“No End In Sight”

by Phil's Favorites - July 31st, 2008 7:45 pm

Courtesy of Vinny Catalano’s Musing on the Markets. 

What To Do With ‘No End In Sight’

U.S. bank stocks may be staging another suckers’ rally.

– Reuters, July 31, 2008

From time immemorial the four most dangerous words in the investment language have been “This time is different”. Today, however, a new phrase seems destined to join the dreaded phrase group – “No end in sight”.

If an investor assumes that the IMF is correct, then the bank loss write-downs could reach $945 billion. If hedge fund investor extraordinaire John Paulson is correct, the number increases to $1.3 trillion. If Bridgewater Associates is correct, the number rises further to $1.6 trillion. And the top end of Nouriel Roubini’s disaster scenario range is a cool $2 trillion.

At under $500 billion in losses taken thus far, “no end in sight” is an apt phrase.

But, to quote the Joker, “Why so serious?”

Investment Strategy Implications

While the relief certain investors may feel due to Merrill’s (MER) actions may be premature, investment strategy considerations drive the current portfolio decision-making process. For, if an investor has been fortunate enough to have produced alpha thus far this year – for example, portfolio and investment strategy decisions made in the Model Growth Portfolio [MGP] have yielded over 300 basis points of alpha [i.e., the excess return over the market] thus far this year – then the real risk may not be the next plunge in equities (that’s coming) but the danger in not exploiting the near-term momentum game courtesy hedge fund momentum players and thereby losing valuable alpha in any short-term bear market rally.

Therefore, the appropriate current investment strategy appears to be largely a market neutral one. With an undervalued market and no sustainable and exploitable trends or themes at work, being fully invested – yet with no particular tilt from a sector perspective* – seems most appropriate. It’s only from a style and size perspective that a modest tilt toward the Smids [Small and Mid Caps] and growth (as opposed to value) remains advisable**.

So, when Warren Buffett declares that the financial crisis due to “financial weapons of mass destruction” is “far from over”, investors should heed the warning. For those who are paid to exploit near term market moves, however, an undervalued market dominated by hedge fund momentum players is too hard to ignore and an investor stands to lose a considerable amount of hard won alpha***.

No end in sight is real. However,…

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Long-Term Portfolio Status

by Phil - July 31st, 2008 6:01 pm

It’s been a rocky week.

First we’re under-covered, then over-covered, and now under-covered again as there just was not enough time to cover into that drop after I called it at 11:01.  We’ll have to see what tomorrow brings but, on the whole, I’m not buying Greenspan’s doom and gloom scenario but it doesn’t do me any good if I’m the only one so we have to go with the flow tomorrow, even if it flows downhill.

This is another one with too many positons over time so I have to use the annoying format.  I can’t even imagine having to re-enter all these into a new portfolio (and I’d lose all my notes):

Alerts Issue Symbol Description Qty Trans Date Age Net Cost Issue Price/ Total Change Effective Cost /Shr Lower Stop Limit Upper Stop Limit Curr. Price/ Change Today Gain/Loss Market Value   APVAJ Jan 2009 150 CALL [AAPL @ $158.95 $-0.93] 40 7/23/2008 (170) $72,010.00 $18.00 $6.95 n/a     $24.95 $-0.65 $27,790.00 38.6% $99,800.00   AJIAI Jan 2009 45 CALL [AIG @ $26.05 $-0.71] 50 11/2/2007 (170) $2,510.00 $0.50 $-0.30 n/a     $0.20 $-0.12 $-1,510.00 -60.2% $1,000.00   AXPAI Jan 2009 45 CALL [AXP @ $37.12 $-0.42] 80 9/4/2007 (170) $10,400.00 $1.30 $0.70 n/a     $2.00 $0.00 $5,600.00 53.8% $16,000.00   WBOAL Jan 2010 60 CALL [BA @ $61.11 $-2.71] 80 4/23/2008 (534) $131,610.00 $16.45 $-6.45 n/a     $10.00 $-1.70 $-51,610.00 -39.2% $80,000.00   WBOAM Jan 2010 65 CALL [BA @ $61.11 $-2.71] 80 9/4/2007 (534) $96,010.00 $12.00 $-4.20 n/a     $7.80 - $-33,610.00 -35.0% $62,400.00   WRVAC Jan 2010 15 CALL [C @ $18.69 $-0.12] 100 3/20/2008 (534) $42,510.00 $4.25 $2.00 n/a     $6.25 $0.25 $19,990.00 47.0% $62,500.00   COHAE Jan 2009 25 CALL [COH @ $25.51 $-0.25] 60 8/29/2007 (170) $26,770.00 $4.46 $-0.56 n/a     $3.90 - $-3,370.00 -12.6% $23,400.00   FREAU Jan 2009 7.5 CALL [FRE @ $8.17 $-0.56] 150 7/8/2008 (170) $43,520.00 $2.90 $-0.20 n/a     $2.70 $-0.60 $-3,020.00 -6.9% $40,500.00   HOVAU Jan 2009 7.5 CALL [HOV @ $7.03 $-0.05] 200 11/15/2007 (170) $23,610.00 $1.18 $0.52 n/a     $1.70 - $10,390.00 44.0% $34,000.00   MCDAJ Jan 2009 50 CALL [MCD @ $59.79 $-0.66] 40 1/11/2008 (170) $31,410.00 $7.85 $2.95 n/a     $10.80 $-0.60 $11,790.00 37.5% $43,200.00   UVMAE Jan 2009 25 CALL [MRVL @ $14.79 $0.08] 30 7/27/2007 (170) $1,060.00 $0.35 $-0.20 n/a     $0.15 - $-610.00 -57.5% $450.00   PFQAA Jan 2009 5 CALL [PEIX @ $1.87 $-0.03] 60 1/23/2008 (170) $5,710.00 $0.95 $-0.85 n/a     $0.10 - $-5,110.00 -89.5% $600.00   QQQAR Jan 2009 44 CALL [QQQQ @ $45.46 $-0.11] 100 7/23/2008 (170) $36,320.00 $3.63 $0.62 n/a     $4.25 $0.24 $6,180.00 17.0% $42,500.00   SFQAC Jan 2009 15 CALL [SHFL @ $4.83 $0.09] 40 9/12/2007 (170) $1,810.00 $0.45 $-0.45 n/a     $0.00 - $-1,810.00 -100.0% $0.00   WNQAP Jan 2010 80 CALL [SHLD @ $81.00 $1.72] 20 6/12/2008 (534) $26,010.00 $13.00 $2.30 n/a     $15.30 - $4,590.00 17.6% $30,600.00   KTQIN Sep 70 CALL [SHLD @ $81.00 $1.72] 40 5/6/2008 (51) $24,370.00 $6.09 $5.81 n/a     $11.90 $1.00 $23,230.00 95.3% $47,600.00   TIEIV Sep 12.5 CALL [TIE @ $11.26 $-0.61] 300 4/10/2008 (51) $41,410.00 $1.38 $-0.58 n/a     $0.80 $-0.28 $-17,410.00 -42.0% $24,000.00   TXNAY Jan 2009 27.5 CALL [TXN @ $24.38 $-0.12] 150 12/29/2006 (170) $28,060.00 $1.87 $-0.83 n/a     $1.04 $-0.05 $-12,460.00 -44.4% $15,600.00   WLEAG Jan 2010 35 CALL [VZ @ $34.04 $-0.30] 100 4/25/2008 (534) $39,310.00 $3.93 $-0.28 n/a     $3.65 $-0.10 $-2,810.00 -7.1% $36,500.00   FMQAX Jan 2009 22.5 CALL [WFMI @ $22.17 $0.13] 50 5/20/2008 (170) $18,960.00 $3.79 $-1.12 n/a     $2.67 $0.34 $-5,610.00 -29.6% $13,350.00   WFRAK Jan 2009 55 CALL [WFR @ $46.21 $-1.29] 40 4/20/2007 (170) $16,010.00 $4.00 $-0.20 n/a     $3.80 $-0.30 $-810.00 -5.1% $15,200.00   WFRAJ Jan 2009 50 CALL [WFR @ $46.21 $-1.29] 40 2/15/2008 (170) $52,010.00 $13.00 $-7.60 n/a     $5.40 $-0.60 $-30,410.00 -58.5% $21,600.00   BHPMP Jan 2009 80 PUT [BHP @ $74.66 $-1.19] 40 5/2/2008 (170) $26,210.00 $6.55 $5.05 n/a     $11.60 $0.40 $20,190.00 77.0% $46,400.00   ZQNAM Jan 2009 65 CALL [AMZN @ $76.34 $-1.87] 80 6/12/2008 (170) $122,010.00 $15.25 $2.20 n/a     $17.45 $-1.13 $17,590.00 14.4% $139,600.00 ZQNHO Aug 75 CALL [AMZN @ $76.34 $-1.87] -80 7/17/2008 (16) $-10,390.00 $1.30 $2.55     $3.85 $-1.00 $-20,410.00 -196.4% $-30,800.00   BACBT Feb 2009 22.5 CALL [BAC @ $32.90 $-0.71] 100 7/10/2008 (205) $25,010.00 $2.50 $9.10 n/a     $11.60 $-0.55 $90,990.00 363.8% $116,000.00 BACIF Sep 30 CALL [BAC @ $32.90 $-0.71] -100 7/17/2008 (51) $-34,990.00 $3.50 $1.55     $5.05 $-0.50 $-15,510.00 -44.3% $-50,500.00   WBAAD Jan 2010 20 CALL [BAC @ $32.90 $-0.71] 200 4/14/2008 (534) $203,820.00 $10.19 $3.66 n/a     $13.85 $-0.40 $73,180.00 35.9% $277,000.00 BACIF Sep 30 CALL [BAC @ $32.90 $-0.71] -200 7/16/2008 (51) $-44,990.00 $2.25 $2.80     $5.05 $-0.50 $-56,010.00 -124.5% $-101,000.00   BSXAV Jan 2009 12.5 CALL [BSX @ $11.89 $0.14] 50 8/27/2007 (170) $8,260.00 $1.65 $-0.50 n/a     $1.15 $0.01 $-2,510.00 -30.4% $5,750.00 BSXHV Aug 12.5 CALL [BSX @ $11.89 $0.14] -50 7/22/2008 (16) $-4,140.00 $0.83 $-0.58     $0.25 $0.05 $2,890.00 69.8% $-1,250.00   GOPAJ Jan 2009 450 CALL [GOOG @ $473.75 $-8.95] 25 7/22/2008 (170) $141,260.00 $56.50 $4.90 n/a     $61.40 $-5.90 $12,240.00 8.7% $153,500.00 GOPHI Aug 480 CALL [GOOG @ $473.75 $-8.95] -25 7/31/2008 (16) $-34,990.00 $14.00 $-2.80     $11.20 $-4.10 $6,990.00 20.0% $-28,000.00   AXVAU Jan 2009 270 CALL [ISRG @ $311.29 $-1.57] 10 5/22/2008 (170) $42,510.00 $42.50 $19.20 n/a     $61.70 - $19,190.00 45.1% $61,700.00 AXVIT Sep 300 CALL [ISRG @ $311.29 $-1.57] -10 7/16/2008 (51) $-4,490.00 $4.50 $19.10     $23.60 - $-19,110.00 -425.6% $-23,600.00   IYTLO Dec 75 CALL [IYT @ $90.98 $-0.37] 20 7/8/2008 (142) $26,110.00 $13.05 $4.85 n/a     $17.90 - $9,690.00 37.1% $35,800.00 IYTHR Aug 90 CALL [IYT @ $90.98 $-0.37] -20 7/18/2008 (16) $-5,590.00 $2.80 $1.00     $3.80 $-0.40 $-2,010.00 -36.0% $-7,600.00   WXUAL Jan 2010 60 CALL [UTX @ $63.98 $-2.27] 30 7/13/2007 (534) $25,360.00 $8.45 $2.25 n/a     $10.70 - $6,740.00 26.6% $32,100.00 UTXHM Aug 65 CALL [UTX @ $63.98 $-2.27] -30 7/17/2008 (16) $-2,390.00 $0.80 $0.25     $1.05 $-1.16 $-760.00 -31.8% $-3,150.00   WMTAK Jan 2009 55 CALL [WMT @ $58.62 $0.06] 40 3/20/2008 (170) $12,010.00 $3.00 $3.50 n/a     $6.50 $0.00 $13,990.00 116.5% $26,000.00 WMTHY Aug 57.5 CALL [WMT @ $58.62 $0.06] -40 7/16/2008 (16) $-6,190.00 $1.55 $0.53     $2.08 $0.06 $-2,130.00 -34.4% $-8,320.00   YIVME Jan 2010 109 PUT [USO @ $99.99 $-2.14] 10 6/6/2008 (534) $19,810.00 $19.80 $6.10 n/a     $25.90 - $6,090.00 30.7% $25,900.00 IYSTW Aug 101 PUT [USO @…

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Butterfly Collection Review

by Phil - July 31st, 2008 5:33 pm

ELN blew all our profits!

It’s worse now as they just got more bad news on Tysabri as two more patients got PML in a study and that was the fear that originally killed the drug and knocked the stock all the way down to $3 and change a couple of years ago.  So total disaster on those now and we’ll probably make a killing plaing it in the DTP but not in this portflolio, where we’re just screwed.  Coming down from $35, I’m not sure a full butterfly would have fared much better and I’ll give some thought to taking long puts in the morrning to begin a leg where we can sell puts but if we can get out with $3K ($1.50 per share), I think we should just walk away from this one.

AAPL is fine and BIDU is high but either they are wrong or GOOG is wrong so we’ll see.  FSLR flwe down into the close, back at $284 and on track after all that.   We’re still up 75% on the puts and they are still a rip-off to buy out.  MA we did buy out the caller of and now we’ll wait, hard to say they didn’t bounce when the whole market tanked:

Description	Type	Cost Basis	Opened	Sale Price	Closed	Days	Gain/Loss $ %
AAPL
4 Aug 2008 160.00 AAPL CALL (APVHL)	SC	$ 1,960.00	7/24/2008	$ 2,590.00		7	$ 630.00 24.3 %
4 Aug 2008 165.00 AAPL CALL (APVHM)	SC	$ 1,810.00	7/23/2008	$ 2,830.00	7/24/2008	1	$ 1,020.00 36.0 %
6 Oct 2008 160.00 AAPL CALL (APVJL)	LC	$ 9,700.00	7/21/2008	$ 7,200.00		10	$ -2,500.00 -25.8 %
4 Aug 2008 165.00 AAPL CALL (APVHM)	SC	$ 810.00	7/21/2008	$ 3,890.00	7/22/2008	1	$ 3,080.00 79.2 %
4 Aug 2008 165.00 AAPL PUT (APVTM)	SP	$ 3,500.00	7/21/2008	$ 4,390.00		10	$ 890.00 20.3 %
4 Oct 2008 160.00 AAPL PUT (APVVL)	LP	$ 5,010.00	7/21/2008	$ 4,920.00		10	$ -90.00 -1.8 %
Total Gain/Loss for AAPL							$ 3,030.00 13.3 %
BIDU
2 Aug 2008 330.00 BIDU PUT (BDUTE)	SP	$ 1,420.00	7/25/2008	$ 3,190.00		6	$ 1,770.00 55.5 %
2 Dec 2008 300.00 BIDU CALL (BDULZ)	LC	$ 10,172.00	7/23/2008	$ 15,360.00		8	$ 5,188.00 51.0 %
2 Aug 2008 330.00 BIDU CALL (BDUHE)	SC	$ 4,920.00	7/23/2008	$ 218.00		8	$ -4,702.00 -2,156.9 %
2 Aug 2008 290.00 BIDU PUT (BDUTY)	SP	$ 750.00	7/23/2008	$ 4,274.00	7/24/2008	1	$ 3,524.00 82.5 %
2 Dec 2008 300.00 BIDU PUT (BDUXZ)	LP	$ 9,790.00	7/23/2008	$ 5,380.00		8	$ -4,410.00 -45.0 %
Total Gain/Loss for BIDU							$ 1,370.00 5.1 %
ELN
20 Oct 2008 20.00 ELN CALL (ELNJD)	LC	$ 7,010.00	7/30/2008	$ 4,200.00		1	$ -2,810.00 -40.1 %
Total Gain/Loss for ELN							$ -2,810.00 -40.1 %
FSLR
5 Sep 2008 270.00 FSLR CALL (HJQIZ)	LC	$ 13,160.00	7/24/2008	$ 16,100.00		7	$ 2,940.00 22.3 %
5 Aug 2008 260.00 FSLR CALL (HJQHY)	SC	$ 15,000.00	7/24/2008	$ 11,640.00		7	$ -3,360.00 -28.9 %
5…

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Day Trading and Stocks Review

by Phil - July 31st, 2008 5:22 pm

Day Trading is another one I’m ready to purge.

At least it’s easy to review - We have 100 BA Nov $60s that are down almost 50% and we discussed in comments today about rolling them into a Sept vertical but I’m not too keen on that as it’s just money laying there so I’m thinking it over.  We have 50 FIG Sept $10s that are up 83% and looking good and then we have the 40 GOOG $470s, that finished poorly but then popped back up in after hours so we’ll see tomorrow.  That’s it.  The DTP is up 196% since 5/19 and has $169K in cash as I’ve gotten back to more pure day trading and less long holds (BA being the one old one we’re stuck with).

Stocks are up very nicely for a 10 day-old portflio at 7%.  Lots of sold puts and just our naked SIRIs and the HOVs with those puts sold as well.  The only put I’m worried about owning is C and I’m not worried about that because I don’t mind owning C for $17.40 if it does get put to us:

…

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$25K Portfolio Status

by Phil - July 31st, 2008 5:11 pm

I have to use this ugly format because there are way too many positions to run the history.

I think when I have some time (perhaps 2016) I’ll purge this portfolio and start fresh as it’s a real pain for me to reformat this just to get it to be this ugly!  As with the $10KX, the GOOGs are getting worrysome but everything else is fine.  Great example of why we do not move butteflies around just because the market goes up or down 200 points - you just have to wait a few days and, often as not, you are back on target: