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Wild Weekly Wrap-Up

Woo hoo, we fininshed the week up 33 points!

We had lots of fun getting there though with a 250-point top to bottom move EVERY SINGLE DAY.  It just doesn't get any better or worse than that, depending on what type of trader you are.  Friday was the worst as we fell all the way from Thursday's hopeful open at 12,500 all the way to the pit of despair at 12,155 at 3:10 Friday afternoon only to finish back just under 12,400 so quickly that we didn't even have time to enjoy it (but it really saved our virtual portfolios for the week!).

I mentioned in the morning that the sell-off was overdone at 12,250 and another 100-point drop in the morning did nothing to change my mind but I kept up that theme all day during member chat and, fortunately, we maintained a fairly bullish outlook and stuck to our guns during the sell-off.  As we have now delayed the launch of the basic membership site unitl March 7th and we have some comments available on the free site, I will tell you to read the Friday post and comments if you want to see how we handled the day, rather than rehash it here.

On Friday the 15th we were in absolute pain and just wanted the week to end as we dropped from a high of 12,627 on Wednesday the 13th all the way down to 12,216 in intraday action on Friday.  Let's remember that that sell-off was caused by the anticipated St. Valentine's Day Massacre of Bernanke and Co as they addressed the Senate Banking Committee and a lot of the residual selling sentiment is based on the fact that Bernanke must face Congress in what used to be called Humphrey Hawkins testimony when Greenspan used to do it but, after seeing Bernanke's inept handling of the testimony, Mr. Hawkins apparently came back from the dead to demand his name be disassociated from that circus.

It's the Congressional report that has all three rings of the circus in action with our Congresspeople really representing the full gamut of the American people, many of whom, unfortunately, aren't very knowledgable about banking.  Unfortunately, you don't have to pass a test of any sort in order to waste everyone's time – you only need to be elected to Congress!  Of course, we also get to see another episode of "When Ron Paul Attacks," that's always fun!

The next day (the last day of the month) the Senate Banking Committee gets another whack at Ben but he'll be by himself this time and he's already been spanked so I'm not expecting the same market reaction as we had on the 14th.  I'll simply more or less repeat here what I said in last week's wrap up (and we are STILL at the same maket levels): "There was nothing we heard this week that made things worse than they were last week and, as I said the morning of the 15th, this is what the market needs to make sure that buyers coming in now are real buyers, not delusional optimists that get chased out of their positions every time Bernanke’s voice cracks."

Consolidation is GOOD, not bad.  We've been floating between 12,000 and 12,700 since mid-January and it's the same range we were in between Nov 2006 and Apr 2007 before we took off and gained 2,000 points.  You can look at this chart and decide we are going to fail, and that 2 years of corporate growth and profits were all some kind of fleeting illusion, or you can say: "Well, perhaps 14,000 was a little irrationally exuberant but going back to to 11,000, which is a level we skirted since early 2004, would seem a bit overly bearish as well."

Overly bearish and overly bullish have been characteristic of this manic/depressive market for months now.  It has fallen on me to take on the role of stock market therapist and talk the bulls off the highs and talk the bears out of the lows, often within hours of each other!  On Tuesday morning, the futures market was up almost 150 points and I said:  "It LOOKS, from the futures, like we are heading into a very strong open for no particular reason other than nothing really bad happened over the weekend."  It didn't take me long to be right about that one as we were down 100 points by 11:20, back to even by 3pm and a 40 point loser by the day's close.

Wednesday we were fortunate enough to assume that the Fed minutes would spart a pointless rally based on a rehash of the same but only after the CPI put a knife in the heart of the bulls that morning.  Apparently many investors simply don't believe in inflation unless it come in a government wrapper and Wednesday's report was a doozy in that regard.  My morning call was right on target, saying: "So, despite all the bad news this morning I am not changing my outlook.  We will wait for a bottom and start picking up some of those beaten down securities.  HPQ had great numbers and raised guidance last night but the stock is barely moving this morning so don’t worry if your stock is down, it’s probably nothing personal…"

While Wednesday went EXACTLY as expected, the rise of oil to $100 turned us bearish again and we flipped from QID (Nasdaq Ultra-Shorts) puts in the morning to QID calls in the afternoon, despite the strong LOOKING action. Thursday morning I said: "I’m calling this post "Thrilling Thursday Morning" but I make no promises about the afternoon" and the picture on the right said 1,000 words as we went downhill fast all day, from 12,500 all the way down to 12,250, led by a deflating energy sector, which picked up the post $100 blues.  The QID $48s I selected in the morning post opened well below our $3.75 target and topped out at $6 in Friday's drop, not bad for 2 days!

Thurday was demoralizing and upsetting and many of our members were getting demoralized and upset so I used my gentle, diplomatic tone in the wrap-up and called TA bears a bunch of wimps who need to stop letting the squiggly lines on a graph run their lives.  As our guest speaker, Vladimir Putin, so eloquently put it that night: "Grow a pair and buy some stocks."

Friday, as I mentioned above, was a real capitulation day for many as those last 100 points down really started to get to people and our stand against the stampeding sheep looked pretty much like this right up until 3:28 when we suddenly became geniuses.  Mega Kudos to Andrew Wilkinson and Rebecca Darst, who gave us a heads up on heavy May call volume at MBI and ABK, which was very much in line with my theory that the fears of a bond meltdown were way overdone.  We caught the turn on MBI at 1:06 and Charlie Gasparino made some nice comments about them just 7 minutes later on CNBC.  Like I said, you can read Friday's comments to see how cool MOST of us were under pressure so no need to rehash it here.

Despite being "right" about many of the market's moves during the short week, we did not do all that well in our virtual portfolios.  We had chosen a bullish stance and the week was flat and we made a few adjustments that cost us some additional money.  There is nothing wrong with that – Warren Buffett's Rule #1 is "Don't lose money" and that's what we are trying to avoid in a week like this.  We have safeties in place when things go up and we have our main positions when things go up and even flat works for us as we sell a lot of calls but choppy doesn't work for anybody who is not day trading and it just doesn't get much choppier than this.

 Our day trading is done in the Short-Term Virtual Portfolio and we posted a 5% gain there for the week.  Due to the sudden rally on Friday we did not have time to re-cover callers that stopped out on us and we went into the weekend with 26 open calls against just 4 puts, although the net values are only about 2:1, it would have been nice to have more protection over the weekend.

The Long-Term Virtual Portfolio had far less activity and added just 1% for the week with 35 open calls and 12 covered spreads.  Despite the crazy swings, we merely followed through with the strategy laid out in the LTP Review from way back on Valentine's day because, as I said, nothing really happened since then!  This is a good week to point out to new members how utterly relaxing it can be to employ the LTP strategy in a dicey market compared to sweating out the day-to-day short-term movements!

Our brand new $10,000 Virtual Portfolio is now the $9,248 Virtual Portfolio, booking a 7.5% loss on the week.  It was a very rough week to pick up new posiitions and we still have just under $6K in cash to deploy but we're going to need a pretty good reason to use it if we don't get any good movement out of our first 4 positions. 

The Old $25,000 Virtual Portfolio ended the week down $100, also with very little variation from the plan we laid out on the 15th.  This I would urge new members to study as well as it is a great illustration of the value of a well-balanced virtual portfolio.  We made very few moves in it this week and it held fast, very in-line with my crisis management article "Don't Just Do Something, Stand There."

Our New $25,000 Virtual Portfolio celebrated its first 4 days with a 7.3% loss at $23,175 with $14,750 remaining in cash.  This is not surprising as it's the same 4 positions as we have in the new $10KP but we are more likely to take another stab at new positions next week with the much larger reserve of cash remaining.

We were also frozen in our tracks in the Bargain Basement Virtual Portfolio and made no moves that weren't already planned from the prior week.  When in doubt, stick to the plan.  The "plan" however, did not stop us from giving back 5% of our 9% gain on this month-old virtual portfolio.  Again, I'm not totally displeased with the balance and there simply wasn't any real reason for us to panic and go off course, based on the movement of the past 4 sessions.

The Stocks Virtual Portfolio did surprisingly well this week, gaining a whopping 2% thanks to a nice move by MU (which we covered) and a decent performance from MRB.  Our other gold stock favorite, NAK, hit our buy point last week but we didn't want to be too gold heavy.  That's very unfortunate as NAK had a much better week than MRB!

Complex Spreads also lost 5% this week as our Apple and Google holdings had a very rough time.  Due to the sudden move up on Friday, both of these positions went naked into the weekend and I'm losing sleep over them, which indicates it was a big mistake (not necessarily from a strategy standpoint, but from a stress one).  The logic is that if Google and Apple open Monday at Friday's lows, I am no worse off than I was when I stopped out my callers on Friday AND I need to roll them down anyway but it's very painful to have a lot riding on just two open positions and is NOT worth the worry that could have been eased by taking a damn half cover.  Just my confessional on a stupid play I got myself into…

Nonetheless we picked up June $600s on Friday for $11, not that we're so sure we're going to zoom back to $600 by them but because $11 seemed pretty darn cheap on a risk/reward basis, just looking for $14 or better on a call that traded as high as $140 just 2 months ago.

 For the week, we took fairly little action, mainly buying out our beaten-down callers, closing 50 positions with and average gain of 43%.  While that's nice from a cash perspective, the fact that we were flat to down across the board indicates that our remaining open positions took a pretty good hit and we are risking the gains we took off the table in the form of our uncovered positions.  We fininshed the week accidentally more bullish than we had planned and hopefully our folly will be rewarded by fortune next week but this is certainly not our first choice of strategies:

Description

Type

  Basis

Open

 Sale Price

Sold

 Gain/Loss

%

10 MAR 08 45.00 NEM CALL (NEMCI) LO  $    6,810 2/5  $    6,690 2/23  $       (120) -2%
40 MAR 08 85.00 BSC CALL (BVDCQ) SO  $  16,810 2/15  $  22,990 2/22  $     6,180 37%
20 MAR 08 260.00 BIDU CALL (BDUCV) SO  $  15,010 2/19  $  21,990 2/22  $     6,980 47%
40 MAR 08 65.00 BIIB CALL (IHDCM) SO  $    3,210 2/19  $    7,590 2/22  $     4,380 136%
100 MAR 08 5.00 ETFC CALL (EUSCA) SO  $    2,010 2/19  $    5,990 2/22  $     3,980 198%
10 MAR 08 153.00 FXI CALL (FFPCW) SO  $    4,060 2/19  $    9,140 2/22  $     5,080 125%
15 MAR 08 105.00 IBM CALL (IBMCA) SO  $    6,010 2/19  $    7,330 2/22  $     1,320 22%
10 MAR 08 40.00 WFMI CALL (FMQCH) SO  $      310 2/19  $    1,990 2/22  $     1,680 542%
50 MAR 08 180.00 GS CALL (GPYCP) LO  $  14,010 2/20  $  33,090 2/22  $   19,080 136%
40 MAR 08 85.00 BA CALL (BACQ) SO  $    5,410 2/13  $    8,790 2/22  $     3,380 63%
40 MAR 08 27.50 C CALL (CCS) SO  $    1,050 2/14  $    3,790 2/22  $     2,740 261%
40 MAR 08 25.00 CY CALL (CYCE) SO  $    1,610 2/14  $    2,790 2/22  $     1,180 73%
40 MAR 08 85.00 BA CALL (BACQ) SO  $    5,410 2/19  $    8,790 2/22  $     3,380 63%
10 MAR 08 175.00 GS CALL (GPYCO) SO  $    7,410 2/19  $  11,300 2/22  $     3,890 53%
20 MAR 08 50.00 MDT CALL (MDTCJ) SO  $      770 2/19  $    1,990 2/22  $     1,220 158%
20 MAR 08 72.50 PEP CALL (PEPCA) SO  $    1,410 2/19  $    2,690 2/22  $     1,280 91%
5 APR 08 250.00 ISRG CALL (AXVDJ) LO  $  11,510 1/31  $  23,840 2/22  $   12,330 107%
20 MAR 08 55.00 MCD CALL (MCDCK) SO  $    2,410 2/21  $    3,390 2/22  $        980 41%
30 MAR 08 52.50 NEM CALL (NEMCX) SO  $    2,410 2/21  $    5,990 2/22  $     3,580 149%
20 MAR 08 30.00 TXN CALL (TXNCF) SO  $    1,610 2/21  $    2,830 2/22  $     1,220 76%
60 MAR 08 120.00 AAPL CALL (QAACD) SO  $  25,810 2/21  $  43,190 2/22  $   17,380 67%
20 MAR 08 510.00 GOOG CALL (GOPCU) SO  $  29,410 2/21  $  40,990 2/22  $   11,580 39%
5 MAR 08 28.00 CROX CALL (CQJCX) SO  $      410 2/20  $       890 2/22  $        480 117%
5 MAR 08 28.00 CROX CALL (CQJCX) SO  $      410 2/20  $       990 2/22  $        580 142%
10 JUN 08 90.00 RIMM CALL (RFYFR) LO  $  14,410 1/31  $  24,390 2/21  $     9,980 69%
150 MAR 08 124.00 DIA PUT (DAWOT) SO  $  42,010 2/20  $  49,490 2/21  $     7,480 18%
50 MAR 08 85.00 XOM PUT (XOMOQ) LO  $    7,010 2/20  $    8,990 2/21  $     1,980 28%
20 MAR 08 130.00 AAPL CALL (APVCF) SO  $    5,510 2/15  $    9,730 2/21  $     4,220 77%
5 MAR 08 120.00 AAPL CALL (QAACD) SO  $    3,560 2/15  $    4,840 2/21  $     1,280 36%
5 AUG 08 75.00 BA CALL (BAHO) LO  $    4,860 2/7  $    6,390 2/21  $     1,530 32%
80 JUL 08 27.50 MSFT CALL (MSQGY) LO  $  22,570 2/7  $  24,790 2/21  $     2,220 10%
5 JUN 08 28.00 CROX CALL (CQJFX) LO  $    3,275 2/19  $    2,150 2/21  $    (1,125) -34%
5 JUN 08 28.00 CROX CALL (CQJFX) LO  $    3,285 2/19  $    2,140 2/21  $    (1,145) -35%
30 MAR 08 126.00 DIA PUT (DAWOV) LO  $  10,960 2/1  $  15,440 2/20  $     4,480 41%
5 MAR 08 520.00 CME CALL (CNMCD) SO  $    8,860 2/19  $  11,490 2/20  $     2,630 30%
10 MAR 08 90.00 RIMM CALL (RFYCR) SO  $    9,210 2/15  $    8,630 2/20  $       (580) -6%
20 MAR 08 220.00 FSLR PUT (HJQOD) LO  $  38,010 2/13  $  49,590 2/20  $   11,580 31%
200 MAR 08 125.00 DIA PUT (DAWOU) LO  $  89,410 2/6  $  90,390 2/20  $        980 1%
20 MAR 08 85.00 DRYS CALL (DQRCQ) SO  $  10,210 2/19  $  13,390 2/20  $     3,180 31%
20 MAR 08 80.00 WFR CALL (WFRCP) SO  $    6,010 2/14  $  13,190 2/20  $     7,180 120%
40 MAR 08 120.00 AAPL CALL (QAACD) SO  $  30,010 2/15  $  37,990 2/20  $     7,980 27%
10 MAR 08 280.00 BIDU CALL (BDUCX) SO  $    5,510 2/15  $  22,990 2/20  $   17,480 317%
15 MAR 08 520.00 GOOG CALL (GOPCV) SO  $  21,010 2/14  $  47,990 2/20  $   26,980 128%
15 MAR 08 530.00 GOOG CALL (GOPCW) SO  $  15,010 2/19  $  25,500 2/20  $   10,490 70%
7 MAR 08 47.50 AXP CALL (AXPCW) SO  $      710 2/15  $    1,180 2/20  $        470 66%
4 MAR 08 34.00 CROX CALL (CQJCV) SO  $      210 2/19  $    1,110 2/20  $        900 429%
20 APR 08 40.00 SIGM CALL (MQNDH) LO  $  15,970 12/28  $  12,790 2/19  $    (3,180) -20%
10 APR 08 85.00 FDX CALL (FDXDQ) LO  $    5,010 1/3  $    6,690 2/19  $     1,680 34%
5 JUN 08 280.00 BIDU CALL (BDUFX) LO  $  11,510 2/1  $  15,290 2/19  $     3,780 33%
10 MAR 08 42.50 NDAQ CALL (NQDCV)  LO  $    2,220 2/6  $    2,000 2/19  $       (220) -10%

 


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  1. OK, Phil … that “Hold!” youtube clip was hilarious.


  2. sakiko-

    Thanks alot for the article on the Costa Rican exchange rate. I am still a little confused though. The exchange rate in 2002 was about 380 colones to $1. Today it is around 500 colones to the dollar. The link you posted says that the colon is rising in value, and as it said with US dollars flooding the market there it would make sense to me that the dollar would drop in value, but the exchange rate has been improving favorable to the US dollar. I guess what I am curious of is whether or not I get more for my money now than I did 5 years ago or if I get less. Do you have any knowledge of this? I am also planning to look at some property while I am there in hopes to possibly make a home purchase 2 or 3 years from now. Nothing set in stone for buying a house, but just thinking about it right now.

    Phil- maybe you have some advice for me as well. Here are my thoughts… I have a house in Houston (quickly developing area) that I got very lucky on. I purchased it about 1 year ago, and based on home sales in my area, it looks like I have realized an increase in valuation of about 25%! If all goes well, I was thinking of selling my home that is close to downtown here, buying something cheaper in the suburbs, and then taking some of my equity out of my house and using it to purchase a home in Costa Rica. Or maybe I should be looking to finance in Costa Rica and keep my equity here in Houston. I am 25 years old, so all of this is very new to me. I am also paying off my mortgage faster, where I have a 30 year loan right now, the extra that I am putting towards principle will pay off my house in about 9 years. I don’t want to make a huge mistake with this, but I am thinking that in 3 years time, I will have enough equity that this will be possible. My thought is that this also helps take some equity out of the US and put it into real estate in Costa Rica that may increase in value quicker. I would love to hear your thoughts.


  3. Blake – The Costa Rican Central Bank originally (post WWII) had an valuation policy that was based on the modified gold standard. After the US stopped using gold as the standard (early 70′s), that caused problems for other countries and Costa Rica’s CB implemented a fixed exchange rate, with some variation between one level and another. In 1979, there was a pretty big economic crisis, and the next four years caused major devaluation. After that time, their CB went to a policy of mini-devaluations, which sort of helped their economy. Just a short while ago (late 2006), they adopted a policy of crawling bands, so that participant banks are allowed to set their prices against the US dollar, so your 2002 number was measured against a different bar. The CB now intends to move the bands continuously upwards until their exchange rate can freely float against the USD.

    It seems to me that you get “about the same” in terms of buying power, 2002 v 2008… as you have to take inflation into effect.

    I would assume that RE valuations in CR would also rise faster than in Houston due to demand. There’s quite a bit of flight to CR from people here in the States. There’s a large community of retirees who were introduced to the country though medical tourism, and given that population, there’s generally not much need to leave your culture at baggage claim. My friend says that “everything he needs is there”.

    At your age, I was invited to manage a group in the Philippines, a country full of retired expats, although my reports were mostly within 5 years of my age. There were a few moralistic differences, and some things that took a little getting used to, but the four years I spent immersed in that (non-American) culture were easily the most contributive to my outlook on life. You should go down to CR and hang out for a couple of weeks. It should be eye-opener.


  4. Wouldn’t want to be short TTWO !!

    —--

    Electronic Arts, the video gaming giant, made an unsolicited $2 billion bid on Sunday for rival Take-Two Interactive, publisher of the Grand Theft Auto franchise, a deal that would further a wave of consolidation in the rapidly growing industry.

    Electronic Arts, which publishes hit games like the Madden N.F.L. and Need for Speed series, offered to pay $26 a share for Take-Two, a 50 percent premium over its share price of $17.36 on Friday. The offer was made publicly after a series of private offers to Take-Two were rejected by its board.

    Electronic Arts approached Take Two with a $26-a-share offer on Feb. 19, up from $25 share it initially offered on Feb. 15.

    The timing of the bid appears to be an attempt to acquire Take-Two before it releases what is widely expected to be the top-selling game of 2008, the fourth installment of the crime thriller Grand Theft Auto. The Grand Theft Auto franchise, Take-Two’s crown jewel, has sold more than 60 million copies since Grand Theft Auto III took the game industry by storm in 2001


  5. Good catch, Cap.

    Wonder how it will affect ERTS tomorrow (an old 25KP position)?


  6. Hey gang, just saw Phil’s comment from yesterday about an introduction page. I created the post and put up a simple bio for me. Anyone else who wants to add to it, please go ahead.


  7. Ambac: “person says” …. funny.


  8. Look at last week’s chart for TTWO …. flatline at 15.50 until Wed morning.
    Then straight up to 17.36 by Friday. Looks like someone knew something.

    Options not terribly active on Friday, however.


  9. Stock and Options Trades suggested a BIDU straddle spread a couple of weeks ago that I’m thinking of entering this week. Although front-month premiums have declined slightly with the reduced volatility post-earnings, they still look pretty juicy. So the trade would be:

    Long BIDU JAN 10 250 Call and Jan ’10 240 Put. Short MAR 260 Call and 230 Put. These short options still seem to have a good $400 in premium on them (each).

    This seems like a relatively safe play in an uncertain market. Any comments/suggestions on this trade are welcome.


  10. “Gann pulling off an amazing 92% winning trade ratio”
    http://en.wikipedia.org/wiki/William_Delbert_Gann

    Now that’s skill.


  11. DM,

    Loved the profile left on the new K1 introduction page. (PS: good job on the fast response to a good idea!).

    I’d recommend others to contribute, as it really adds depth to the community.

    Mine profile to follow…

    Jim


  12. K1,

    The kudos should be your’s for fast response to the introduction page idea. Great Job!


  13. Fast747- getting off the dime is a trait I’m working on. ;-) Glad you like the page. Once we get a wiki in place, we can *all* do this kind of stuff.


  14. Cuba / Castro …. for XIAN ….

    http://www.nypost.com/seven/02232008/postopinion/opedcolumnists/fidels_press_pals_98938.htm

    Hey, and I hear Raul Castro was “elected” today as the new jefe.

    Meet the new boss …. same as the old boss.


  15. Fast747 – Thanks! It is a good idea! Looking forward for yours.


  16. cuba- thanks, cap. i’m just glad bush wont b around to call terror on cuba if the change doesnt happen how he’d like. just got to give them some space to let younger people shape the society their way, if we get too gung ho on “democracy/freedom” in cuba, then we’ll likely alienate them.

    i found the last lines telling:

    “Castro has announced his retirement. I’m happy he’ll be gone, and hope he’ll spend his final days on Earth contemplating his eternity in hell.”

    by
    L. Brent Bozell III is president of the Media Research Center.

    what kind of “media research” goes on there? maybe they investigate new methods in historical engineering?

    it’s cool- nice.


  17. Hey look everyone, National Geographic did a show on Cramer and the gang over at CNBC!


  18. Well that weekend wedding turned out to be a weeklong vacation because we just couldn’t get off the slopes! Anyway, looks like I missed one helluva week. Not much damage to any of my portfolios. Hey Phil, I guess that’s a sign you’re rubbing off on me. ;)

    This is for CMan and a couple other people who asked for a sorta newbie guide to playing the small porfolios. Phil, you should read this, too, to make any corrections. I’m sure I’ll make mistakes in summarizing stuff or say something you don’t agree with.

    First of all, before putting any money at risk, read the New Member’s Guide and the K1 project. Second, when you think you’re ready to start following one of the smaller portfolios, read this post by 6fingerman and think again:

    http://www.philstockworld.com/newsletters/members/2007/12/20/thursday-morning-52/#comment-99037
    That one post probably saved me thousands of dollars. It convinced me I needed more seasoning, and the next month was a great learning opportunity. I can’t overemphasize how important it is to paper trade before you commit real money. And I mean really paper trading. Manage the trade just like you would if you had real money on the line. Only when I started understanding the lingo here and the whole lifespan of a trade did I start making real trades. Ask around. People will remember me asking a bunch of questions for what seemed like ages, but I only started trading after the January expiration.

    In reading through the week’s posts, I found a simple test to see if people are ready to start playing the 25kp. “CROX had a great dip today and, after 4 consecutive beats I don’t know what people are so afraid of. With these crazy tight strikes, I don’t mind taking a chance on this one so let’s make this our first $25KP play with 5 June $28s at $8.30 and sell 4 March $34s at $4 (hopefully) or whatever we have to by the end of the day. XXX” Did you punch in CROX and find out that earnings were that evening? If you didn’t, you can stop here. You’re not ready. If you did and took the trade, did you know why? If you didn’t have a clue, you can stop here. You’re not ready. If you had an idea for the trade, then do you understand this? “The reason we took the ITM $28s against the $34s at $3+ is because it lowers our basis to $5 and we don’t have to pay the caller back his money until the stock hits $37, which puts us $9 in the money so we will be in for no worse than net $6 (up 20%) and will gain penny for penny with the stock on the way up so we cannot lose ground to our caller. On the downside, we are in for just $5, which is the price of the June $35s so we have a $11 advantage (35%) before we even have to roll to cover and we can sell March strikes in $1 incriments between $26 and $36, which gives us a great chance to add a secondary income once the volatility goes away. Since our calls are the next earnings period, we have a very good chance of retaining most of our value regardless of which way it goes.” If you fully understood that, even if it didn’t quite match what you were thinking when you entered it, you’re ready to start trading with real money.

    What’s the best way to follow the 25kp picks? Beats me. What I found in following the two previous 25kps was that I can’t make every play, and that’s okay. For every EDU or MRVL that goes up right away and you curse yourself for missing it, there’s a CROX or BA that you can miss the first day or two and get a much better entry later. YHOO was a huge winner in the last 25kp, but those of us in it remember what loser it was to start off.

    My method for entering trades depends on what kind they are. I wasn’t here this week, but for CROX, I’m pretty sure I would’ve skipped it. I don’t like earnings plays because I’m still not confident that I’ll know what to do if they beat big or missed big. As much as Phil is here to answer questions, he can’t do it in real time. I would’ve waited the next day. If they beat, and he sells out to take the profit, oh well, I missed it. If they missed and went down big, I would’ve followed the rolls and legged into a new position there. Remember that at that point, getting even is “winning.” I also would’ve skipped the RUT butterfly. Still too advanced for me. I know what butterflies and condors are, but I have a hard enough time with straight spreads, let alone 2 spreads for one position. BA, I would have taken at 2, maybe even chased at 2.10. But since this was a current month play, I would’ve followed normal momentum rules. If I’m lucky enough to be up 20%, I put a stop at 10, 30%, stop at 20, etc. Sometimes this works (would’ve exited BA at 2.2), and sometimes it doesn’t (MCD from last month’s 25kp – I sold early at 2.65, but Phil exited later at 2.95).

    As far as managing trades once I’m in them, I always look at my exits. If we take the long leg first, I look at resistance levels and cover there. I did that with EDU March 60 calls at 5.3. If we go down right right away, I look at the volume and see if I’m willing to chance it naked or whether I should just sell no matter what. I did that with AIG March 50 calls last week at 1.30 that I’m down on now. But I follow my rules with no regrets. If they are front month plays, I consider them momentum plays, and I follow momentum rules, even if they end up being a day trade if I can’t find a good roll farther out.

    Other than that, I don’t really know what else to write. This isn’t easy, and you can’t expect to make money just trying to mimic the trades posted. Inevitably, you’ll pay more than you should for an entry, or you’ll miss an unstated cover or roll, or you’ll miss an exit. That’s why the first few months of paper trading and reading and learning are so important. Always know why you enter a trade and always plan for contingencies. What if it spikes up 10% in 3 days? What if dives off a cliff? Always know your rolls and your loss cutoff points. And never enter a trade you don’t understand. Sometimes, the winning move is just not playing.


  19. Asia Markets : Monday, February 25, 2008

    (The following is from WSJ; please cross check with other sources to confirm.)

    Japan*

    13914.57
    414.11
    3.07%

    Hong Kong*

    23269.14
    -35.90
    -0.15%

    DJ Shanghai*

    473.27
    -17.07
    -3.48%

    S.Korea*

    1709.13
    22.68
    1.34%

    India*

    17661.46
    312.39
    1.8%


    Baltic Dry Index (BDI)
    189 7187

    * at close
    Sources: Dow Jones, Reuters


  20. Financial Stocks Boost Asian Markets, Japan Gains 3%
    Asian markets rallied in the afternoon session Monday with financials stocks on the advance on talks of a possibly rescue plan for U.S. bond insurer Ambac. Japan surged 3 percent whilst South Korea added 1.3 percent. Financial firms such as South Korea’s Woori Financial and Japan’s Millea Holdings gained after news on Friday of a rescue plan for Ambac Financial, sparked hopes the bond insurer will maintain its top credit ratings, averting sell-downs of the debt it has guaranteed.

    Japan’s Nikkei ose more than 3 percent, posting a six-week closing high as market sentiment improved after a newspaper reported that China’s
    sovereign wealth fund planned to buy as much as $10 billion in Japanese stocks. South Korea’s KOSPI added 1.3 percent, led by lenders on hopes the sector could avoid further damage from the credit crisis. Australian shares finished 1.1 percent higher, led up by the financials.

    In markets still trading, Hong Kong blue chips edged higher as global bank HSBC Holdings led the way on news of the possible Ambac bailout which could stem further losses in credit markets. But bourse operator Hong Kong Exchanges and Clearing weighed on the market again, looking set for its fourth straight losing session, as investors shunned the stock amid a decline in this year’s turnover. China’s Shanghai Composite Index sank 3 percent over the huge supply of new shares, with Sinopec sliding after completing a 30 billion yuan ($4.2 billion) convertible bond offer. China Railway’s offer of up to 22.3 billion worth of A shares in Shanghai is also hurting the market, by draining funds temporarily as subscriptions are taken, and by fuelling concern about the market’s ability to absorb fresh supplies of equity in coming months.

    Financials Give Euro Markets a Boost
    European markets started the week firmly in the green, led higher by financial stocks on investors’ hope for a rescue plan for U.S. bond insurer Ambac.

    The financial sector opened 2 percent higher, with shares in Credit Agricole up more than 4 percent. Dexia rose by 3.8 percent and Deutsche Postbank was up 1.9 percent. Also in the financial sector, Royal Bank of Scotland led the gainers on London’s FTSE-100 index on reports that the bank could be in the sights of Qatar’s $60 billion investment fund as it seeks more opportunities in the European banking sector. Germany’s HSH Nordbank said Sunday it would start legal proceedings against Swiss bank UBS to recover significant losses on a $500 million CDO portfolio.

    The UK joined Germany in paying for the names of 100 wealthy Britons with money in Liechtenstein, reports said. The tax haven’s LGT Bank said it would take legal action against a whistleblower for releasing customer details. British bank Alliance & Leicester’s shares rose more than 5 percent in early trade after comments by rival Lloyds sparked speculation that A&L could become a takeover target.

    Finally, Roche Holding received U.S approval for its key Avastin drug, sending shares higher on the positive surprise.

    FTSE : 1.8%
    CAC : 1.82%
    DAX : 1.53%


  21. Oil Rises Above $99 on Iran Warnings, Turkish Raids
    Oil extended gains to above $99 a barrel on Monday, bolstered by Iran’s warning that more U.N. sanctions would be “costly” to Western powers, and after Turkey’s incursion into northern Iraq.

    U.S. light, sweet crude [ 99.51 0.70 (+0.71%)] for April delivery rose, adding to Friday’s 58 cents gain. London Brent crude [ 97.49 0.48 (+0.49%)] traded higher.

    “Prices are influenced by fresh geopolitical concerns as Turkish troops crossed into northern Iraq in an offensive against Kurd militants,” David Moore, a resource analyst at the Commonwealth Bank of Australia, said in a note to clients. Iran warned Western countries on Sunday that they would be the ones to suffer if they passed a new U.N. sanctions resolution on the Islamic Republic, raising the specter that the world’s fourth-largest oil exporter would cut crude exports.

    Oil’s gain was also supported by Turkey’s major attack on Kurdish PKK guerrillas in northern Iraq, which has raised fears that the offensive could further destabilize Iraq and disrupt oil supplies. Although the Turkish-Kurdish dispute has increased in scale, analysts have played down its threat to oil supplies, saying that the recent attacks are more illustrative of political instability in the Middle East and are unlikely to pose direct threats to oil flows in the region

    Oil surged to a record $101.32 on Wednesday, near the inflation-adjusted high of $102.53 hit in April 1980, as supply concerns and a rush of speculator money outweighed worries of a U.S. economic recession.

    Crude speculators on the New York Mercantile Exchange increased long positions sharply last week, according to data from the Commodity Futures Trading Commission released Friday.

    Net crude long positions rose to 60,873 in the week to Feb. 18, compared with 39,933 in the previous week.

    Dollar, High Yielders Rise on Strong Stock Markets
    The dollar strengthened versus the yen and euro on Monday and high yielding currencies were well-bid as stronger equity markets, on positive news about the U.S. financial sector, boosted investor confidence.Concern that financial firms may suffer greater losses if the bond insurers lose their top-notch ratings, leading to ratings downgrades on the fixed-income securities they back, has kept investors on edge since the start of the year.

    The dollar [ 1.4805 -0.0021 (-0.14%) ] was little changed versus the euro, retreating from three-week lows set last week. It was higher against the yen [ 107.75 0.60 (+0.56%) ] . Sterling [ 1.9648 -0.0019 (-0.1%) ] traded lower versus the dollar after a fall in British annual house price inflation to a 22-month low backed the case for more growth-boosting interest rate cuts.

    With relatively little on the European data front, investors will look to comments from European Central Bank President Jean-Claude Trichet who is speaking at 7 pm London time. Investors have pared back expectations of interest rate cuts from the ECB in recent weeks due to concerns about inflation.

    Gold edges up towards record peaks on renewed inflation worries
    Gold edged up towards last week’s record peaks as players piled back into the metal amid ongoing worries about global inflation risk, with crude oil rising back towards the 100 usd mark. Gold, seen as a safe haven asset and alternative play to the US dollar, often acts also as a hedge against oil-led inflation. Analysts at Standard Bank said alongside stagflation concerns in the US and higher euro zone inflation, rising oil prices have aggravated global inflation risk.

    At 9.57 am, gold was trading at 949.00 usd an ounce against 944.60 usd in late New York trade Friday. On Thursday, the precious metal hit a fresh record high of 953.75 usd an ounce.

    The dollar was strengthening against the euro, but gold prices failed to move lower in response, with analysts pointing out the inverse relationship between gold and the dollar has weakened in recent days.

    Elsewhere, platinum dipped to 2,155 usd an ounce against 2,164.00 usd in late New York trade Friday, when it rose to a record 2,203.50 usd due to ongoing fears over supply shortages linked to electricity cuts in South Africa.

    In other precious metals, palladium was flat at 509.00 usd an ounce, having touched 525 usd on Thursday – its highest level since mid-2001 – while silver edged up to 18.05 usd an ounce against 18.01 usd.


  22. Beth

    great entry, my biggest rewiring of my brain has been in looking at the longer position than the intraday fluctuations, like EDU, where I would traditionally not be in a spread and looking to get out with a small profit, these short-term views consumed an enormous amount of energy and caused to much stress.

    Now I look at it differently, the spread is not making huge profit looking isolated at the LONG side, but I have another 3 selling opportunities after March and already someone has kindly paid me 45% for my JUL position, I have no idea what will happen in the coming months, but I know that getting into a position, which has gained 15% since I bought it and have someone else pay for 45% of this and on top of that have to carry the worry of what happens to EDU for the next 23 trading days (MAR) and I having to worry about what happens to EDU for the next 144 days, makes me very happy.

    I still like the front-month bets, but I have to admit with limited time available to follow markets, the calendar spreads do agree with me and I am glad to have such excellent guidance from Phil and everyone else.


  23. DB

    As you may be around during UK hours, I was wondering if you have ever traded any European options (not type) but options on European instruments, I honestly know far more about the options on the US market than European markets. Any pointers or information would be appreciated… I am looking to see if a few LTP plays in the European markets are worthwhile.. thanks


  24. Andy – I’ve never traded European Options only shares so I cant be of much help I’m afraid. I came to PSW to learn options because of the protection element you get from puts and short calls. Oddly I’ve found that UK shares are a lot less voilatile than US at the moment and I’ve happily let my UK investments ride out the markets. Like you though , once I feel happy trading options I think I’ll dip into the European options scene. Assuming I can find a broker.


  25. Bernanke, Bush Fail to Build Better Economy With Cuts, Stimulus

    By Rich Miller

    Feb. 25 (Bloomberg) — Even if Ben S. Bernanke, George W. Bush and Congress win the battle to avert a recession this year, they risk losing the war to strengthen the economy for the long term.

    Growth will get a boost in the second half of this year as consumers spend some of the $107 billion in tax rebates passed by Congress and signed by Bush this month. The U.S. may suffer a letdown afterward as the kick from the stimulus wears off, leaving the economy vulnerable to its underlying weaknesses: a retrenching financial industry, indebted consumers and slowing productivity growth.

    “This is not a one- or two-quarter phenomenon,” says economist Neal Soss of Credit Suisse Group, who worked as an aide to former Federal Reserve Chairman Paul Volcker. “This is not a V-shaped event. It’s a slow-growth scenario.”

    http://www.bloomberg.com/apps/news?pid=20601087&sid=aSxn5qjpMC9E&refer=home


  26. Costa Rica – I’ll have to think about that one.

    Thanks Beth and welcome back!


  27. DB, I know that IB UK offers European options. IB as in interactive brokers


  28. Beth,
    Thanks for the post – will read the details later today when I have a few more minutes.
    Appreciate it.


  29. Excellent post Beth. Thanks