Dow Jones Crashed this Week, Historical Decline

[Birdjaguar]

Not exactly. Buying or selling futures now is as unpredictable as ever. Buying futures in the previous few months would have bankrupted most people. Selling futures over the past few months would have produced tremendous profits, but who really anticipated this?

Let me correct myself then. Buying future contracts for fuel delivery in today's market. You are correct that just buying futures is risky. Big fuel users can lock in lower costs now for future deliveries.

 

[Timsup2nothin]

Let me correct myself then. Buying future contracts for fuel delivery in today's market. You are correct that just buying futures is risky. Big fuel users can lock in lower costs now for future deliveries.

Except they can't. I went and checked the futures market and it is running at about thirty five a barrel for three month delivery. I have no idea what the spot market will look like in three months, but I wouldn't bet the farm on being able to profitably deliver at 35 bucks a barrel. The Saudis may have broken their competitors and be the only game in town by then and the spot market might be at a hundred. Who freakin' knows?

But man I wish I had sold oil futures back in February at 45 bucks a barrel for delivery today. Who knew?

 

[Birdjaguar]

Except they can't. I went and checked the futures market and it is running at about thirty five a barrel for three month delivery. I have no idea what the spot market will look like in three months, but I wouldn't bet the farm on being able to profitably deliver at 35 bucks a barrel. The Saudis may have broken their competitors and be the only game in town by then and the spot market might be at a hundred. Who freakin' knows?

But man I wish I had sold oil futures back in February at 45 bucks a barrel for delivery today. Who knew?

https://www.investopedia.com/articles/investing/081415/4-ways-airlines-hedge-against-oil.asp

The largest operating cost center for airlines, on average, are the companies' fuel expenses and those expenses related to the procurement of oil.
When oil prices are increasing in the global economy, it's natural that the stock prices of airlines drop. When oil prices decline in the economy, it's equally natural that the stock prices of airlines go up. Fuel costs are such a large part of an airline's overhead percentage-wise that the fluctuating price of oil greatly affects the airline's bottom line.

To protect themselves from volatile oil costs, and sometimes to even take advantage of the situation, airlines commonly practice fuel hedging. They do this by buying or selling the expected future price of oil through a range of investment products, protecting the airline companies against rising prices.

Purchasing Current Oil Contracts
In this hedging scenario, an airline would have to believe that prices will rise in the future. To mitigate these rising prices, the airline purchases large amounts of current oil contracts for its future needs.

This is similar to a person who knows that the price of gas will increase over the next 12 months and that he will need 100 gallons of gas for his car over the next 12 months. Instead of buying gas as needed, he decides to purchase all 100 gallons at the current price, which he expects to be lower than the gas prices in the future.

Purchasing Call Options
When a company purchases a call option, it allows the company to purchase a stock or commodity at a specific price within a certain date range. This means that airline companies are able to hedge against rising fuel prices by buying the right to purchase oil in the future at a price that is agreed on today.

For example, if the current price per barrel is $100, but an airline company believes that the prices will increase, that airline company can purchase a call option for $5 that gives it the right to purchase a barrel of oil for $110 within a 120-day period. If the price per barrel of oil increases to above $115 within 120 days, the airline will end up saving money.

Implementing a Collar Hedge
Similar to a call option strategy, airlines can also implement a collar hedge, which requires a company to purchase both a call option and a put option. Where a call option allows an investor to purchase a stock or commodity at a future date for a price that's agreed upon today, a put option allows an investor to do the opposite: sell a stock or commodity at a future date for a price that's agreed on today.

A collar hedge uses a put option to protect an airline from a decline in the price of oil if that airline expects oil prices to increase. In the example above, if fuel prices increase, the airline would lose $5 per call option contract. A collar hedge protects the airline against this loss.

Purchasing Swap Contracts
swap strategy to hedge against the potential of rising fuel costs. A swap is similar to a call option, but with more stringent guidelines. While a call option gives an airline the right to purchase oil in the future at a certain price, it doesn't require the company to do so.

A swap, on the other hand, locks in the purchase of oil at a future price at a specified date. If fuel prices decline instead, the airline company has the potential to lose much more than it would with a call option strategy.

 

[Timsup2nothin]

Yeah, that's why they buy at 35 a barrel. They can afford 35, they can plan around 35, and even though the spot market being at 25 when the time comes would mean they lost an opportunity they don't have to scramble trying to deal with 45 if that's what comes their way. A speculator that sold them that futures contract that the airline "hedged" with is taking the risk and hoping for the reward. Good on 'em and the airlines couldn't really function without them because the airline as an end user needs predictable costs even more than they need low costs.

But that speculator could really lose his ass if the spot market is way above his contract when it comes due. And current case I can't really even guess what the spot market is going to look like in three months. Futures contracts are running 35, and for all I know the spot market could be at ten with the entire world shut down by a virus and every storage container on the planet overflowing, or the spot market could be at 100 with all the bankrupted producers screaming bloody murder at the Saudis as they try to get back in production and the world at large trying to run at double speed to make up for lost virus time. I wouldn't put 35 dollars on a single barrel, myself, because as much as I'd like to get that hundred getting the ten instead is too real a possibility.

 

[adcarrymaokai]

Me watching all the useless grifters of Wall Street lose their minds over their imaginary numbers.

 

[civvver]

That's always how it goes though. If you knew for sure what the market would do you could beat it for a lot of money. Anybody who has traded ever would like to possess that ability!

Sure but what I mean is ride trends. You'll never hit the top, but as of Friday/Monday it looked pretty obvious that wasn't the bottom and it would drop more. But it's too slow to do in a 401k cus it might be nearing the bottom now.

 

[tuckerkao]

By setting an arbitrary buy point like 20,000, you are likely to also miss the next bottom. If it is at 21,000 and you ignore it, then you make a huge error. It's tough.

Dow Jones is only at around 21,200, I don't feel like the bottom will be at 21,000 for any reasons, the Coronavirus main enemy is not close to the end from all the perspectives.

 

[Hrothbern]

Dow Jones is only at around 21,200, I don't feel like the bottom will be at 21,000 for any reasons, the Coronavirus main enemy is not close to the end from all the perspectives.

I would guess that Trump will do everything to get the dip now as deep as possible... so that when his election campaign gears up he can point at increase after increase November nearing.

Has Trump more ammo yet unused to get the Dow lower ?

When will he tack ?

 

[Socrates99]

I would guess that Trump will do everything to get the dip now as deep as possible... so that when his election campaign gears up he can point at increase after increase November nearing.

Has Trump more ammo yet unused to get the Dow lower ?

When will he tack ?

I'm not sure presidents have as much power of the markets as people think they do. He can say and do dumb **** that makes them drop but intentionally bringing it back up at the opportune time would be tougher to pull off.

 

[Hrothbern]

I'm not sure presidents have as much power of the markets as people think they do. He can say and do dumb **** that makes them drop but intentionally bringing it back up at the opportune time would be tougher to pull off.

I saw this: Trump destroys about $500bn in equity market value in course of an 11-minute speech

Trump, after a week as a bystander, has put his imprimatur on the coronavirus crisis, and in a way that hammers UK shares. Larry Summers, the former chief economist at the World Bank, commented: “The president has set what I believe is a new world record for presidential market value destruction. He destroys about $500bn in equity market value in course of an 11-minute speech. Destruction roughly doubles as investors take an hour to analyse the speech. Loose lips sink ships. Imprudent rhetoric sinks markets.”
https://thetop10news.com/2020/03/12/donald-trumps-eu-travel-ban-is-driven-by-politics-not-science/

 

[Socrates99]

I saw this: Trump destroys about $500bn in equity market value in course of an 11-minute speech

Yeah tanking them seems to be easy. Its bringing them back up at will that'd be difficult.

 

[Timsup2nothin]

Yeah tanking them seems to be easy. Its bringing them back up at will that'd be difficult.

If he just tanks it over and over and over eventually there is so much upward pressure that he can make it go up just by shutting up and letting it happen?

 

[Socrates99]

If he just tanks it over and over and over eventually there is so much upward pressure that he can make it go up just by shutting up and letting it happen?

Lol that's probably true.

 

[Hrothbern]

If he just tanks it over and over and over eventually there is so much upward pressure that he can make it go up just by shutting up and letting it happen?

That was my thinking behind my post

Works if you can tank a lot more down than the "true" value and blame foreign countries and Pence for the rest.

 

[Socrates99]

That was my thinking behind my post

Works if you can tank a lot more down than the "true" value and blame foreign countries and Pence for the rest.

Ooh, that'd give him the double bonus of dumping Pence. From the sound of it he's not a massive fan of his running mate. He only picked him as an olive branch to evangelicals who were turned off by his...grossness.

 

[Birdjaguar]

I would guess that Trump will do everything to get the dip now as deep as possible... so that when his election campaign gears up he can point at increase after increase November nearing.

Has Trump more ammo yet unused to get the Dow lower ?

When will he tack ?

Trump now, in addition to the "impeached" title, has the dubious honor of ending the longest bull market in our history. He is not happy with either.He can't undo either either. His boast of 3% growth, while never a reality, is also gone and he is hoping to avoid a "Trump Recession" award now. Of course, like posted above, there has been an enormous loss of wealth by the wealthy.

His only useful card left is federal payments to those who lose jobs or are forced to take unpaid leave. And that has to happen as soon as those things begin. He can't wait or make it complicated to get. I'm not sure the he or Congress will take that step.

 

[hobbsyoyo]

Trump now, in addition to the "impeached" title, has the dubious honor of ending the longest bull market in our history. He is not happy with either.He can't undo either either. His boast of 3% growth, while never a reality, is also gone and he is hoping to avoid a "Trump Recession" award now. Of course, like posted above, there has been an enormous loss of wealth by the wealthy.

His only useful card left is federal payments to those who lose jobs or are forced to take unpaid leave. And that has to happen as soon as those things begin. He can't wait or make it complicated to get. I'm not sure the he or Congress will take that step.

The Senate won't pass anything that doesn't include a corporate bailout and I very much doubt they'd go for personal bailouts, much less much needed reforms.

 

[Estebonrober]

It will be interesting in the future to read the book excerpts (I'm ont buying anything by anyone who participated in this garbage administration) about how these two weeks went down. I don;t think Trump intentionally does anything, he's like a ignorant walking chaos cloud. Think Taz from Looney toons but like more dumb.

 

[Estebonrober]

The Senate won't pass anything that doesn't include a corporate bailout and I very much doubt they'd go for personal bailouts, much less much needed reforms.

Oh no we will all be starving in the streets before this GOP acts on anything other than rich people interests, their lives will literally have to be on the line.

 

[hobbsyoyo]

Oh no we will all be starving in the streets before this GOP acts on anything other than rich people interests, their lives will literally have to be on the line.

Yup. And what's crazy is that they can see the looming election disaster but are so deep in their own echo chamber that they have convinced themselves everything will be fine if they just believe in Trump hard enough. If the House wipeout last year wasn't enough to wake them up, nothing will be.