Back in that July post I mentioned the Feb 2015 $27s puts @ 45 cents. I suggested that a "10-20x" was possible on them. I'm reiterating that call today. While you can no longer pick them up for 45 cents (the bid is now .74 and the ask is now .90 so the next sale will likely be perhaps .80-.85), a measly double since July is in no way high enough to consider selling them if you bought or to stop you buying some on the next stock pop if you are on the sidelines.
You know why this is true? Because while the VIX has woken up (finally) it is still in the noise at the big picture level and that means premiums on options are still way too low.
The trend line is clear in this matter. Look how the increasing volatility has formed a clear trend. Before this collapse is over, the VIX will be at ~75 representing extreme panic. Options will be carrying a huge premium as a result. The best way to move options up quickly is to have stocks move down quickly relative to the bleeding time value of options. The reason that volatility has been increasing like that should be easy to understand for anyone who has read my blog for very long. The simple answer is that we have been growing a global, leveraged debt Ponzi all that time. It is going on in all markets: stocks, housing, you name it. Prices were pumped up using debt. It takes time to sell assets and time is not the friend of options. So, if assets are bought with real money and not with leverage then they can be liquidated in time. But if you have a margin call on your leveraged "save the pension fund from collapse" bet then you have to panic sell your assets. This is why the collapse should play out quickly in terms of market drop per unit time. The rate should be similar to the collapse of 2007-2008 but it will start from a higher point and fall further than it did into the 2009 bottom.
ANF and all other "gee aren't I trendy and special" foo-fooisms are going to literally collapse over the next 6-18 months. There is at least a 5 bagger in the 27s shown below because the DJIA is going to start plummeting and when it does people are going to sell these smaller companies in order to pay the margin calls that will be sent out on the hugely leveraged bets on the big names in tech and business. In other words, gamblers thought to themselves "these big companies can never really go down much from here so it is OK to use high leverage on them because of their inherent safety". Besides, "the fed won't allow that to happen", right? Shades of LTCM! But nothing in a debt Ponzi is inherently safe and so when those big companies holdings get "the call" the fund managers are going to go looking for the funds from their "marginal" (pun intended) holdings. In other words, they will sell what has already gone down in order to try to save their leveraged top names from caving in.
It will not work.
The whole shooting match is circling the toilet. If Samsung (with their excellent products and rep) is experiencing a 60% profit decline this quarter, who else can possibly be doing well? I expect earning season (warning season to be more accurate) to be just brutal going into the end of the year. The holiday season is going to be a total bust.
By the way, one sign that the herd is actually getting scared will be that these thinly traded options begin to pick up in volume. As you can see, those 27s haven't had even 1 trade since I pointed them out. The "last" is still at .45. This will change very soon, perhaps in the next couple weeks. When the DJIA begins to plummet, traders will decide that a bit of catastrophic crash insurance isn't such a bad thing after all.
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