Wang’s Happy Trading

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1. optiondragon
   Posted May 3, 2008 at 11:14 am | Permalink

   optiondragon
   Posted May 3, 2008 at 11:38 am | Permalink (Edit)
   http://www.bloomberg.com/apps/news?pid=email_en&refer=&sid=a1n3aMawOUJ 8

   Flight of the Black Swan
   Nassim Taleb’s 2007 best-seller on improbable events looks prescient to a Wall Street battered by subprime. Now even NASA wants to pick the former trader’s brain for tips on randomness.

   By Stephanie Baker-Said Bloomberg Markets May 2008

   On a freezing day in March 2007, Nassim Taleb walked into a conference room at Morgan Stanley’s Manhattan offices on 47th Street and Broadway to address a group of the firm’s risk managers. His message: Your models don’t work.

   Using a whiteboard to scribble out his calculations, Taleb, now 48, began one of his rants, this time against stress tests–Wall Street lingo for examining how a market rout will play out. Stress tests are inherently risky because they ignore rare but potentially devastating events, Taleb said.

   “Past shortfall doesn’t predict future shortfall,” the options trader turned best-selling author recalls telling the assembled group of about 40. The risk managers, part of a tribe of mathematical model makers known in the finance world as quants, stared back at him blankly, and a debate ensued, according to people who were there.

   Only six months later, Morgan Stanley experienced its own rout. The world’s second-biggest mergers adviser announced in December that it had written down its subprime-related holdings by $9.4 billion after the firm’s traders misjudged how fast and far prices of the debt would fall. Their risk management had failed.

   The Lebanese-born Taleb, a balding man who labels himself a philosopher of randomness, has an eerie knack for timing things right. His most recent book, The Black Swan: The Impact of the Highly Improbable (Random House), came out in May 2007, just months before the subprime fiasco rocked global markets and led banks to announce at least $188 billion worth of writedowns. The book’s message offered something of a preview of the crisis: that we’re all blind to rare events and routinely fool our-selves into believing we can predict risks and rewards.

   Taleb argues that history is littered with high-impact rare events, known in quantspeak as fat tails, for their shape when plotted on a bell curve. He cites the Latin American debt crisis of 1982, the collapse of hedge fund firm Long-Term Capital Management LP in 1998 and the crash of the U.S. stock market in October 1987, to name a few.

   As the founder and manager of New York-based Empirica LLC, a hedge fund firm he ran for six years until he closed it in 2004, Taleb built an investment strat­egy based on options trading. It was designed to bulletproof investors against blowups while profiting from rare events. His 20-year trading career has been marked by jackpots (like when he lucked out in trading options during the stock market crash of 1987) followed by long dry spells. “If you lose money on a steady basis and then make money in a lumpy way, people think you’re crazy,” he says.

   While Taleb has stepped back from everyday trading, he remains an adviser to Santa Monica, California-based hedge fund firm Universa Investments LP. It opened its doors last year under the direction of Mark Spitznagel, 36, Taleb’s former trading partner at Empirica. Universa has a so-called Black Swan Protection Protocol managed by Pallop Angsupun, a former Taleb student who’s hedging roughly $1 billion of client investments against certain events that can cause market declines. The firm has another $300 million pot betting on large positive jumps in individual stocks and is readying a similar, third fund several times that size, a person familiar with the funds says.

   “Nassim and I share this genetic flaw,” says Spitznagel, a one- time Chicago pit trader who was a student of Taleb’s at New York University. “We’re not interested in the small frequent payouts. We want the infrequent huge payouts.”

   Taleb has gone from being a leading Wall Street heretic–he rails against economists and quantitative model makers–to a mini institution whose appeal reaches well beyond the realm of finance.

   More than 370,000 copies of The Black Swan are in print in the U.S. and the U.K. It spent 17 weeks on the New York Times best- seller list and is being translated into 27 languages. It even outranks Alan Green­span’s memoirs, The Age of Turbulence: Adventures in a New World (Penguin, 2007), among 2007 best-sellers on Amazon.com. The success of The Black Swan has led to a $4 million advance for the English-language rights to a follow-up book, according to a person familiar with the deal. It’s tentatively titled Tinkering and will examine how to live in a world we don’t understand.

   Taleb now charges more than $60,000 for some of his lectures, according to the London Speaker Bureau, a firm that places business, political and motivational speakers. He warns audiences against believing worst-case scenarios and making so-called naked, or unhedged, bets on the future that could lead to disastrous losses.

   The message of The Black Swan–whose title describes a bird once thought not to exist, until it was found in Australia in the 17th century–has penetrated Wall Street trading rooms, says Aaron Brown, a risk manager at Greenwich, Connecticut-based AQR Capital Management LLC, which manages about $8.6 billion in hedge fund assets. “You can’t say you haven’t read it or you read it but you’re not going to do anything in response in a trading or risk management role,” says Brown,a former Morgan Stanley risk manager who calls Taleb a friend while disagreeing with him that banks’ risk models are useless.

   Now everybody wants to talk about “black swans,” those highly improbable events that can cause havoc. The National Aeronautics and Space Administration’s Langley Research Center in Hampton, Virginia, has invited Taleb to talk about how to identify technology black swans as it prepares to send humans back to the moon and beyond. The U.S. Fire Administration, part of the Department of Homeland Security, wants him to address 200 executive fire officers to talk about the probability distribution of forest fires. He’s given talks about risk models for the U.S. Department of Defense, where he’s a member of the Highlands Forum, a Pentagon-sponsored study group on risk.

   Taleb is no security expert nor does he claim any special knowledge of space technology. Instead, these groups want to hear him talk about how to apply his ideas on chance and decision making to their specific fields.

   One day last December, Taleb stood before 30 top executives from Société Générale SA, France’s second-biggest bank. The executives, including Chairman Daniel Bouton, had gathered at Prague’s five- star Hotel Aria, where each room is dedicated to a famous musician, for a conference organized by Paris-based business school ESCP-EAP.

   The proliferation of bank mergers has resulted in fewer banks and a greater concentration of risks, Taleb warned, according to a person who attended. The probability of a devastating banking loss has increased rather than decreased, he said. The response was muted, and attendees walked out with copies of The Black Swan, the person said.

   About six weeks later, SocGen revealed the biggest trading loss in banking history, announcing that it had lost 4.9 billion euros ($7.2 billion) and blaming 31-year-old trader Jerome Kerviel.

   Taleb’s fan club has grown far beyond the investment and research communities. When Tampa, Florida-based Odyssey Marine Exploration Inc. discovered a colonial-era shipwreck in the Atlantic Ocean last May with 17 tons of gold and silver coins valued at some $500 million, Greg Stemm, the company’s co-founder, happened to be reading Taleb’s book. Stemm decided to name the site “The Black Swan.” Soon after, the two met for champagne in Los Angeles and bonded over the role of randomness in life.

   Taleb has made enemies, too. In August, The American Statistician, the quarterly journal of the American Statistical Association, came out with a special Black Swan issue that published a series of critical reviews alongside an article by Taleb. “He characterizes statisticians as people who blindly assume things, and nothing could be further from the truth,” says Peter Westfall, the journal’s editor and a professor of information systems and quantitative sciences at Texas Tech University in Lubbock.

   Even his one-time colleagues disagree with him. Robert Engle, a Nobel laureate in economics who teaches at New York University’s Stern School of Business in Manhattan, says Taleb’s book ignores a mass of literature on rare events called extreme value theory, which is often used to assess risks in insurance as well as finance. “He’s reflecting an opinion that financial markets are sort of out of control,” Engle says. “I think a lot of mistakes are made, but I don’t think he helps us understand the mistakes.”

   Taleb’s book blends highbrow philosophical musings with quasi- self-help advice that appeals to our fascination with success and chance occurrences. While Stephen Covey’s The 7 Habits of Highly Effective People (Simon & Schuster, 1990) purports to give everyone a road map on how to become the next Bill Gates, Taleb reminds us that skills and hard work aren’t always enough. “Hard work plus luck is what gets you a jet instead of just a BMW,” he says over duck at a dim sum restaurant in London, where he’s conducting research with a colleague.

   It’s much the same message he delivers in more-formal settings. One day last June, Taleb gets up in front of about 40 people at Miller’s Academy, a West London lecture society, to talk about black swans. Surrounded by antiques and a fish tank stuffed with dead owls, he begins his trademark attack on Gaussian statistics, named after 19th-century German mathematician Carl Friedrich Gauss, who charted probabilities on a bell-shaped curve. In a bell curve, high-frequency events are represented at the top, or middle, and infrequent episodes are charted on the edge, or tail, of the curve. The tail is usually thin, reflecting rare, low- impact events.

   Gaussian statistics might work in casinos, but it can’t accurately help calculate stock market valuations, Taleb argues. “With stocks, we don’t know if we’re overpaying,” he tells the audience. “No self-respecting statistician in finance is using Gaussian statistics,” interjects Lord John Eatwell, an economist and president of Queens’ College at Cambridge University, who’s sitting in the back. “All models are Bayesian,” he says, referring to the theory derived from 18th-century British mathematician Thomas Bayes that allows for data to be constantly added to calculate probabilities.

   Taleb shoots back: “Bayesian is necessary but not sufficient.” Taleb, who sports a salt-and-pepper goatee and mustache and a ?60 black Swatch watch, is often quick to take offense. At a conference in Italy, a group of students told him he looked like Umberto Eco, the somewhat paunchy Italian philosopher and author of the novel The Name of the Rose. Taleb says he promptly went on a diet.

   For more than a decade, Taleb has been trying to transform himself from trader to philosopher. “By the age of 30, I was emotionally outside the world of finance,” he says.

   Surrounded by a collection of ancient sculpted Roman heads, Orthodox Christian icons and thousands of volumes spread throughout his suburban home north of Manhattan, Taleb has churned out a series of technical papers and books. His first mainstream book, Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets (W.W. Norton, 2001), which has 160,000 paperbacks in print in the U.S., was translated into 20 languages and turned him into a guru in some finance circles.

   Taleb has learned about uncertainty firsthand. Born into a prominent Greek Orthodox Christian family, he says he witnessed Lebanon’s transformation from heaven to hell when civil war erupted in 1975. At the time, he was a 15-year-old student at Beirut’s Grand Lycée Franco-Libanais, an elite French-speaking school that was damaged during the war. He listened to adults tell him that the conflict would soon end, only to watch it drag on for almost 17 years. His family’s home in Amioun, in northern Lebanon, was destroyed in 1982, when his grandfather, former Deputy Prime Minister Fouad Ghosn, was a member of parliament.

   Taleb left Lebanon to attend the University of Paris and then got his Master of Business Administration in 1983 from the Wharton School at the University of Pennsylvania, where he says he fell in love with options. An options contract allows but doesn’t oblige an investor to buy or sell a security or index at an agreed price at some future date.

   Two years later, he got his first lesson in financial uncertainty. After a brief stint as a trainee at Bankers Trust Corp., Taleb joined French bank Indosuez, now part of Crédit Agricole SA, as a currency options trader. On Sept. 22, 1985, France, Germany, Japan, the U.K. and the U.S. signed the Plaza Accord, an agreement to push down the value of the dollar to shore up the U.S. current account deficit. Taleb was sitting on currency options–which give investors the right to buy or sell a currency at a specified exchange rate–that had cost him pennies. The options exploded in value that day. “I had no clue what had happened to me,” he recalls. “We were lucky. We made a lot of money but by accident.”

   A French colleague, Jean-Manuel Rozan, later wrote about the episode in a memoir disguised as a novel called Le Fric, or Cash (Michel Lafon, 1999), in which he named Taleb and called him the Bobby Fischer of options, referring to the legendary chess player. After this fluke, Taleb says he became obsessed with buying out- of-the-money options–puts and calls whose strike price is either lower or higher than the market price of the underlying security. An agreement to sell is a put option; an agreement to buy is a call option.

   A typical trade might work like this: Microsoft Corp. is trading at $35. Taleb would buy a put option, agreeing to sell another investor the stock at a strike price of, say, $25 in the next three months. He’s betting the stock will fall much more than it has done historically, making the option cheap to buy. If the stock fell further, to $20, he would exercise the option and force the investor to buy at $25, pocketing the difference. If the stock doesn’t fall, the option expires and Taleb has lost only the pennies he paid for it.

   In 1986, Taleb moved to First Boston Inc. (now part of Credit Suisse Group), where fellow traders called him “Nassim the Dream,” recalls Demetrios Diakolios, a former colleague. At First Boston, Taleb, then 28, built what he terms a “massive” position in out- of-the-money calls on Eurodollar futures. On Oct. 19, 1987, he was sitting at a row of desks on First Boston’s trading floor at Park Avenue Plaza in Manhattan when his dream came true. The Dow Jones Industrial Average plummeted 22.6 percent in the biggest one-day drop in U.S. stock market history. The crash caused Eurodollar futures to surge after the U.S. Federal Reserve pumped liquidity into the banking system, lowering interbank borrowing rates.

   Taleb’s positions exploded once again. “We all knew that he did well, that he cleaned up on that and made $35 million-$40 million,” Diakolios says of the sum the bank made on Taleb’s positions. “The equities guys below us thought, ‘Why did some guy upstairs make all this money on a day when everybody got killed?’” The payday for Taleb was big. Without divulging the amount, he says 97 percent of the money he’s ever made was on Black Monday in 1987. “There are concentrated pockets of luck,” he says. After a few months of volatile trading, the market calmed down, and Taleb grew bored. In 1991, he moved to Union Bank of Switzerland, now UBS AG, as chief options trader. He lasted less than a year; he says endless meetings annoyed him.

   In 1992, Taleb turned his back on Wall Street. He moved to Chicago to become a pit trader and market maker at the Chicago Mercantile Exchange. In the pit, he saw how options are priced in real markets rather than from mathematical models. At the time, he was working on his Ph.D. in option pricing at the University of Paris Dauphine (which he completed in 1998) and writing his first book, Dynamic Hedging: Managing Vanilla and Exotic Options (Wiley, 1997). After two years, Taleb moved back to New York, where he worked at CIBC-Wood Gundy, a unit of Toronto-based Canadian Imperial Bank of Commerce, as global head of financial option arbitrage and then at Paris-based BNP Paribas SA, France’s biggest bank, as an options trader.

   In the mid-1990s, when he was still in his 30s, Taleb found out that the scratchy voice he’d attributed to too much shouting in the pit had a more ominous cause. He had throat cancer. The disease tends to strike smokers over 50. Taleb wasn’t a smoker except for the odd Friday when he would light up a pipe after a good trading week. After two years of radiation treatment, the cancer disappeared. Yet the effects linger, and Taleb says he remains paranoid that this particular black swan will resurface.

   Taleb’s following grew in 1999 when he began teaching an evening graduate course at New York University. His class on model failure in quantitative finance attracted like-minded students, including Spitznagel. After the course wrapped up in the evening, Taleb would go to the Odeon cafe in Manhattan’s TriBeCa neighborhood for drinks with students and Wall Street quants to talk about everything from pricing options to the failures of value-at-risk models, which banks use daily to decide how much to wager in the markets. “It became an unofficial meeting place for people interested in quantitative finance and trading,” recalls AQR’s Brown, author of The Poker Face of Wall Street (Wiley, 2006).

   Taleb quit BNP Paribas in 1999 and set up Empirica in Greenwich, Connect­icut, bringing Spitznagel with him. Empirica wasn’t like most hedge funds. The Russian financial crisis and the collapse of Long-Term Capital Management after $4 billion in losses had spooked many investors. Taleb began offering hedge fund clients protection against a blowup like LTCM by offsetting some of their trades with options.

   Empirica ended up acting like a superbroker or clearinghouse for buying out-of-the-money options. After spending millions on computer systems and giving their software programs code names like Igor, Taleb and Spitznagel would download 600,000 option prices every night and produce bids on 30-40 big blocks, getting them cheap by buying in bulk, Taleb says. The goal was to protect investors against market crashes. Knowing how much they would pay for options, the two guaranteed investors they wouldn’t lose more than 13 percent a year. “Our aim was not to make money,” Taleb says. “I make no claims of being able to beat markets.”

   Empirica did outperform the market. In 2000, its returns rose by about 60 percent on the back of high volatility and the bursting of the dot-com bubble, Taleb says. The next year, after the Sept. 11 terrorist attacks, nervous investors came flocking. Then volatility dropped as the stock market slowly drifted down, removing the opportunities to profit from wide market swings. In 2002, Empirica posted its worst year as returns fell about 12 percent, Taleb says, while the Dow Jones Industrial Average dropped 17 percent.

   “I knew he was likely to lose money most of the time because it was kind of an insurance,” says Jean Karoubi, an Empirica investor and chief executive officer of LongChamp Group Inc., the New York- based hedge fund unit of Silvercrest Asset Management Group LLC, which manages about $10 billion.

   Taleb and Spitznagel moved Empirica to midtown Manhattan in 2003 and changed tack for some clients. To profit from low volatility, they began selling at-the-money options–those close to the market price of the underlying security. In ‘03 and ‘04, Empirica posted small positive returns, Taleb says. Eager to focus on writing The Black Swan and still afraid, he says, that his cancer might return, Taleb shuttered Empirica in 2004 and returned about $380 million to investors. “I was fed up,” he says. “I just wanted to write, and I had writer’s block.”

   The Black Swan was itself a black swan–an unexpected hit. The book swings from advice on how to distinguish between positive and negative black swans in everyday life to ruminations on Taleb’s hero, Karl Popper, the Austrian-born 20th-century philosopher who argued that scientific theories should be tested not through attempts to verify them but through efforts to prove them false. “If you are in banking and lending, surprise outcomes are likely to be negative for you,” Taleb writes. “Put yourself in situations where favorable consequences are much larger than unfavorable ones.”

   He adds little tips such as: “Go to parties! If you’re a scientist, you will chance upon a remark that might spark new research.”

   Taleb has a foot in academia. He’s now a visiting professor at the London Business School, where he’s conducting experiments with Dan Goldstein, an assistant professor of marketing, on the psychology of risk and decision making. Taleb wants hard proof that people misjudge risks. In one pilot experiment, they posed the following question to participants: “You’re on vacation in a foreign country and are considering flying the national airline to see a special island you have always wondered about. Safety statistics in this country show that if you flew this airline once a year, there would be one crash every 1,000 years on average. If you don’t take the trip, it is extremely unlikely you’ll revisit this part of the world again. Would you take the flight?” Everyone answered yes, assuming that one crash every 1,000 years was a minimal risk.

   Another group was given the same problem except they were told that an average of 1 in 1,000 flights on this airline crashes. Although it’s the same risk mathematically, 30 percent refused to fly when presented with this wording. “This one-in-every-X-years framing is something you hear concerning market crashes in financial reports on TV,” says Goldstein, 38, who holds a Ph.D. in psychology.

   Extremes are more likely in finance than in the real world, Taleb says. At a conference for risk managers in London last June, he used the following illustration: “Say I sample from the world population and find two people cumulatively 14 feet tall. What’s the most likely allocation for Gaussian? One and 13? No, it’s seven and seven.”

   In wealth, it’s the opposite. “If we sample from the world population and get two people whose net worth totals 14 million pounds, what’s the most likely combination?” he asked. “Seven and seven? No, it’s £5,000 and £14 million minus £5,000.”

   He gives these two domains different names. The first he calls Mediocristan, where, if you have a large sample, the average of an independent, identical, random set of variables will converge in the middle. In Taleb’s other domain, Extremistan, average outcomes have little meaning. If financial markets are governed by extreme movements and unexpected events, we shouldn’t be fooled into believing worst-case scenarios, he says. “We need more chutzpah,” he says. “If someone tried to do stress testing before the stock market crash in ‘87, they would not have tested for 20 percent down.”

   Taleb likens modern-day financial markets to medicine in the 1800s, when going to a hospital in London or Paris multiplied your risk of death by four times, he says. Similarly, quants increase risk by deploying flawed financial tools designed to reduce it, he argues.

   For Taleb, the ills besetting financial markets are a vindication of his ideas. Like medicine, though, he isn’t offering easy cures.

   Stephanie Baker-Said is a senior writer at Bloomberg News in London. ssaid@bloomberg.net

2. optiondragon
   Posted May 3, 2008 at 11:14 am | Permalink

   optiondragon
   Posted May 3, 2008 at 11:45 am | Permalink (Edit)
   Baltic Dry Index spot rates chart info….Looks like long DRYS, FRO, DSX hawking
   http://www.dryships.com/index.cfm?get=report

   http://www.bloomberg.com/apps/news?pid=20601109&sid=akLt5fJKQNr8&refer =home

   Iran Doubles Oil Stored in Tankers, Bolstering Rates (Update3)

   By Alaric Nightingale

   May 2 (Bloomberg) — Iran, OPEC’s second-largest oil producer, more than doubled the amount stored in tankers idling in the Persian Gulf, sending ship prices higher as demand for some of its crude fell, people familiar with the situation said.

   The 10 tankers hold at least 20 million barrels of oil, equal to about 5 days of the country’s output, said the people, who asked not to be identified because the information isn’t public. Rates for tankers have more than tripled since April 8, based on data from the Baltic Exchange and ship-fuel prices.

   While oil rose to a record $119.93 a barrel on April 28, Iran has a glut of its sulfur-rich crude as refineries that can process the fuel shut down for maintenance. The discount on Iranian Heavy crude compared with Oman and Dubai petroleum has more than doubled since the start of the year, according to data compiled by Bloomberg.

   “There’s not much demand for heavier crudes such as those from Iran,” said Anthony Nunan, assistant general manager for risk management at Mitsubishi Corp. in Tokyo. “It’s the peak of the refinery maintenance season in Asia, and Iran also sells oil to Europe and the Mediterranean, where some refineries are having turnarounds,” or seasonal shutdowns for repairs, he said.

   Freight derivatives that traders use to bet on, or hedge, swings in the benchmark price for shipping oil to Asia climbed 2.5 percent to the equivalent of about $100,500 a day for May cargoes as of 10:08 a.m. in Oslo, according to Justin King, a broker of the contracts at Imarex NOS ASA.

   Available Supertankers

   Iran’s use of ships for storage cut the supply of available supertankers, owned by companies including Hamilton, Bermuda- based Frontline Ltd. and Euronav NV, based in Antwerp, Belgium. The number of double-hull very large crude carriers, or VLCCs, available to rent within the next 30 days dropped to 28 from 56 a month ago, according to Paris-based broker Barry Rogliano Salles.

   Frontline, the world’s biggest operator of VLCCs, climbed 13.5 kroner, or 4.8 percent, to 297 kroner in Oslo. The shares earlier rose to a record 298 kroner. Euronav, Belgium’s largest tanker owner, advanced 34 cents, or 1.3 percent, to 26.74 euros.

   The benchmark tanker rental rate for voyages to Asia from the Middle East is $148,000 a day, compared with $44,300 on April 8, according to prices from the London-based Baltic Exchange and a formula from Oslo-based RS Platou Shipbrokers A/S.

   Iran previously stored its Soroush and Nowruz heavy crudes in state-owned tankers because the sulfur content made the fuel too difficult for refiners to process. Previous buyers of the oil include SK Corp., South Korea’s biggest refiner, and Reliance Industries Ltd., India’s biggest company by market value.

   Processing Capacity

   Limited domestic processing capacity in Iran requires the country to import about 40 percent of its gasoline because national refineries can’t make enough. Lighter crude with less sulfur is costlier as it yields more profitable products such as gasoline.

   Iran typically keeps two or three supertankers on standby to deliver crude, Per Mansson, a tanker broker at Nor Ocean Stockholm AB, said by phone. “There’s a lack of on-land storage and this enables quick supply” to buyers in Europe and Asia, he said.

   Soroush and Nowruz crudes contain about 3.5 percent sulfur. Syria’s Souedieh, at 3.9 percent, is the only grade in the Middle East with more, according to data from New York-based Energy Intelligence Group.

   Crude oil for June delivery rose $3.03, or 2.7 percent, to $115.55 a barrel as of 11:36 a.m. on the New York Mercantile Exchange.

   Heavy Crude

   The discount for Iranian Heavy crude relative to lighter Omani and Dubai oil is at $3.25 a barrel, compared with $1.49 in December, data on Bloomberg show. Saudi Arabia is the largest producer in the Organization of Petroleum Exporting Countries.

   The VLCCs, each designed to ship about 2 million barrels of crude, have been idling at either Kharg Island in the Persian Gulf or the nearby Soroush terminal for at least a week, according to AISLive data compiled by Bloomberg.

   State-owned National Iranian National Iranian Tanker Co. is also hiring vessels in the single-voyage, or spot, market for contracted shipments for the national oil company, the people said. Normally, the shipping line would use its own vessels, they said.

   The following is a list of VLCCs whose last reported location was Kharg Island or the Soroush terminal and when they were due to arrive. It normally takes 24 hours to 48 hours to load a cargo of crude and set sail.

   Ship Name Expected arrival Last reported
   in Iran destination
   Noor Dec. 15, 2007 Kharg Island
   Najm Feb. 20 Kharg Island
   Hengam March 11 Kharg Island
   Nesa March 28 Kharg Island
   Noah April 2 Kharg Island
   Huwayzeh April 3 Kharg Island
   Damavand April 11 Kharg Island
   Hoda April 14 Kharg Island
   Daylam April 23 Kharg Island
   Nabi April 24 Soroush Terminal

   optiondragon
   Posted May 3, 2008 at 11:50 am | Permalink (Edit)
   http://www.bloomberg.com/apps/news?pid=20601109&sid=ajV4TWY6kQb4&refer =home

   FCX, PCU…

   Chilean Activist Cuevas Brings Codelco Copper Mines to a Halt

   By Matthew Craze

   May 2 (Bloomberg) — Cristian Cuevas used to serve meals to miners at Codelco, the world’s biggest copper producer. Now he’s serving up trouble for Codelco management.

   Cuevas, the 39-year-old head of Chile’s Confederation of Copper Workers, orchestrated the sometimes violent strike that has shut down production at three of five Codelco mines. Jose Arellano, Codelco’s chief executive officer, said this week the walkout has cost the company almost $100 million in lost production since it began April 16.

   “It seems management prefers to lose millions of dollars instead of resolving an issue that is of national interest,” Cuevas said April 24 at a Santiago press conference, wearing a green military jacket and jeans. “The big companies and multinationals earn money here, but workers earn miserable wages,” he said in an interview later.

   According to the confederation, the contract workers on strike typically receive 250,000 pesos ($544) a month, compared with 1.5 million pesos for regular Codelco employees, who aren’t taking part in the walkout. Codelco has about 30,000 workers employed by subcontractors and 17,000 staff employees. A Codelco spokeswoman said the company doesn’t disclose wages.

   Copper futures have risen 21 percent this year to $3.6945 a pound yesterday on the Comex division of the New York Mercantile Exchange. The metal hit a record $4.045 on April 17, on concern the walkout might thwart Codelco’s efforts to reverse a three- year drop in output.

   `Finely Balanced’ Market

   Cuevas, a member of Chile’s Communist party, also led a strike last June and July that contributed to a 6.6 percent decline in Codelco production for the year and a 5.9 percent rise in global prices. Codelco accounts for more than 10 percent of the world’s copper.

   The bearded Cuevas, who sometimes wears a Middle Eastern kaffiyeh headdress around his neck, worked for a catering company that sells food to Codelco workers for eight years before leaving in 2004 to pursue his union work. His clout has climbed as global copper stockpiles monitored by the London Metal Exchange have fallen more than 44 percent since January, fueled by growing demand in China.

   “Anybody who gets up there and controls that kind of power is bound to have some influence,” said Alex Heath, the head of base-metals trading at RBC Capital Markets in London. “The market is so finely balanced that any disruptions of any supply anywhere in the world has an impact.”

   More Violent

   The current walkout is more violent than previous labor disputes in Chile, according to Tomas Flores, director of research at Santiago-based research group Libertad & Desarrollo.

   Protesters armed with rocks and sling shots have clashed with riot police, blocking access to Codelco’s El Salvador mine in northern Chile and the Andina mine in the central part of the country, according to company officials and press reports.

   One Codelco employee was injured April 21 after demonstrators at a third mine, El Teniente, threw a metal object. Two more were hurt April 24 when rocks were hurled at a bus in the city of Rancagua.

   “The union movement never used to be characterized by this type of violence,” Flores said in an interview.

   Codelco said April 27 that six men broke into the control room and stole computers and equipment at the Salvador mine, slowing production and causing delays.

   Cuevas says his group isn’t responsible for any of the violence, or the break-in and a fire at the Salvador mine.

   `Cowardly’ Attacks

   “We haven’t asked for this fight,” he said in an April 23 press conference in Santiago, flanked by lawmakers including Isabel Allende, the daughter of former President Salvador Allende, who died in a coup in September 1973 that led to the 17-year military rule of Augusto Pinochet.

   Codelco has criticized the confederation’s tactics and has refused to meet with Cuevas, saying it has abided by an agreement reached after last year’s strike.

   “They have no right to attack people in a cowardly way,” CEO Arellano said in a speech to employees on April 21. He said this week the strike has cut output by about 19,000 tons, or almost 1 percent of its production last year.

   Cuevas, one of 11 sons of a Chilean coal miner, says his work as a labor activist was inspired in part by the hard times his family fell upon when Chile shut down its coal mines. “I was committed to social justice from my infancy,” he said.

   He now wants to draw other contract employees into the fray, Cuevas says, and he has called for nationwide protests by such employees at supermarkets, salmon farms and vineyards.

   “He’s very passionate and he never gives up,” said Andres Leal, one of 15 regional confederation leaders. “It wouldn’t surprise me if the union experience propels him to other things.”

3. optiondragon
   Posted May 3, 2008 at 11:17 am | Permalink

   http://www.tradingacademy.com/lessons/lessons20071130.shtm

   The Objective Filter for an Oscillator
   by Sam Seiden - Mar 17, 2008

   We all know emotion can be the devil in your trading career. Often, it is emotion based decisions that keep people from even having a trading career longer than a few months. While emotion often has you buying signals way after a move higher in price which is likely near resistance which almost ensures a losing trade, there is another culprit that leads to the same losing behavior in trading. It is the misuse of indicators and oscillators.

   Understand that the movement in price in any and all free markets is a function of the pure laws and principles of supply and demand. Opportunity exists when this simple and straight forward relationship is out of balance, period. What most people don’t understand is that when you ignore a governing dynamic that has been around longer than man has walked the earth, you are almost guaranteed a losing trading strategy. You can spend a lifetime attempting to come up with the perfect set of indicators and oscillators with the perfect set of inputs with hopes of attaining all the worlds’ wealth and get nowhere. There is a reason for this which is the one thing you need to know about indicators and oscillators: They have NO IDEA there is an ongoing supply and demand relationship at work every second in every market at every price level. They are simple math calculations derived from price. Most are averages of price which means they lag price. Any indicator that lags price adds risk and decreases profit margins in your trading which is not ideal. Don’t get the wrong idea, this is not another article beating up the indicators. My goal is to expose the flaws associated with using them and also show you a very astute way to use them in all your trading.

   Moving Averages and Trend Analysis (PIC)

   Above we have a chart with a 20- and 200-period moving average. These are widely used moving averages both in the trading and investing community. Notice the slope of the 20-period MA at the area labeled “B”. The slope of the 20-period moving average is down in both cases suggesting a downtrend is underway. During this period however, the low risk/high reward buying opportunity is greatest and right in front of you as “B” is the time price is revisiting the objective demand levels “A”.

   Those who use a MA as a trend filter would never buy when the trend is “down.” This group of illusion-based traders and investors would likely conclude and say; “I don’t want to buy now, the MA tells me this is a downtrend.” The illusion created by only using a MA to determine trend ensures you will ignore the lowest risk/highest reward opportunity to buy (or sell) each time it is offered. Furthermore, this illusion is likely to encourage a trader to take the opposite action of what the objective information (reality) suggests he or she should do.

   Moving Averages lag. They are averages of past data. They can only turn higher after price does. Let’s focus in on the 200-day moving average. Specifically, notice the area “B” that is below the 200-day MA in. Most traders and investors either see the 200-day MA on a chart or hear about it from some financial news TV program. They perceive the mighty 200-day MA as some magical line that when crossed suggests some valuable information. As we can see, waiting for prices to rise above the 200-day MA before buying ensures three things. First, risk to buy is high, as one would be buying far from the supply/demand imbalance (our demand level from “A”). Second, profit potential is decreased. Third, those who wait until prices have crossed back above the 200-day MA to buy will likely provide profit for the reality based trader/investor who bought at “B,” the low risk/high reward entry area. The objective supply/demand imbalance is at “B,” and the 200-day MA has nothing to do with it. When a moving average lines up with true demand or supply, the moving average will appear to work. Believing that the moving average actually has anything to do with a turn in price is an illusion.

   Let’s now explore reality through the eyes of objective logic. The areas labeled “A” are objective demand (support) price levels. How can I claim they are objective demand price levels? It’s simple. While prices are trading sideways, supply and demand are in balance. In both instances, prices rose dramatically from those areas of balance. The only thing that can cause a price rally from an area of “balance” is when the supply and demand equation becomes “out of balance.” In other words, there were many more willing and able buyers at “A” than there were sellers. The laws of supply and demand simply tell us this is true.

   The areas labeled “B” represent the first time prices revisit these two areas of “imbalance.” In other words, prices have declined to an area where we objectively know there are more willing buyers than sellers. “B” is the low risk/high reward opportunity to buy. Buying in these two areas ensures three important musts in trading and investing. First, your protective stop must be as small as it can be which offers a trader proper risk management/position sizing. Second, your profit potential, which is the distance from the entry to the supply area above, is as large as it will ever be for this opportunity. In other words, as price moves higher from the objective demand level, it is moving closer to the supply level (target) above, decreasing your profit potential. Third, the probability of success is highest because supply and demand are out of balance.

   The Moving Average Cross (PIC)

   In this example, the circled areas on the chart represent the times when price is declining into our predetermined and objective demand (support) levels which is where we would want to buy. We want to buy here because the risk to buy is lowest and the reward is highest. The black vertical lines on the chart right next to the circled areas show when the moving averages cross, which is a buy signal for most people. Notice how late they cross. Price has moved significantly higher already which means high risk and low reward for the buyer. In both cases, when price is into our demand level and a low risk buy is right in front of us, the MA’s have not even begun to turn higher. If you use a moving average cross as a buy trigger, be very careful.

   (pic)

   In this example, “B” is the first time price is revisiting demand level “A”. “B” is the time we want to buy. “C”, however, is when the moving averages finally cross and give the conventional buy signal. If you accept that invitation to buy, you are actually buying right at the supply (resistance) level “D” which will almost always ensure a quick loss. Only a novice trader buys after an advance in price and into an objective supply level. That is what the industry calls “dumb money” and in trading, if you can’t see dumb money coming into the market, you are dumb money… Ok, enough negative talk here, let’s get some answers and solutions to this issue…

   As I mentioned in the first part of this piece, when an indicator or oscillator gives you a buy signal when price is also at an objective demand (support) level, that buy signal is likely to work. The key is to only take those buy signals and ignore the rest. In doing this, we are filtering an indicator through the laws of supply and demand and this is the key in using any indicator or oscillator, including the not so obvious things like Fibonacci and Elliot Wave.

   The Answer (pic)

   In this chart of the Dollar/Yen, notice CCI on the bottom and the demand level I put on the chart. While CCI gave you many overbought and oversold readings, the oversold signal that occurred as PRICE was also at demand was the buy signal to take. Exactly how to do this is something I focus on plenty in our courses at Online Trading Academy but hopefully this concept will help you out here. Also, while this is a Forex chart, the rules and concepts that I write about are applicable in any and all markets and any and all time frames.

   In this example, we again have many overbought and oversold readings from CCI. They are not wrong. CCI is doing exactly what it is supposed to do. Whether these readings turn into profitable buy and sell signals is another conversation, this is what most people learn the hard way. Back to the chart… When price initially drops from the supply level, notice that the CCI goes oversold right away and stays oversold, giving the trader buy signal after buy signal as prices are dropping. Yikes! Again, if you only take the overbought and oversold readings from something like CCI (or any indicator or oscillator) as a buy or sell signal when PRICE is also at a supply or demand level, you are then filtering out most of the losing buy and sell signals and keeping most of the winning signals. Here, when price rallied back up to the predetermined supply level, CCI was also overbought and this was the sell signal to pay attention to.

   KEY NOTE: CONVENTIONAL TECHNICAL ANALYSIS MUST BE FILTERED THROUGH SUPPLY AND DEMAND.

   optiondragon
   Posted May 3, 2008 at 11:58 am | Permalink (Edit)
   APPROACHING MORNING GAPS.

   http://www.tradingacademy.com/lessons/lessons20080225.shtm

   Trading the Morning Gap
   By Sam Seiden - Apr 28, 2008

   Whether I am trading or instructing a stock, futures, or options class at Online Trading Academy, our lowest risk and highest reward trade each day is typically the opening gap entry. As soon as I suggest the trade to the class, someone always says: “I was told we are not supposed to trade the open because it is not for the novice trader”. That is not exactly what we say at Online Trading Academy. What we say is that the open is not for the novice trader. It is, however, a fantastic opportunity for the astute trader who knows how to identify a novice trader. Most of the time, our entry is within seconds to minutes of the opening bell. There is a reason for this…

   Why do prices gap up? They gap up because there are more buy orders at the open than there is available supply at the prior day’s closing price. They gap down because there are more sell orders at the open than willing demand at the prior day’s close. Therefore, market prices are almost always at price levels where there is a supply and demand imbalance (opportunity) at the open. Never forget, the successful market speculator simply finds markets where price is at levels where supply and demand are out of balance and trades them back to price levels where supply and demand is in balance. I started in this business on the floor of the Chicago Mercantile Exchange, handling institution and retail order flow. Watching that order flow made it easy to see where prices were going to turn. For example, if we had 10 buyers and 5 sellers at a price level, as soon as the 5th seller sold, price had to rise. Having the orders in your hand makes this easy to see. Knowing exactly what this picture looks like on a price chart makes it even easier.

   This week in the markets represented obvious opportunities related to gaps and order flow. We took advantage of them in class here in Chicago each day. We will do the same thing in Boston next week as two things never change. First, order flow works the same way it did 100 years ago and never changes. Second, novice traders are always present and are only growing in numbers. Here is how it all works…

   Below we have a chart of the S&P as seen through the SPY, the ETF for the S&P. “A” represents a resistance (supply) level. We know this because price could not stay at that level, it had to fall because there are more willing sellers than buyers at that level. “B” is a day this week where price gapped right into that resistance (supply) level at the open. Here, the novice trader buys and the astute trader sells to that buyer. Remember, a supply level is a price level where there are more sellers than buyers. The last thing you want to do is buy at that price level and that is exactly what the novice trader did that morning on the open. In class here, we sold to that buyer and profited on the decline in price. We know this is a novice buyer because only a consistent losing trader would buy a gap up, after a rally in price, and into an objective supply level. The very next day at the open “E”, price gapped down into an objective demand level “D”. Only a novice trader would sell a gap down, after a decline in price, and into an objective demand (support) level, “D”. We simply bought from that novice seller and profited nicely on the trades. The very next day at the open “C”, price gapped up right into an objective supply level, “A” and “B”. That short entry at “C” was very low risk and high reward but you had to be trading at or near the open to get that low risk short entry which was true for all the gap entries for the week.

   The key is to not look at candles on your screen as red and green pictures and patterns. You must understand what is happening behind the scenes. Whether you’re trading stocks, futures, options, or forex, the logic and rules never change.

   Again, the market imbalances are greatest at or near the open of trading in all markets. By the end of the first hour of trading each day, a large amount of novice trading capital is simply transferred into the accounts of the astute trader. If you can’t see the novice trader in markets, you likely are the novice trader.

   A few weeks ago I happened to be in LA instructing a stock class and on the 19th March, a morning opening gap in the US stock markets offered us a very low risk and high reward opportunity. Our morning prep work basically consists of finding stocks that are opening at price levels where supply and demand are out of balance in a large way and then simply trading them back to balance. Once the traders understand the whole supply (resistance)/demand (support) concept and the rules, we use two sources to find these opportunities which typically present themselves right at the open of trading or shortly thereafter. One of our sources offers us the morning broker upgrades and downgrades. An upgrade that jumped out at us was Citigroup who was upgrading shares of Imclone (IMCL) with a “Buy” recommendation. While we are trading real money in class, you might think we would want to listen to this upgrade and do exactly what it is suggesting to do as Citigroup is one of the largest banks in the world and we are just 20 people in a trading class in LA. Well, it really depends on your point of view. Citigroup likely had good fundamental reasons to upgrade the stock and looking at the chart below, MANY people listened with both ears and bought IMCL on the open which is what caused that gap up in price. If your point of view is that of a smart buyer and seller of anything who has an understanding of the laws of supply and demand, not only were you not buying like everyone else was, you were selling to that huge group of buyers (at least we were).

   (click to enlarge)

   Notice the price action on 3/7. There was a dramatic price decline from the $45-$46 price level. This can only happen because there is much more supply at that level than willing demand. When this happens, price must decline. The dramatic rate of decline suggests a strong supply and demand imbalance at that level. Now, notice what happens the morning of the upgrade on 3/19. Citigroup upgrades the stock and price opens right into that supply level. While the rest of the world is buying in a strong way, we had our plan in place well before the open that told us to sell to anyone who wanted to buy at that level. Why? Because we knew that if we sold to the buyers at that price level on the gap up, we would be selling to novice buyers who likely are consistent losing market speculators. How do we know this? Only a novice would buy AFTER an advance in price and INTO a price level where supply exceeds demand. Our job is to find this novice trader and simply take the other side of his or her trade.

   When you enter markets at price levels where supply and demand are out of balance in a big way, especially at or near the open of trading, moves in the market are typically very fast. There were many other stocks this day that did the exact same thing and those who did the 15 minutes of morning prep work that we do each day were rewarded with low risk/high reward gains.

   This trade and the thoughts and rules that went with it are not meant to impress you. I mean to impress upon you the importance of looking at markets for what they really are which is simply an ongoing supply and demand equation. Opportunity exists when this simple and straightforward relationship is out of balance. Everything else in and around markets is just “noise” that is meant to invite you into markets at the wrong time and in the wrong direction. As an educator, I say that is unfortunate. As a trader, I love it - the more noise the better!

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