe, the pinning is occurring because unhedged retail positions are being unwound? But then, there would be no evil conspiracy. 5. I agree that FUD is employed to manipulate any and all stocks. This is unfortunate.
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Post by jeffi on Feb 17, 2013 16:40:52 GMT -8
Again, why bother trying to manipulate the largest market cap when you can do so with countless other stocks that trade <$10M in volume per day? AAPL trades that volume in the first second of trading each day. Because no other company has anywhere near the options volume that Apple does. MM's didn't single out Apple as some prime target for manipulation out of thin air, "muah ha ha, this looks like a great stock to fuck with (twirling mustache)." Options buyers trying to become the next Snipus created the situation. MM's are just responding to the phenomenon of having to sell massive amounts of AAPL options, rationally and legally. MM's can legally affect price (and option payoffs) by selling and buying shares, so why wouldn't they? Nobody has ever convincingly explained to me why MM's would not do something profitable that is rational, legal, and easy to do. What MM's do - providing liquidity while finding a way to make money doing so - is clearly a conflict of interest. But is there a better way? Odd... You imply that high option trading volume makes it easier to manipulate a stock. I think it makes it harder because it requires more capital to impact the price. In other words, less liquidity makes it easier to impact price, not harder. I think you have it backwards. No offense.
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Post by sponge on Feb 17, 2013 17:28:35 GMT -8
Apple is one big cash cow for WS. Big swings are better for them. They make billions in both directions. I may be a minority, but I think Apple stock can still be moved in any direction by the big boys when they chose to do so. There is too much money to be made by helping to create these swings. Again, why bother trying to manipulate the largest market cap when you can do so with countless other stocks that trade <$10M in volume per day? AAPL trades that volume in the first second of trading each day. Because Apple is a solid company and any downturn is short term. You can afford to drop a stock down or run it up several times, because you know everyone recognizes it is a solid company that will keep growing. It is too risky with smaller companies that don't generate the cash. They are doing with goog and amzn right now. You watch. In a few months they will all decide to sell and the money will move into another stock like Apple. It is the WS casino that just keeps on giving.
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Post by lovemyipad on Feb 17, 2013 17:47:53 GMT -8
IMHO, AMZN's descent from parabolic blow-off top has commenced. GOOG soon...
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Post by qualitywte on Feb 17, 2013 17:55:42 GMT -8
IMHO, AMZN's descent from parabolic blow-off top has commenced. GOOG soon... Maybe bear put spreads would be appropriate about now?
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JDSoCal
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Post by JDSoCal on Feb 17, 2013 19:14:33 GMT -8
Odd... You imply that high option trading volume makes it easier to manipulate a stock. I implied no such thing. A high volume of options gives the MM's more incentive to manipulate a stock price. They don't choose to write options; they have to. So they react accordingly, in a rational, profitable, legal way. Otherwise, what is the great "privilege" of being a market maker? Those sexy "Evil Overlord" business cards they can hand out to chicks in bars? 1. I did not write that. I posted it and correctly attributed it. 2. You state "MM's would much rather be using their equity to make money, instead of hedging, so they take some degree of risk to allocate the money elsewhere." Market makers lock in profits through their buy sell spread and by hedging. That is a profitable business. They don't need to take on further risk. How do you know that market makers would rather take more risk to make more profits? They can also take more risk and go belly up. I'm not saying that this does not occur. I am implying that you are exaggerating it and its impact. 3. Please provide a source to back up your claim that market makers leave massive positions unhedged for long periods of time. I think that would be the exception while you imply it would be the rule. 4. You further state... "The price action is f-ing obvious to anyone who watches on a Friday, and the fact that pain so accurately predicts where the close will be cannot be ignored." Nice prose. If its so predictable you must be getting rich by front running the action. Kudos to you. On the other hand, you sound bitter. Maybe, the pinning is occurring because unhedged retail positions are being unwound? But then, there would be no evil conspiracy. 5. I agree that FUD is employed to manipulate any and all stocks. This is unfortunate. I sound bitter? Really? Why would I be? I gave up the (buying) options lottery quite some time ago. You're the one who came on this board and essentially compared all of us option pain adherents to those who believe in Santa Claus, in a rather insulting, condescending way. I could sit here and argue all week about why you are wrong. But the fact is, I really don't give a shit if you or anyone else believes in pain theory. The reality is, the "why" doesn't fucking matter. All that matters is that the presents are under the tree every December 25th - or every Friday afternoon for options writers. The "what" is that over 90% of options expire worthless over 90% of the time. If you want to pretend this is the result of accident, perfect market mechanics, manipulation, or unicorns farting pixie dust, it doesn't fucking matter for our purposes. All that matters is the what: 1) 90%+ of the time, one can determine where AAPL won't close on options expiry, and 2) that 9X% of the time AAPL will be higher on Monday and Tuesday than it will be on Wed-Fri. Travis Lewis ran his "Poor Man's Algo" accordingly, and returned over 100% YoY in a 12-month period where AAPL has essentially returned 0%. If your portfolio returned over 100% YoY, by all means, ignore this post. I'd suggest to anyone here to open a paper account and trade that PMA strategy for a year, and then compare it to your real portfolio's returns. I don't post here to be the smartest guy on the Internet. I am not concerned about my theories being "right" other than to make money, and I would hope that things I post tend to make other people money rather than losing it. I think it is vital to be open to new ideas, and drop the ones that don't work like a hot potato. But some people here definitely let their dogma run over their Karma. Bottom line: If you ignore weekly options expiry as a price guide - not to mention, ex-LEAPS expiry - regardless of why it happens, you are a fool.
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Post by Deleted on Feb 17, 2013 20:22:57 GMT -8
Not disputing good old Graham's theory, but wondering how that theory stacks up against a firm that has a habit of entering/creating, then dominating said markets, thereby generating new sources of revenue not included in previous revenue periods. Until 2000 Apple was a Mac company - one product category/one revenue stream. It then became a Mac and iPod company, thereafter adding digital music (iTMS) to its revenue sources - three product company/three revenue streams. Then along came the iPhone and the App Store, and then the iPad with its attendant app sales. The original iTMS had dropped the M from its name as Books, Movies, TV content and Mac software was added to its digital offerings. Eight product company/eight revenue streams. Now Apple seems poised to add yet another revenue source to its highly successful stable with some kind of TV product, and search, and advertising, nine (maybe 10, 11 or 12) product company/9, 10, 11 or 12 revenue streams. How does Graham's theory (which I don't have a problem with, if properly applied) address this scenario? Frankly, I don't think it does, because it looks at actual earnings from a single product company (can anyone say MSFT?), and not the rate of growth of said earnings, caused by entering/creating new revenue streams (isn't that why firms buy competitors or diversify into other industries?). Graham's theorem would certainly apply if Apple remained a one product company, like maybe ... Amazon, or Google. But it isn't. Taking into account Apple's apparent ability to lead industries in new directions time and time again, I don't think Graham applies at all.
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