First Arnie, Now T. Boone. Who Is Next?
There are certain things that you know will never happen and one of them was the death of the golfer Arnold Palmer who unfortunately died on September 25,2016. Arnie made the modern game of Golf. Jack Nicklaus may have been the better player, but it was the charismatic Palmer who set golf off in America in the early 1960’s and served as the King until his death more than 50 years later. T. Boone Pickens was another giant whose star shone in the oil business. He was born in Holdenville Oklahoma on May 22, 1928 to a father who worked in the oil business and a mother who ran the local Office of Price Administration. By age of twelve he was delivering newspapers and quickly expanded his business from 28 customers to 156. He would say later in life that this experience introduced him to the business practice of “expanding quickly by acquisition’.
When the oil boom ended in the late 1930’s his family moved to Amarillo. Pickens started out his university career at Texas A&M as a basketball player, but when he lost his scholarship he transferred to Oklahoma A & M which is now Oklahoma State University. He graduated in 1951 with a degree in Geology and took a job with Phillips Petroleum. He worked at Phillips for three years but decided to leave the business to become a wildcatter. He remained in the oil fields until he started his new company, Mesa Petroleum in 1954.
The rest is history. By 1981 Mesa had grown into one of the largest independent oil companies in the world. He used Mesa to launch many hostile takeovers that marked the rest of his career. He was famous for his folksy manner and his philanthropy as he was one of the men that began to donate 50% of their assets. He eventually gave Oklahoma State University $625 million dollars and the football stadium is named after him. He died on Wednesday September 11, 2019, and a little piece of the world went with him.
Ask Mr. Seifert
I am constantly asked questions about trading and how to exploit certain market factors to insure success. Each week I will answer one of those questions with a short paragraph which will cover the trading subject.
Question:
Why do I lose money when I buy cheap puts and calls and I am right on my market direction call?
Answer: I am asked this question all the time. You are sure that Goldman Sachs is going to report earnings and revenues that will top estimates, and the stock is going to rally. You decide that the best leverage is to buy out of the money calls that are cheap, only $0.50 cents and you think you will at least double your money. Right? Wrong. First, there are no cheap out of the money puts and calls. They are priced off the current At The Money Straddle and all market participants are aware of their value. Remember that for every option trade there must be a buyer or every seller and vice versa. So, when you buy that $0.20 delta, cheap call you must be right in two ways. The price must go in your direction and it must be greater than premium you paid for the option. The number comes out and you were right. GS rallies $15 but your $0.20 call goes down in value! You are shocked and blame everyone but yourself. Here is what you need to do. First, learn how the option model works. Second, use strategies that will protect you when your price direction is correct. I can assure you that it is not buying cheap calls. Stop playing a game that you can’t win and learn how to use options to enhance your winners, not take them away. Nothing in trading or investing is more frustrating than being right in the market only to lose your money!
The Wise Guy Report: The View From The Floor
Each week I talk about what I think the Wise Guys (floor traders) are up to with the Big Three commodity contracts: Gold (GC), Crude Oil (CL) and Long-Term Interest Rates (ZB). I also track the Market Edge (www.marketedge.com) ‘Market Posture’ which has a twenty-six year record of forecasting the intermediate-term direction of the stock market as measure by the DJIA with around 70% accuracy.
T-Notes
The party in T-Notes finally came to an end last week. Sharp selling that had been picking up over the last two-weeks seemed to have climaxed in a near term blow off on Friday as panic selling late in the session drove the price to two-month lows. This near term bottom looked like a good spot to lock in profits and I bought back my shorts at 128.60 near the close. Where we go from here will be interesting. Was it a one-week wonder or the start of a downtrend? Only the market knows that, and I doubt it will tell us. So, we need to wait and see!
Crude Oil
This week the market continued to churn in a narrow congestion range. It has been doing this for the past four months. It cannot take out near term lows as when price approaches that level it brings in buyers. On the other hand, when the longs try to become the strong hands the shorts put them in their place. I will continue to hold a long position as long as near term lows are not violated. A rally to highs would give me a perfect spot to take profit and then take a shot from the short side off the resistance.
Gold
Gold seems to be forming a congestion pattern. On Thursday news from Asia gave the market a sharp move to the upside overnight, however when the U.S. market opened, sellers became the strong hands and eventually pushed it lower. In fact, on Friday it closed on the low tick of the week. I am going to push my short position into the beginning of next week but if there is no follow through, I will take my profit, close my position and look for a new entry point.
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The Big Three Commodities Contracts
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The Market Edge Market Posture
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The Market Edge ‘Market Posture’, which has been Bullish since the week ending 09/13/2019 (DJIA 27219.52) remains Bullish at this time.
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