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A journey into Main Street economics.

Changes coming soon…

with one comment

It’s been a while since I made a post here, but we’ll be back in action in 2010 with more content than before. I’m hoping to get this moved to a new domain to give me more freedom in designing the site and adding additional content, so stay tuned.

In the meanwhile, let’s look back at a couple of old entries and see what the latest developments are:

Time To Get Short: “My opening strategy: Find 3X long ETF’s and buy OTM LEAP puts. I’ll average down every month that the Dow and S&P stay above current levels and roll into longer maturities if these levels are sustained through Q1 ‘10.”

Status: Right now, about break-even. I brought some Jan ’11 puts on FAS (3x Financials) the day after this post, October 15th, and the S&P closed at 1,096 on that day. S&P now stands at 1,110 as I write this….. but this is where the magic of this play comes in…

10/15: FAS @ 91.96…. Russell 1000 Financials @ 817.26

12/15: FAS @ 70.81 (-23%)…. Russell 1000 Financials @ 755.92 (-7.5%)

As long as markets continue to track sideways, this position is faring well. I’m maintaining delta despite losing time premium and waiting for the inevitable volatility spike in 2010 to increase my option’s value. I’m hoping to add to this position in Q1 ’10 and maybe expand to some Jan ’12 puts.

House Hearing on FHA Capital Reserves:

“Because of the inherent risk involved with exiting the market completely, I’d be in favor of the following changes to protect the taxpayer against risk:

1. Raising downpayment requirements from 3.5% to 5% for loan values above the local median home price.

2. Lowering the loan limits to 125% of the local median home price, up to $417,000 in high-cost areas.

3. Increasing UFMIP from 1.75% to 2% in a declining market.”

Status: Apparently the FHA is taking this issue somewhat seriously and is exploring raising UFMIP and the amount needed to close (not necessarily downpayment as some have reported). However, without #2 in the above list I’m not sure what these steps accomplish other than taking more reserve money from their alleged target market (low-income borrowers). This simply confirms that FHA loans are the new middle-class product. One thing I do expect is for higher downpayment and UFMIP to have a negative impact on home prices in 2010 and 2011 as home buyer leverage is reduced.

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Written by Myron

12/15/2009 at 2:05 PM

Posted in Uncategorized

One Response

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  1. I have very much enjoyed your past articles (particularly the analysis of hedging with case-shiller). I hope you’ll find time for some new posts soon.

    Jonathan

    08/03/2010 at 2:10 PM


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