$4.5 billion options bet on catastrophe

[BlackVoid]

Re: $4.5 billion options bet on catastrophe

I disagree with the Stratfor assesment.
Why is the US so obsessed with Iran? Yes, they may get control over Iraq, but then what? Iran never started an offensive war for hundreds of years.
Why not negotiate with Iran? An idea: lift the embargo, in exchange oil majors can get in.
It is unlikely that Iran would start a war against the Saudis. US air power would be a check on those ambitions. Destabilizing the Middle-East is not good for the other powers either.

Iraq may get better after a while if the US leaves. It is quite clear that powerful factions, such as the Mahdi army are playing a waiting game - waiting for the US to leave. There will be civil war when the US leaves, but it could be short.
The real problem is that the US foreign policy goal is to DOMINATE. Cooperation is out of the question. This is THE problem. Engage and cooperate with Iran - this is the solution. And not just with Iran, the same stance should be applied to all other countries (eg: Russia).

The USA is losing its superpower status quite fast. Foreign policy can change now and that would restore respect for America in the rest of the world. Or the US can keep to current foreign policy, but it will totally FAIL sooner or later. And that may lead to WW3.

[Guest]

Re: $4.5 billion options bet on catastrophe

Blackvoid -

Long time no-see, eh? Welcome back to the iTulip zoo.

I am all talked out on this topic at present, so will not argue it further.

C1ue seems to put forward arguments based on Real-Politik, as to why US withdrawal from "protecting" the western half of the Gulf States from Iran's interests will promise only further large cans of worms.

You and some others here feel that some spontaneous good things will come from complete and unconditional US / UK withdrawal. I tend to think some disastrous things will come from that withdrawal.

Maybe C1ue, or any one of a lot of other well informed posters here can add to this, or comment further.

I think many are hanging back on these topics because this is too overtly about "politics" which are misunderstood to be "partisan" when all this is really is an inquiry on what may really play out in the real world, as opposed to estimations of what may play out in the real world informed more by an ideological or ethical viewpoint.

I can't imagine others are not interested, maybe they are just put off because they think arguing about it is too "controversial". Or maybe what puts them off is me, sounding controversial.

I don't agree with your views here, but regardless of that it's good to have another "limits to Growth" proponent back!

[rj1]

Re: $4.5 billion options bet on catastrophe

There is precedent for pre-attack trades. Here is some decent research on 9/11 trades by a credible site.

Here is TheStreet.com's coverage of the bin Laden Trades.

This is actually in the plot of the last James Bond movie, Casino Royale. The bad guy in the movie is Le Chiffre, the banker to the world's terrorists. And it's talked about as "someone before 9/11 shorted a lot of airline stocks and made out with a ton of money", it's implied that Le Chiffre was the guy.

I didn't realize it was true in real life. Although you'd figure some opportunistic soul out there that heard a rumor from the internet or "friend of a friend" would bet on it.

[c1ue]

Re: $4.5 billion options bet on catastrophe

You may agree or disagree with Stratfor, but the main question in my mind is whether Iran is a stable country.

I see Iran with many of the future problems China has been seeing: the relatively young population that sees the rest of the world passing them by, coupled with an aging infrastructure and repressive social environment.

Iran needs to do something to occupy their population; however being basically a Muslim theocracy - it is even more difficult to reconcile to a 'new China' type of model. China was communist for pragmatic reasons, not religious or really even ideological (outside of Mao). The youth of Iraq would likely welcome change, but the hard liners in the mosques are still very much alive, kicking and activist.

As for Iran never attacking - that's because between the Greeks, Alexander, the Mongols, and Russia in the Catherine the Great era, the Persians were pretty much fought out for many generations.

They've had a lot of time to recuperate since then.

Certainly it is possible that Iran won't try to form a super-state with Iraq, but then again why not? Iraq has been a historical thorn in Iran's foot.

Another item of note: the population of Saudi Arabia is about 27M - or roughly equal to Iraq.

The last thing KSA needs is a new nation with 4x the population, competing oil interests, a heretical religious variant, AND a shared border.

[Rajiv]

Re: $4.5 billion options bet on catastrophe

Dispelling the 'Bin Laden' Options Trades

Some entity, or entities, has taken a large position on extremely deep in the money S&P 500 options, both puts and calls, that won't pay off unless the market undergoes an extremely large price move between now and the options' expiration on Sept. 21. However, Dan Perper, a Partner at Peak 6, one of the largest option market makers and proprietary trading firms, has confirmed that the trades are part of a "box-spread trade." "This was done as a package in which the box spread was used [as a] means of alternative financing at more attractive interest rates" explained Perper.

Simply put, two parties agree to trade the box at a price that essentially splits the difference between current rates. For example, the rough numbers would be that given the September 700/1700 box must settle at a value of 1,000 -- it is currently trading around 997 -- that translates into a 5% interest rate. For the seller it is a way to borrow money at a slight discount to the prevailing rate, and for the buyer, it is a way to lend money at a low rate of return, but it's better than nothing at a time when others are scared and have painted themselves into a box (ha ha) because they have run out available funds. Currently there are about 63,000 700/1700 boxes open.

Perper expects that once the September options expire, you will see similar boxes established in the December series. As to why the September 700 put has over 116,000 contracts open, Perper thinks a good portion of that was created from the prior rollover when April options expired. The positions in question had option industry experts perplexed to come up with a rational explanation, which are far from the best or most efficient way to profit from what would be outlier events.

[lb]

Re: $4.5 billion options bet on catastrophe

I think that's a reasonable trade if you believe Ben is going to use a play from Volcker, not Greenspan.

Break the back of the "bubble" system.

Unrelated to the trades. Someone asked Cramer this question somewhere in this video.

http://www.cnbc.com/id/15840232?video=499888906

[jacobdcoates]

Re: $4.5 billion options bet on catastrophe

While were on the topic of Iraq/Iran. C1ue has some good points although I disagree with him about the Iranians shutting down the Straits.
The Iranians I'm sure they have not forgot the lesson we taught them in '88 when they tried that, probably the reason they are still mad at us. While our ground forces are stretched thin by all empirical military measures. The us navy is not and is quite capable of leveling a medium size country in a couple of weeks. The gulf itself is the strategic prize, having 40% of the oil in the world does you no good if you can ship it anywhere. I have no doubt that Iran will try to increase it's influence and that would be bad for overall regional stability.
Iran is not totally greedy/ irrational. In my observation of Iran's action from the world news feeds are, that they are acting very rational given the current situation in the region and trying to get as much as they can without too much cost. But the ability to act is not without limits even in the face of a withdrawal of u.s. ground forces from Iraq. I agree with c1ue that they would attempt to turn the lower part of Iraq into a vassal state essentially. The risk of moving much beyond that increase dramatically while the payoffs do not. Further more as someone else hinted at earlier Iran does not have the logistical capability to manage that large of an area and people or competing fractions(with guns).

My observation is that people are greedy and nations even more so when they think they can get way with it at little or no cost to themselves. One thing in my opinion the US has to make sure is that cost benefit doesn't to far to one side, how the US will accomplish this I do not know. There does seem to be a plethora of bad options to choose from for the US currently.