As I sit here writing this, millions of idiot CNBC viewers (and Rahm Emanuel) think the economy has turned a corner. The market is up huge this week, mostly because Joe Arbitrary Citizen can’t read financial statements and the big institutional investors are all too happy to unload equities upon them.
Whacking away payroll overhead back to profitability is not Seismic economic news. 9-15% of the population with no income, deflating prices, tons of debt, and little savings is not rebuilding the house of cards with a more formidable foundation. It’s casting off the dead weight from the private sector onto the .gov’s books.
So, ranting aside, I’m up at this Godforsaken hour researching some put options and I see this Reuters news. Somebody…allegedly an unknown high-frequency trading outfit named Goldman Sachs…agrees with me that the economy is still situated somewhere between the “in the fetal position listening to Sarah McLachlan” stage and the “we’re all gonna die!” stage.
The similarity stops there, though. I’m just a lil’ Internet Marketing guy. I do ah-right, but apparently, I need to create some sort of options or derivative product based on keywords or something.
Over at Zerohedge, a commenter took the time to explain what seems like a fairly mundane Reuters release, but really gets to the core of why Goldman Sachs continues to thrive when others are sitting on their thumbs:
“An institutional buyer bought 120,000 puts at $95 strike and sold twice (240,000) puts at $82 strike, both for December. This is a bear put spread, that the investor thinks that the SPY will be below $95, but hopefully above $82 by December.
I think he paid $5.3 for the $95 puts and received $4 ($2 times twice the volume) for the $82 put sold. His cost is $1.3 (5.3-4) X 120,000 puts X 100 (1 option = 100 shares) = $15.6 Million
If SPY is higher than $82 by the 3rd week of December he then starts turning a profit at anything below $93.7 (95 - 1.3). If say SPY @ $85 in December profit would be $8.7 per option (93.7 - 85) X 12,000,000 shares (what 120,000 options represent) = $104.4 Million (not bad hehe) And then Goldman has the best 3Q earnings, again, after stealing $104.4 Million from John and Bob who watch CNBC and want to get in this nice stock market rally.”
Their financial engineering makes my Paid Search > CPA Arbitrage look pretty f’ing rinky-dink. Goldman’s willingness and ability to take risks while all the other financial houses are panicking is something we should appreciate, not demonize. This trade is probably only one of a few dozen spreads hedged into what the single most profitable entity in this environment thinks is going to happen for the rest of the year. If betting alongside Halliburton or Fannie Mae worked during the last bubble, it’s probably worth emulating Goldman as much as you can in this environment.
Anyways…not a search or internet marketing post, but I figured a few of you readers would appreciate a look into arbitrage and market intelligence of another sort. I know things may be tough, but now is not the time to stop thinking BIG!