Opihiman

Well, anyone here who has written for a living knows that if you send twenty writers to this kids home, you will get twenty different stories. Read two of those stories side by side and there is good probability you wouldn't even guess they address the same family. Just one further point: - The kid obviously doesn't know what he wants to do, though he seems clear 'claims adjuster' isn't on his wish list. There is tremendous value in taking downtime to discover oneself. Some kids backback across Europe, or around the world. Or sail a boat around the world. This kid is spending time with his grandfather. Who's to begrudge him that? I'd give a million bucks for a quiet year getting to know my grandfather. But some of you would rather see him 'adjusting' insurance claims. Frankly, I don't get the logic. I'll give you another example: read the history of John Steinbeck, one of America's greatest writers. He dropped out of college and lived under his parent's roof and did odd jobs for a decade before he published a book. Sometimes self discovery takes that long, and is better off for the wait. Anyway, this debate doesn't interest me terribly, so I'll leave it at that.

Just because someone is willing to pay you to do something, doesn't make it worthwhile, or even meritorious. By your logic this guy should take any job, whether its using guerilla marketing tactics to sell addictive pharmaceuticals for off-label uses, or marketing candy bars and soda pop to school lunch rooms. I would sleep under a bridge before taking some 'jobs,' money just isn't all that. Sometimes jobs comes with intangible costs that are hard for some to identify. I'm not in a position to cast judgment on this kid's decisions, and give him credit for leading his own life.

Welcome opihiman2 ... wassup? Parsad - I'm inclined to cease using 'Opihiman' and re-register at some future date under a new handle, if that is alright with you. I have multiple reasons ... not much point in outlining them. I was considering this before opihiman2 registered ... Anyway, having us both posting under such similar handles could be confusing, so I'm happy to retire this handle. Apologies for the administrative hassle.

He was an active participant on trading boards pre-2008 - I never got the impression he was a value guy. Just aggressively buying micro-caps during a bull market. Someone posted this quip from his Aug '08 letter. The link at the bottom notes the restructuring of his fund at the end of '08. Praetorian Capital Investments LLC Praetorian Offshore Investments Ltd. Performance Summary September 2008 Current Month Year-To-Date Performance Measures Time-weighted Rate of Return (Gross of Performance Allocation) -35.12% -58.55% S&P 5001 Rate of Return -9.21% -20.68% Exposure (as % of Equity, including the notional value of futures positions) Long 96.2% Short 0.0% Net Exposure 96.2% Holdings (as % of Equity, including the notional value of futures positions) Precious Metals Mining Equities 20.4% Base Metals Mining Equities 1.5% Mining Services Equities 41.5% Our performance this month was horrendous. Trading was down 1 percent and the rest of the loss was from large hedge funds liquidating positions that we also own. The enclosed Fund Performance letter has a great deal of information as to what happened to the portfolio in September and provides data regarding our core portfolio ... http://www.marketsmediaonline.com/news_details.htm?wP=1&wPI=1&cN=2837

Interesting question. I think the logic is very dangerous, and I'll use an illustration to show why. Follow me - it's important. For illustrative purposes I will use WCOM circa August 1999 trading in the $55-50 range. On Monday I sell a put at the the $50 strike for $1.00 On Tuesday I sell another put at the same strike for $1.25 By your logic Rabbit, the Tuesday sale offers greater 'margin of safety' because it offers greater protection against downside risk. This is not what Ben Graham taught. From Security Analysis (3rd ed. p. 45): Margin of safety on common stock exposure "should be represented either by the excess of calculated intrinsic value over the price paid, or else by the excess of expected earnings and dividends for a period of years above a normal interest rate." As stated, the OP's original question was about the mechanics of pure speculation, with some value-related terms casually sprinkled in. I'll just reiterate a simple point: unless an equity option position is anchored to some measured estimate of intrinsic value, it is, in essence, a purely speculative position. Speculation has its place, as long as one goes in with their eyes wide open.

Despite the condescending tone to which I've been subject, and against my better judgment, I'll make the point again in simple colors. Here is a simplified restatement of the OP's example: Jan. 2012 $20 Puts [ORCL est. current stock price: $22.0] Put Premium: $2.95 Net Cost "If Put":$17.05 Margin of Safety: 22.5% Note that margin of safety is referenced to an options strike price, the premium received, and ORCL's observed price in the market. Lots of Price, no Value. There is no stated or implied reference to intrinsic value of the underlying. Margin of Safety is a key, if not the key principle of value investing. When we see it bastardized in this way, we ought to point it out. I would assert that the greatest threat any investor faces is the threat of his own muddled thinking. Apparently from this BB article (link below) from Tuesday, muddled thinking around options is rife right now. What I saw in the original post were the queries of a retail options trader who had haphazardly glommed on some veneer of value investing. Whitney Tilson from the BB article: "Trading options is one of the all-time suckers’ bets, most experienced professionals lose money doing it. It’s virtually certain that inexperienced, individual retail investors will lose money doing this.” I was brusk with the OP - I suspect some here are reacting to my tone rather than to my message. I will just say that retail options investors receive deceptively positive results from many of their trades. This contributes to overconfidence, and oftentimes a closed mind. Overconfidence, a closed mind, and muddled thinking are rarely receptive to a coy response. http://www.bloomberg.com/apps/news?pid=20601109&sid=apikSovE33hQ&pos=13

That is a kind invitation, but I'll decline. I've made my points, and I'm pleased to see most people get it. As for the rest well, I'll leave it to Warren: "If it doesn't grab a person right away, I find that you can talk to him for years and show him records, and it doesn't make any difference. They just don't seem able to grasp the concept, simple as it is."

Consider that it wasn't too long ago where for every put you sold at-the-money in SHLD you collected enough premium to purchase two calls at-the-money. This gave you 100% upside while only taking risk of 50% downside. Moral of the story: never dismiss an asset class. Again ... we're thinking like a trader. If SHLD is 100% overvalued, only a trader could find upside in buying calls. That you missed my point (below) spoke volumes:

Looking for recommendations on how to best go about building a circle of competence in Insurance. Sure, read the Berkshire Hathaway reports, other annual reports (recommendations?) I like fat books on Industrial History -like Yergin's The Prize when it comes to oil, or Simmon's Twilight in the Desert. (Both great reads in the sector, btw.) Interested in similar tomes re: insurance. Outside of working for a few brokers, as an investor I've stayed completely away from the financials, so I'm starting largely from scratch.

Banking is one sector where I really have no point of reference, but am interested in building a circle of competence. I'm talking about commercial and retail lenders - not brokers. Outside of buying a small bank, how might one best go about learning all they can about the sector? A few books for recommended reading? The annual reports of a few select banks to read?

I'll put it another way. When one considers the margin of safety related to going long equities (shorting puts is a long equity position), one should reference intrinsic value of the underlying. But OP's question doesn't reference margin of safety to intrinsic value - only to an option's strike and premium. That is the usage and framework of a trader. It speaks of price, without reference to value. I never took issue with discussing options as a tool per se, as some appear to assume. Anyway, I'll reiterate my original comment, and apologize if I 'sounded' unduly harsh.

You've expressed the concerns and calculations of a trader Hugh. Here we try to think like business owners. Might I suggest you take this question to the options board at www.elitetrader.com - I believe you will be very happy with the multiple responses you get there. I'd be disappointed (and surprised) if this sort of query was entertained and encouraged at The Corner.

I think the rule you bumped into w/ Etrade is that brokers are not allowed to run IRAs as margin accounts. Because IRAs are distinctly American, the brokers typically run them exclusively as USD accounts. Thus if you were to buy CAD-denominated stocks, Etrade would have to lend you the CAD for the purchase. I could be wrong but I think that may be what is going on. Previously I had a similar issue re: managing an IRA with IB - at the time they only allowed one to hold USD assets in IRAs. Not sure if things have changed there ...

Interactive Brokers (IB) has already been mentioned on this thread. In an IB account you can hold any number of currencies - USD and CAD both ok. IB also offers direct access to stocks listed on the Toronto Stock Exchange.

MPauls, Thanks for posting the report - it reflects a lot of great work, and I appreciate you sharing. Pls forgive my brashness in making a couple minor requests on aesthetics: - On pp. 4-6 most of the numbers are presented with ".00" appended to the end. Perhaps the figures would be less cluttered and easier to read if all these numbers were simply reported in whole numbers? For example on page 5 there is Net Income Before Extra Items reported at 8.055.00, then only two lines down Net Income Before Preferred Dividends is reported as simply 8,055. I'd like to politely suggest that the second format is easier on the eyes, and ought to be used throughout these pages. - On the same pages all of the ratios have "%" appended to them. Again, perhaps this needlessly clutters the presentation given we know these are percentage figures? Again, great work. Perhaps it is just me, but I look at so many numbers and financials that sometimes I cringe when figures are unnecessarily cluttered. (Analysts commonly are so focused on getting the numbers right, they can forget about finer aesthetic points of presentation - we all do it.) Thanks again.