Loading ...A.—Buy 1/2 a share of Amazon for my kids college fund.
B.—add $6700 to your $800 and buy a 100 JNUG June 22nd 2018 $14 calls for $7500
C.—-For $800, buy 100 Jan19 2019 WFC $30 puts [8 bucks a copy]–in 2008 WFC went from $36 to $12
Today, with WFC–[Wells Fargo]-at $55, the same percentage drop would be about $17–a $130,000 payday on yer puts.
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WHY DB MATTERS=Historically, sharply rising rates have been a catalyst for a debt-related crisis. As long as everything remains within the expected ranges, the complicated “math” behind trillions of dollars worth of financial instruments function properly. It is when those boundaries are broken that things “go wrong” and quickly so.
People have forgotten that in 2008 a major U.S. financial firm crashed as its derivative based exposure “blew up.” No, I am not talking about Lehman Brothers, the poster-child of the financial crisis, I am talking about Bear Stearns.
In just 365-days, Bear Stearns stock went from $159 to $2, with about half of the loss occurring within a few weeks.
Bear Stearns was the warning shot for the financial markets in early 2008 that no one heeded. Within a couple of months, the markets dismissed Bear Stearns as a “non-event” and rallied to a higher level than prior to the event, and almost back to highs for the year.
Remember, there was “nothing to worry about” at the time, even though the Fed was increasing interest rates, as the “Goldilocks economy” could handle tighter monetary policy. Sure, housing had been slowing down, mortgage delinquencies were rising, along with credit card defaults, but there wasn’t much concern.