Well if you were following the stock market closely today and wondering why much of it was uninspiring and unexciting, you needed only to have switched to NBC late in the afternoon to discover where everybody’s attention was…golf! That’s right, Tiger Woods clinched his 14th major title after forcing a playoff yesterday – check this out for a great reaction!
Indeed the market action today was so relatively dull compared to the golf that it’s almost tempting to do a blow by blow of the 19 hole playoff – that’s right 18 holes wasn’t enough to separate Rocco and Tiger. But in fairness to the non-golf fanatics, we’ll skip that and get straight to the market.
Sneaking up without garnering much attention of late (other than among the cognoscenti) is OptionsXpress. The stock is up approximately 25% since its low a few months ago and is slowly but steadily climbing ever higher. In our Trade Alert on OptionsXpress, we refused to limit the profit potential on the short calls at trade initiation (we entered fewer short calls than long calls) precisely because we expected the stock to make a substantial move higher at some point during 2008. At times like these, it pays to hedge; it just doesn’t pay to hedge too heavily sometimes! And our OptionsXpress Trade Alert from some months ago has been a prime example of what is needed to make money in this choppy market.
-
Patience has been key and still is required!
-
Due diligence; we believed in the fundamentals even when the stock was beaten down unfairly in tandem with other brokerage companies.
-
Hedging; we’ve benefited from a number of short calls expiring worthless.
-
Scaling; we’ve entered two of our three tranches.
-
Adjustments; we’ve had to roll our latest set of short calls up in strike price and modify the structure of the trade.
-
And planning; we’ve had to invoke Contingency Exit Plans while keeping an eye on our Target Exit Point all the while!
And mixing that assortment together, we have a darn good chance of escaping this Trade Alert with another profit!
While we did predict a volatile year ahead last December, we frankly did not expect the degree of volatility in the markets. Of the four Trade Alerts still open from January to May, two will be a close shave into expiration – DUG and FXI. OptionsXpress is starting to finally look quite good and that leaves CROX. If worst comes to worst, we’ll have to execute Phil’s plan of buying the shoes to boost the earnings results, but frankly we’re expecting the fundamentals to win out before we resort to desperate measures.
This month’s Trade Alerts are mostly aligned with our premise that the markets should find a bottom by the end of the month. While our hit rate at predicting tops and bottoms has been high this year, we’ll have no qualms about being proven wrong because that simply means adjusting to the new trend and following through on Contingency Exit Plans.
Sometimes, the complexities of the market can indeed be distilled into some simple rules and a system that is repeatable. Many systems exist. Whichever one you choose, make sure you do choose one. Once you have a system that accounts for all market conditions, you can always win in the long-term. Without a system, the movements of the market can appear as random as undulating waves and it’s hard to sail anywhere if you don’t know how to judge the wind and hoist the spinnaker!
Have a fantastic week!
Stock and Option Trades
