View Full Version : tricks to "get the economy going again"

02-07-2002, 10:01 AM
Suppose you are a vengeful - but beneficent - deity, and your job is to oversee a desert island with only two inhabitants. Usually you just harass them with monsoons and rogue waves, but one day you notice that their supply of dried coconut powder - their only product - appears to be dwindling, and you decide to do something about it.

All their coconut powder is stored in coconut halves at the bottom of a dark, dark cave in the middle of the island. They don't even know how many are in there, or whom they belong to. So to keep track, each time one or the other deposits a new half-shell of processed powder, he takes a stone from a pile at the cave entrance back to his lean-to, and sleeps with it under his pillow.

Given this arrangement, you have a couple options to pick from so far as how to increase their supply of coconut powder. They are,

1. The Government Spending Trick. To execute this trick, you wait until they are out on the beach collecting coconuts. Then, you sneak into their storage cave and steal all their powder. Then, right at high noon, when they are at their hungriest, you present them with the powder and say "Here, a gift from God to satisfy your hunger! Now you have not only what is stored back in the cave, but also this extra bounty!" Hopefully, they go for the trick, and greedily gobble up their entire savings right on the spot.

2. The Lower Interest Rates Trick. This trick is very easy. All you have to do is wait until they are asleep. Then, go to the mouth of the cave, grab a bunch of the "recording stones," and stealthfully slip them under their pillows with the rest. This way, when they wake up in the morning, it will look like they each have much more coconut powder in store than they actually do.

3. The Extend Unemployment Benefits Trick. This trick is a little harder. You have to sneak in when they're not looking, and take all the recording stones from under one inhabitant's pillow, and move them to under the other inhabitant's pillow. When they come back from the beach, they will realize that one person can claim the entire wealth of the island, and the other has none. Whatever bargain the first inhabitant comes up with just to get his original stones back, you can measure it as economic activity! (Note also, it generally works best if you take the stones away from the more industrious inhabitant, and give them to the one who wasn't really leaving any powder in the cave anyway, and had fewer stones to start. And don't worry, not only is he sure to stir up some kind of acticty trying to get his stones back, he also NEVER blames his neighbor for stealing his stones!)

4. The Targeted Tax Cuts Trick. Assume that, to stock up for future tricks, you ordinarily sneak into the cave each night and steal some coconut powder, and sneak into their lean-to's, and steal a correspnonding number of recording stones from under their pillows. The trick with this trick is to make sure you steal more stones from the inhabitant who has more stones. And let the inhabitant with less stones keep all of them. Thsi is just your friendly way of telling them that they should work less, and that the number of stones they have is in no way correlated to how productive they have been. Or, using variations on this, such as removing stones from the inhabitant with a long beard, and giving stones to the inhabitant with, say, a grass loincloth, you can trick them like dogs into performing a variety of useless but amusing activities:)

5. The Just Plain Cut Taxes Trick. This is the trickiest trick of all. To execute it, you don't even have to go onto the island. In fact, you will have to fight the temptation! All you have to do is tell them "Look, I'm not going to do anything. Whoever can process the most coconut powder, will get to go home with the most stones at the end of the day, and I promise not to interfere in any way." (But wait, isn't it written in the scripture that this alone, among all tricks, will somehow create inflation, by encouraging them to bring home too many recording stones?)

Okay, G-d, which do you pick?


02-07-2002, 03:19 PM
Wow,where do you get this stuff.Check out the volatilty on CPN 7.50 puts(March,April,July).Lots of meat and a great sale!

02-07-2002, 03:34 PM

02-07-2002, 06:02 PM
This reminds me of the story about the man who bought the newest, the greatest, high mileage car.

After listening to him boast for several days, his co-workers came up with a plan.

Every day for several months, his 'friends' snuck out to the car during work and added fuel.

At the end of the third week the guy was ecstatic. "I'm getting over 100 miles per gallon" he could not believe it. Off he went dancing in the halls.

At the end of the third month they reversed and removed some fuel. As the mileage started to go down, he became inconsolable. "The mileage has gone down from 100+ to under 10" he cried to everyone who would listen.

He started taking the car to anyone who would look at it, attempting to discover what had gone wrong. Of course, even the best mechanics were unable to detect a problem.

At the end of six months, they 'allowed' the car to determine it's true mileage.

But they never had to listen to their 'friend' boast about the mileage again. And they never told him what they had done.

This is a true story,there is no point to this story, just thought I'd tell it.

02-07-2002, 11:29 PM
How about if you bring in two women to make sure the men don't work for awhile and then bring in two men from another island with fewer resources. These guys are told they only have 1 month there because after that the guys will be sick of the women and chase them off the island and reclaim their jobs after everyone leaves!

02-08-2002, 02:32 PM
So you end up long the April puts at the debit

or long the April calls at the debit...why?

02-08-2002, 02:36 PM

02-08-2002, 03:31 PM
Which strike? This trade is a loser.Alot of things have to happen for it to be profitable.

One is that the volatility must remain or go above present levels...very doubtful.

02-08-2002, 03:39 PM
I don't really do options. But I do think selling the Feb 7.50 puts was a pos-ev trade. And you can hedge the delta and the vega, and inverse hedge the gamma or something, using long April 7.50's, which you want to be long anyway, so you save a commission.

So far, it is a good trade, it has shown a profit, so one of those "things" must have happened:)


02-08-2002, 05:12 PM
Aren't you saying sell the Febs and buy the Aprils

1 to 1? Well that spread closed at 1.25. That spread will collapse if we go up,sideways..or if we move down slowly.You want to be long the April 7.50 puts at 1.25 or the 7.50 calls at 1.25? Why?

It doesnt make sense to put on this position and

then hedge it.What hedge will you use.

02-09-2002, 12:03 PM

I was hoping for a response to my inquiry.I am

off the boards for two weeks of fishing and some poker playing.Just sell the friggin July 5.00

puts for a buck or better.Don't hedge.Yes you will lose if we collapse to zero..don't sell hundreds,how about 50? If we are below 5 in July

you can sell some of the deferred 5 calls.If you must you can short some stock,but I would be careful about that.This is not rocket science.I have said this before.The problem with many traders is they want to make

money with no risk.Forget,theta,beta.Use some common sense.And I repeat selling Feb 7.50 and

buying the April is a big mistake.Just sell the Jull 5.00 and take the buck.

02-09-2002, 01:04 PM

02-09-2002, 01:46 PM
Well I will be interested to see your exit strategy or why you expect this trade to make money.Where is it going and why?And what you will do if you are wrong...

Sell the March 7.50's......IF THERE IS STILL MEAT

ON THEM!!!!!!