T-minus ? until Countrywide goes under.. . .

<p>maestro -- Sorry, I have to take issue with a couple of your comments.</p>

<p><em>"You essentially are guaranteeing that you make money."</em> If there were an options pricing anomaly that guaranteed a profit, it would have already been arbitraged away. The strategy you describe is called a collar. You're limiting your upside and your downside, but are far from guaranteed that you will make (or even that you won't lose) money. A collar is typically used after a run-up in the stock, when you want to protect gains but you don't want to sell (limiting tax liability is the main reason).</p>

<p><em>"Most options expire worthless..."</em> Actually, the number is closer to 30%.</p>
 
It's as close a guarantee as any. If you are long in relatively safe stocks without costly puts it is ideal. You ideally want to continue to hold the stock and never have your call exercised.





Everything that I have read, studied, and experienced puts the option expiration percentage above 75%. Where do you get that only 30% expire worthless?





http://www.themoneyblogs.com/steve/my.blog/how-i-sell-naked-options-.html





http://books.google.com/books?id=2bGBY0lUcP8C&pg=PA4&lpg=PA4&dq=percentage+of+options+that+expire&source=web&ots=UAyfSA8VoL&sig=LQOykQx0CaOeXSs-UDu5RmjKJ1s





http://www.investopedia.com/articles/optioninvestor/03/100103.asp





http://tfc-charts2.w2d.com/forum/index.cgi/noframes/read/401772





I think this guy explains it the best: http://futures.fxstreet.com/Futures/content/103810/content.asp?menu=knowledge








The averages since options began to be traded in 1973 are much lower. Considering the fact that options were used much more often for their intended reason back then. As the years progressed, speculation became more rampant.
 
<p>CFC shares jump up 10% after hours because some WSJ reporter says that parts of Countrywide might be attractive to Buffett. What a bunch of maroons.</p>

<p>reason - financial what?</p>
 
<p>awgee,</p>

<p>Certain money market funds have 25% invested in the financial sector. So I am thinking does that mean these fund managers also bought into those subprime cr*p?</p>
 
reason - Maybe, maybe not. Every money market fund is different. To find out what is in your MMF, you will have to read the propectus or call the fund.
 
<p>awgee, </p>

<p>That's just it. In the prospectus, all it says is 25% in financial sector. There's not a break down of what exactly is invested in these financial sector. Oh, well. </p>
 
<p>If Buffet wanted anything (and I doubt this is true anyway) the only thing of value is the servicing arm for his other operations. Citigroup went for something similar when they took a 5% position in New Century 30 days before bankruptcy. That worthless piece puts them in line at the bankruptcy court to get the servicing operations. Buffet did it successfully with the Fruit of the Loom bankruptcy and McDonalds pulled it off with the Boston Chicken bankruptcy so maybe this risky strategy does work.</p>
 
From what I can tell, there are no indications that Buffett or anyone else is interested in any part of Countrywide.
 
<p class="textBodyBlack"><strong>I found this on MSNBC. pretty informative about your question.</strong></p>

<p class="textBodyBlack">When a lender gets in financial trouble, it has a few choices. It can look for investors to put up more capital. If that doesn’t work, it can declare bankruptcy or sell itself another lender. Since the subprime lending mess began to spread late last year, dozens of lenders have been forced to chose one of these alternatives.</p>

<p class="textBodyBlack">But it’s your solvency — not the lenders — that matter most to you. If you’re a good borrower, with a good credit and payment history, your <a class="iAs" style="FONT-WEIGHT: normal; FONT-SIZE: 100%; PADDING-BOTTOM: 1px; COLOR: darkgreen; BORDER-BOTTOM: darkgreen 0.07em solid; BACKGROUND-COLOR: transparent; TEXT-DECORATION: underline" target="_blank" itxtdid="3760394" href="http://www.msnbc.msn.com/id/20359910/#">mortgage</a> is the most valuable asset a financially troubled lender has. In some ways, they need you more than you need them.</p>

<p class="textBodyBlack">In any case, the terms of your original mortgage, like many such contracts, are almost always fixed and valid no matter who holds the loan. (If you want double check this and see what happens if your mortgage changes hands, dig out the original document and read the paragraphs on “sale or assignment” of your loan.)</p>

<p class="textBodyBlack">Even lenders in good financial shape routinely sell off the <a class="iAs" style="FONT-WEIGHT: normal; FONT-SIZE: 100%; PADDING-BOTTOM: 1px; COLOR: darkgreen; BORDER-BOTTOM: darkgreen 0.07em solid; BACKGROUND-COLOR: transparent; TEXT-DECORATION: underline" target="_blank" itxtdid="3760460" href="http://www.msnbc.msn.com/id/20359910/#">mortgages</a> they write soon after you’ve signed on the dotted lines. The reason is that, in some cases, there’s more money to be made in upfront fees than there is in collecting monthly interest payments. By selling off your loan, the mortgage “originator” gets fresh capital to lend to the next borrower — and then collect another round of upfront fees.</p>

<p class="textBodyBlack">One of the biggest buyers of mortgages is Fannie Mae (the Federal National Mortgage Association) which was set up by the government to create a market for mortgages, thus freeing up more capital to lend to new borrowers. In some cases, when the loan conforms to established terms and conditions, mortgages bought and sold in the so-called “secondary market” are guaranteed by the federal government.</p>

<p class="textBodyBlack">So your mortgage is like any other bond issued by any other borrower — whether from General Motors or the U.S. Treasury. The value of the bond may change based on the risk that the borrower may not pay it back. That’s why some of the riskiest subprime mortgages are selling for much less that the face amount. </p>

<p class="textBodyBlack">But the terms of your mortgage — like those of other bonds — are fixed in the original agreement. That’s also why — even if your lender goes broke — you’re still on the hook to pay it back to who ever buys it.</p>

<p class="textBodyBlack">There is one way the mortgage mess could create headaches for borrowers in good standing. Back in the days when lenders held onto the mortgages they wrote, you could be fairly sure the lender you borrowed from would be the lender you would deal with over the life of the loan. With mortgages now routinely changing hands, that’s no longer the case. </p>

<p class="textBodyBlack">So you may not get the same level of customer service from the buyer of your loan that you know and expect from the good folks at Main Street Bank and Trust that wrote the original loan. In some cases, the company “servicing” your mortgage — collecting your checks, managing your escrow account — may not even be the same company that owns your loan. If the company providing this service gets into trouble, the quality of that service could be affected: monthly payments not applied properly, escrow payments on your behalf like taxes and insurance not made promptly, etc. </p>

<p class="textBodyBlack">Unfortunately, you can’t choose who owns or services your loan. If your loan servicing company mismanages your payments, you may be able to get help from the consumer affairs department of your state banking department or attorney general’s office. Chances are, if you’re having trouble, so are other customers.</p>
 
<p>I'm sure Buffett would be interested in some of Countrywide's assets. If he could buy A rated loans for 50 cents on the dollar, why wouldn't he do it? Note that Berkshire's investment in mortgage backed securities double in the latest quarter, to <strong>$3.7 billion</strong>. A lot of A paper is being sold off by troubled institutions to raise capital to keep them afloat. Buffett knows the vast majority of prime mortgage paper is free from the subprime morass, and it is the perceived problems (fear) that has driven down prices, rather than any real poblems with prime borrowers' ability to pay. </p>

<p>That's just my take. Wasn't it Buffett who said buy when everyone else is selling? If so, this seems like it would be one of those times.</p>
 
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