Option Queen Letter

This week is a quadruple witch week which will usher in exceptional volatility. We are in the pre-Christmas mode and the market is depressed enough to end the expiration with a boost to the upside. By Friday noon, with the future's expiration out of the way early in the morning trade, it is likely that things will slow to a crawl. Christmas Eve is Monday and that session will only be a half-day, inspiring some early-escapes to that Christmas vacation.

Forget about sub-prime problem, we have the "Exotic Mortgage" mess next, and this one involves the high end borrower and not the low end borrower! What happens when the McMansion is mortgaged at a higher valuation than the McMansion can be sold for?

What happens when the real-estate taxes are due on the McMansion? Here is a thought, strip the house of all salable items and abandon it. Let the bank, the lenders, and the municipality fight over who gets the leftovers. No, this is not an imaginary scenario, but a very real one which is the next part of the housing bubble to burst! Here we are hitting the high end, not the low end of real-estate. Further, there will be less compassion for this group of borrowers than was seen for the low-end sub-prime borrowers. Think about some of the expensive high end communities without a tax base to draw upon, interesting huh!