Here is the four step process I use:

Dream it
See it
Do it
Repeat

Is anybody going to write about the real conversation that took place today in the meeting with Fannie (FNM) and Freddie (FRE)?? OK I will.

The Players:

Hank Paulson
Bennie Bernanke
Danny Mudd
Dick Syron
Jimmy Lockhart

They all stared at the ground.
Then they all looked up at each other.
Eventually all eyes fixed on Hank Paulson.
He stared forward intensely.
He turned a bit more red. Then he snickered. Then he laughed a bit and said:
“Well boys. As they say in Investment Banking…
HOW ARE WE GOING TO PUT LIPSTICK ON THIS PIG.”

From then on nothin’ but rip roarin’ laughter.

Oh Yeah. This one reads just like a good old mafia movie.

I wonder who will direct it?

Maybe I’ll be in it?

I’d like to play Hank.

Remember, Hank is the real brains of the operation.

He sold at the top.

Pig

In my previous post, I discussed being bullish on oil. Looking at the weekly chart, I’d use the recent low as a stop.

Today as the market slipped I noticed that option premiums were not expanding much.  However, I did notice that there were firmer bids for puts.  In a contract where the size is normally 30 contracts bid by 30 ask, I saw the bid ask size edging upward to maybe 60 x 60 or 100 x 100.  I did not see price appreciation.  I saw firmer bids.

This is a good sign and a step in the right direction.

The next step will be wider spreads.  I will start to see the ask on my puts move higher, but not the bid.  At some point, the price pressure downward in the underlying will cause volatility in the name to hit a Tipping Point.  If you have owned premium during times of extreme volatility, you know what happens after the tipping point.  Volatility expands out so quick that all you have is wishful thinking and hindsight and would-a, should-a could-a’s in your head.

Unless you are positioned correctly.

It is then that you can hit it big.

the tipping point