CNYBTCpicturesThere have been rumors that the Chinese Central Bank (PBoC - People's Bank of China) would limit or eliminate margin trading in Bitcoin. It is now official, sort of...

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Bitcoin has dropped precipitously, and as is usual, we have the cacophony of instant digital currency pundits cackling about as if they had a clue. This is the inaugural post for the re-opening of BoomBustBlog's proprietary research (fresh paid content will be added over the next 24 hrs) and as such I want to kick it off with an indepth analysis of my Twitter stream on Bitcoin from this week.

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Bloomberg ran a story earlier this week illustrating the human capital flight out of the Wall Street machine and into tech:

At elite universities, fewer MBA and finance candidates are willing to even consider a life of missed weddings, busted romances and deep-into-the-night deal negotiations. The percentage of Harvard Business School graduates entering investment banking, sales or trading dropped to 5 percent last year from 12 percent in 2006, while those entering technology almost tripled to 18 percent during that period.

At the University of Pennsylvania’s Wharton School, the percentage of MBAs entering investment banking dropped to 13.3 percent last year from 26 percent in 2006, while those entering tech more than doubled to 11.1 percent.

 Those of you who have been following finance from the Wall Street/Bay Street/Canary Wharf perspective realize that this is a cyclical occurence. Basically, Wall Street falls out of favor with MBA whiz kids every ten years of so. But!!!! This time is different. This time around, Wall Street, et. al. is about to succumb to the destructive forces of technology that transformed, revolutionized, disintermediated, gutted and absolutely reinvigorated the media, news and retail industries. 

That's right! The Internet Paradigm Shift has finally hit Global Finance... and it's going to hurt, and hurt a lot!

As many know, the I've poured my time and resources into a start-up by the name of UltraCoin. Many have been clamoring for white papers and details, and I have been purposely secretive about such. The reason? I needed to entrency protection from my competition - the money center banks. How did I do this? Well...

I patented the future of Global Finance!

patent to the Future of finance big

This video illustrates my presentation to both the mainstream and alternative media as I start my capital raising rounds from venture capitalists and strategic investos alike. Check it out!

We're looking for financial and human capital as we prepare to expand globally. Financial capital is self-explanatory. On the human capital side...
We're seeking a full stack contract developer. Must be proficient in: Java or C#; git, bzr, or similar. Must have a solid understanding of: race conditions and how to avoid them; scalable concurrency and data integrity architectural concepts (replication, sharding, etc.); software development processes and best practices. Proficiency in some CRUD technology (*SQL, NoSQL, etc.) as well as and some scripting language (Javascript, PHP, Python, etc.) is highly preferred. Experience with the Bitcoin protocol is a huge plus. Your first interview is to e-mail your resume along with a response to this challenge: https://gist.github.com/mbogosian/28815ae606c663c983c3

Must be willing to sign an NDA. You should be knowledgeable and competent, but we prefer grit to genius. Prima donnas need not apply.

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Cryptocurrencies have been on a tear over the last 2 years, both in terms of mindshare and returns. This is particularly true of the last year, in which Bitcoin (the de facto proxy for cryptocurrencies) has heaved from $13 to $950, making a pit stop at $1200 along the way. This 7,308% return looks to be outrageously delectable to many a speculator and has even caught the eye of an institutional fund or two. The problem is, and what many novice investors have a problem conceptualizing, that astute institutional “investment” funds actually have a problem dipping their toes in the wilding appreciative yet hyper-volatile world that is cryptocurrencies.

The reason is because “investment funds” as opposed to beta chasing “trading” or “hedge" funds seek a measured return on investment. The raw returns that you see spouted for Bitcoin and the various alt.coins are actually not what the smart institutional money is looking for.

Put another way, you tend to get what you pay for. Risk is the price of reward, with risk being defined as deviation from expected return. You nearly never get a reward without bearing some risk to attain said reward. On the flip side, you should always demand a commensurate reward for the risk that you take. Measuring reward without taking into consideration the risk paid to attain such reward is akin to jumping out of the top floor of a 50 story building to revel in the exhilaration of the drop without taking into consideration what happens when you reach ground level. All in all, it tends to end ugly.

My clients are told that if you assumed $1 of risk to reap $1 of reward, then you effectively made nothing from an economic, risk adjusted reward perspective. This is difficult for the layperson to understand since those who reaped said dollar are left holding one dollar of nominal returns which looks, smells and spends like a dollar. They don't seem to get it until that third or fourth go around when they get 30 cents back for the dollar they invested (versus an amount over a dollar, hence a negative return). You see, probabilistically, you can reap more than you sow over the short term simply out of dumb luck. Realistically, the law of averages will catch up to you and eventually (and most likely close to immediately) you will reap what you sow, or... you get what you pay for!

Similarly, if bitcoin investors/traders believed they are doing well when bitcoin jumps from $13 to $950, they may be mistaken. The reason? Bitcoin has a modified beta of roughly 673! That means that it is volatile. Very volatile! More volatile than practically any basket of currencies or stocks you can think of. This volatility means that in a short period of time it's just as easy to be on the losing side of the trade of this asset as it is to be on the winning side. So, you're lucky if you bought at $500 and rode it to $950, but you could have just as easily bought at $1,200 and rode it down to $500.

With these concepts in mind, you should always adjust for risk before attempting to measure reward. By doing that you will find that you can compare disparate assets, ventures and opportunities that have different reward propositions and even different horizons by measuring the risk (or the economic cost) of the investments and then adjusting the actual or expected reward desired to compensate for said risk commensurately.

Notice how, if one were to take this approach, one can see the different risk adjusted returns between the top two cryptocurrencies by market value. Bitcoin is the most popular, but Litecoin is the most profitable - even when fully adjusted for risk.

ridk reward

The UltraCoin team has run these calculations, among many other currencies, on every cryptocurrency with a market value over $1 million. In addition, these currencies have been aggregated to form what we have coined as the "UltraCoin Cryptocurrency Composite Index" - a basket of cryptocurrencies upon which our custom UltraCoin derivatives can trade, hedge, invest and speculate.

These indices and calculations (not to mention a bevy of other calculations to assist in trading) are part and parcel of the UltraCoin client.

CryptoCurrencyComposite Index

The graph below depicts the outrageous raw returns had by holders of bitcoin. It also denotes the extreme volatility experienced therein, particularly from late 2013 onward.CryptoCurrencyComposite Index graphIf one were to place a hurdle rate of required return to compensate for said volatility, the return curve will look somewhat different.CryptoCurrencyComposite Index graph - adjusted

As you can see, all that glitters is not necessarily gold! I will be pushing for the beta release of the UltraCoin client quite soon, quite possibly at the Berlin Bicoin conference. In the meantime, for those of you who have not had a chance to play with the software, here are a few screen shots.

currency transalation errortest 

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Brand spanking new research is available to all paying subscibers, with a super bonus to my professional and institutional subscribers. To excerpt from said pages...

Bitcoin cryptocurrency report page 1Bitcoin cryptocurrency report page 2

The professional and institutional versions of this report contain over 30 pages of data and analysis. These trades are for big boys (and girls), or at least those who can think like big boys (and girls). It is my intent to have traders, investors, companies and speculators use our Zero Trust Digital Contracts often, and knowledge of opportunities such as these do a lot to foster such use. Click here to subscribe.

Paying subscribers, download here:

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This is a guest post from Marcus Holland. I don't endorse nor necessarily agree with the opinion and research expressed herein, and it is supplied as an OpEd piece only.

_______________________________________

Apple Stock (NYSE:AAPL) is trading slightly lower despite news that the company colluded with five major U.S. publishers to drive up the prices of e-books in the months ahead of the technology company entering the market in 2010.  Option volatility in the wake of this news, has declined slightly and sentiment surrounding the company has remained strong.

In a civil antitrust lawsuit, the Department of Justice claimed that Apple agreed with the 5 publishers in January 2010 to allow them to increase prices for best sellers and new releases in response to publisher Amazon.com $9.99 price point for those books on Amazon.com Inc.

The judge will likely schedule a hearing on a request by the Justice Department for injunctive relief, which could include requirements that Apple not enter into another agency agreement to sell e-books for a two-year period.

aapl stock range

Despite the blow to Apple the stock technically remains sound after recently testing support near 390 per share.  Resistance on the stock is seen near the 50-day moving average near 433.  Momentum on the stock is gaining traction as the MACD has recently generated a buy signal.  This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread.  The RSI (relative strength index) is printing in the middle of the neutral range near 50, well below the overbought levels of 70 and and above the oversold levels of 30.

aapl stock volatility

Implied volatility on AAPL edged higher, prior to the release of the decision and ahead of earnings in the coming weeks.  The recent lows near 25% represent an excellent opportunity to purchase volatility, while levels near 45% reflect a robust place to sell volatility.  At the current levels near 30%, options traders who are bullish on the stock could use a risk reversal and use the skew on the puts to benefit from the structure.  The structure mitigates the effect of implied volatility on a directional play.

In a risk reversal the investor will purchase a call and use the proceeds of a sold put to finance the trade.  A trade that would allow an investor to earn theta is an August 450-390 risk reversal in which the investor collect 10s cents by purchasing the 450 call for $5.20 and selling the 390 put for $5.30.  By using recent support at $390, and investor has a good spot to purchase the stock if Apple’s stock turns lower.

Comments from Reggie on the fundamental side...

The Apple Profit Engine Has Stalled & Is Rolling Downhill

Apple is facing a shart decline in the margins of its top two value drivers. May I also add that these two value drivers are 83% of Apple's revenues and an even greater portion of its profits. Such a drastic concentration in only two products who have reached their zenith is not a good thing!

Click the graphic once to view, twice to enlarge to printer quality...

Reggie Middletonss Ultimate Apple Value Infographic

Apple's Competition Is The Greatest It Has EVER Been!

Apple's competition is the greatest it has ever been, and features companies who are literally at the top of their game. We are talking a lot of companies, and at the top of a very difficiult game as well. Reference What Sell Side Wall Street Doesn't Understand About Apple - It's Not The Leader Of The Post PC World!!!

Apple is Materially & Quickly Losing Global Market Share! Clear Indicators Of Permanent Downward Moves In Its Peer Group

Apple is rapidly losing global market share over and the trend is worsening. This has ALWAYS signaled the beginning of the end for its peers. Reference Is Tim Cook Cooked? Market Share vs Profit Margin, part 2 - Follow What I Do, Not What I Say!

For those who don't subscribe and/or haven't already seen it, here is the video that tells (nearly) all about Apple, from beginning (Q3 2010) to end.

Of course, there is a point at which Apple is a good buy. After all, they have a lot going for them. The question du jour is, exactly what is that point? I refer my subscribers to the research documents below for the answers... 

Subscribers, download the Q3 2013 valuation reports (click here to subscribe).

The update from two months ago is also of value for those who haven't read it. It turns out that it was quite prescient!

  1. File Icon Apple 1Q2013 update - Pro & Institutional
    (Technology)
  2. File Icon Apple 1Q2013 update - Retail
    (Technology)

 

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Here are the most popular articles on BoomBustBlog over the last 364 days as we close out the 2012 year. As those who have been reading my work and following for the last 6 years know, I tend to call out trends early relative to the the pop pundits and sell side analysts. Unfortunately, these days, relatively early means before markets collapse or companies utterly dominate their industries.  Without further adieu... 

The Biggest Threat To The 2012 Economy Is??? Not What Wall Street Is Telling You...

image004

Last January, while oil price shocks, Israeli military tensions and beef with Iran dominated the headlines, I turned my focus on the single most overrated economy in the developed world - Germany! While not poised for utter collapse like you know who, many portfolios, bank balance sheets, insurance company actuarial analyses, etc. assumed this country can bailout out its own profligate banks, insolvent peripheral EU countries, and itself as its economy enters recession surrounded by trading partners who also are re-entering a recession (which they truly never left). To say the least, somebody is likely to be proven to be severely mistaken.

 

How Inferior American Education Caused The Credit/Real Estate/Sovereign Debt Bubbles and Why It's Preventing True Recovery

This is a lengthy, highly provocative article illustrating in explicit detail my thoughts on how America's inferior education system made the Great Recession not only a foregone conclusion of indoctrinated GroupThink, but prevents a true recovery from recovery due to the abject fear of price clearing. You may need to put your thinking caps on and exercise some patience and restraint with this one. I am going to follow it up with an explicit example of said groupthink by going against the conventional grain (yet again) and pointing out what many in the mainstream consider to be the most likely threat to economic prosperity in 2012 (and no, Iran is not even in the running on this one). I blame indoctrinated GroupThink for the inability of Wall Street to see the excessive coniferous expanse due to tree bark blindness! Until the next post, though...

The Ugly Truth About The Greek Situation That's Too Difficult Broadcast Through Mainstream Media

A clear example of how simple math on a web-based spreadsheet unequivocally demonstrated that Greece HAD TO DEFAULT in 2012, and said default was arithmetically obvious as far back as 2010! 6th grade math, made easy (for everybody outside of the EC!).

 

Trading Physical Gold: Is Gold In A Bubble?

 

gbi-_gold_bullion_international

This is the 4th installment (of 5) of my interview of the CEO of GBI (Gold Bullion International), a small firm located on Wall Street that allows investors (retail & institutional) to actually buy, sell, trade and store physical gold in the investor's own name. The previous installments (listed below) feature some very tough questions. BoomBustBlog interviews are not pushovers or advertisements. You must be able to hold your own.

Bernanke's Lying Through His Teeth and Not A Single Pundit/Analyst/Banker Has Called Him On It!!!

As the Fed Chairman continues to bedazzle them with the Bullsh1t, I point out a multitude of nonsensical statements culminating with the obvious, another concerted bank bailout at the expense of Joe Sixpack. The video (published shortly after the story was penned) tells the story with pictures instead of prose...

Apple's iPad Is Losing Market Share And Profit Margin As Apple Hits All Time High

Oh, this one may not have been the most well-liked, but it was damn sure well viewed. I literally had thousands of comments knocking the analysis until it proved absolutely correct, then all that can be heard was crickets.... Let's not forget the follow-up posts a quarter or so later...

 Right On Time, My Prediction Of Apple Margin Compression 8 Quarters From My CNBC Warning Landed Right On The Money!

Deconstructing The Most Hated Trade Of The Decade, The 375% BoomBustBlog Apple Call!! 

... and going into detail with Deconstructing The Most Accurate Apple Analysis Ever Made - Share Price, Market Share, Strategy and All

appl copy

The Final Facebook Forensic IPO Analysis: the Good, the Bad & the Ugly

Illustrating the farce that was the most anticipated IPO in the history of the US equity markets, the Facebook story was told well in advance on BoomBustBlog, actually over a year in advance. I warned that this company's shares were drastically overpriced while it was still trading as a private company on websites over the Internet. Through all of the froth and broth brought out by the highest paid, high pressure salesmen in the world (sell side bankers), the stock IPO'd at $38, rose to forty something that day, then fell to just over $17, to settle at around $27 or so today. Here is the analysis, released in large part to the public.

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Below is a contributions from BoomBustBlogger Michael Holland. As I have received several inquiries into trading practices from the less experienced on this site, I thought the following piece may be of interest to some. Mr.  Holland's only affiliation to BoomBustBlog is that of a reader and follower. With that in mind, please read on....


 

CFD trading and options trading compared

CFDs and options trading are two of the most popular financial derivatives and although there are many similarities between them, there are also vital differences.

Derivates and leveraged

Both are derivatives, i.e. their values are derived from the value of some underlying asset – whether this be a share, commodity or currency. Both are also leveraged investment instruments, which means the trader can control a much larger amount of money than he or she has available to trade with.

Premiums

An option provides its owners with the opportunity, but not the obligation, to buy the underlying asset at the strike price (an agreed price) on a specific future date (the expiration date). To acquire a call or put option a trader has to pay an options premium – which will be forfeited if the underlying asset fails to reach the strike price on the expiration date.  

A CFD on the other hand is a more direct investment in the underlying asset. It has no expiry date and unlike with call or put options there is no costs involved accept for the CFD spread and finance charges on the open (long) position.

Profit/loss comparison

Take for example the shares of company ABC, currently trading at $100 per share. A trader who believes that these shares will gain in value over the next 3 months could either buy CFDs on e.g. 100 shares or buy 1 contract of call options representing 100 shares. The risk/reward profiles of the two trades are set out below in Fig. 10.29(a) and 10.29(b).

Fig. 10.29(a) - CFD

Fig. 10.29(b) - Option

What immediately becomes clear is that:

  1. The CFD position has unlimited risk to the downside. With the options position on the other hand, the maximum risk is limited to the amount that was paid for the options.
  2. If the price of ABC shares remains completely stagnant, the CFD trader will only incur a small cost (the CFD spread and possibly finance charges), while the options trader would lose the premiums he/she paid for the options at the start of the trade.
  3. The maximum profit of the CFD trade for a given price increase in ABC shares is somewhat higher than that of the call options. This is a direct result of the options trader having had to pay a premium for his or her options.
  4. The options position only becomes profitable if the underlying asset increases with an amount that exceeds the premium. In this case the breakeven point is just over $104. The CFD position starts to make a profit as soon as the (relatively small) spread has been recovered.

Anyone who is 100% sure that the price of the underlying asset is going to increase would therefore be better off choosing the CFD trade. Unfortunately traders very seldom operate in a world where anything is 100% certain. If there is any significant risk of a price decline, the trader would therefore be better off buying call options, because in that case the downward risk is limited to the options premium.

It also has to be said that options are very flexible trading assets. A trader can benefit from both price increases (call options) and price decrease (put options) and these can be combined in innovative ways to create unique risk profiles which are simply not possible with CFDs alone.

Options trades can also be used to hedge CFD trades. More about that in a later discussion.

Marcus Holland is editor of the website - FinancialTrading.com.

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FB Sep 21 12 18 puts

A couple of weeks ago after Facebook reported, I posted Hey Muppets, Only Another 100% Climb In Share Price To Go Before You Break Even With MS/GS/FB Investment Advice. You see, I warned about FB a half of a year before the IPO (reference the FB IPO Analysis & Valuation Note - update with per share valuation released exactly 5 months ago on 05/21/2012 (click here to subscribe)) stating that this thing was coming to market at multiples of a realistic valuation. So, what did Facebook's bankers do? They raised the offering price even more. Makes sense doesn't it?

Well, it makes more sense than the lock-up of hundreds of millions of shares ending, flooding the market with excess supply and the price of the stock.... increases!!!

Well, there may be a logical reason for this. By now, the more astute early investors in Facebook either read my analysis or somehow have come up with similar conclusions independently. That being the case, these guys had massive unrealized capital gains and a strong incentive to preserve them. Thus, they did what every hedge fund should do but what so little ever seem to do. What is that you ask? They hedged. I would assume that as soon as FB shares became available for short and/or puts started trading, these guys competed with me to get short in order to lock in whatever gains they still had left. That being the case, once the lock-up period expired, and actual sales occurred it was offset (and possibly then some) by the supportive buying created by the short position covering.

Of course, this is just a theory, but its a plausible one. Only time will tell if it holds water, for if the upward price pressure was cause by short covering, it will be over by next week and we should see a marginal decline.

FB Sep 21 12 18 puts

 
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Now that the weakness in Apple is apparent to all, and not just BoomBustBlog subscribers.... AAPL priced relative to the SPY... looking for this 4 year trend to break for the aapl story to be over as a market out-performer.

AAPL relative weekly rising wedge

My next post on this topic will answer the obvious quetion, "Is it now time to short Apple?" - as I release the content from or updated Apple model. This will be some very, very good stuff and well worth the subscription rate.

Unique, Indpendent and Accurate Apple Research

 

 

 

 

 

 

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