Investing

well, I have had now 5 different funds that have hit the 4% take profit as described below.  It feels like my whole “hold them until you make a profit” (see my last post) strategy is kinda working.  However with about 10% of my portfolio I shorted the market (bought puts) to kinda hedge my long bets. Needless to say with this recent mini rally (the rally responsible for all my take profits triggering) has wiped me out on those shorts.  I the end, I have lost a lot more on all my puts that than I have made with a measly 4% on half my portfolio.    I think I may be done with the option game for a while,  Just stick to picking really good income funds

-Jarred

I’ve been kinda taking a breather from the market lately.  By breather I mean that I have been getting my butt kicked.  I’ve held most of my short positions through this ridiculous rally.  There is no way to describe this behavior other than stupid.  I still believe that I’m right on the positions that I still have on the table but I didn’t give myself enough time on the suckers.  This is some advice that Jarred tried to give me awhile ago and I shrugged him off.  Now, he’s the one that should be laughing.

I think that this rally is just about done with though.  We’re touching some good resitence on the S&P at 1290 which I think has a good chance of holding.  I’m so sick off all this market rallying on bad news.  300 point rallies don’t happen in bull markets.  David Rosenberg says that every 300 point Dow rally has occurred during bear markets. http://bigpicture.typepad.com/comments/2008/08/300-point-dow-g.html

I bought 2 Nov PNC 70 puts at what I hope is the very pinnacle of the PNC run.  I’ve really loaded up the boat on this one.  I’m not too worried though.  This ship is going to sink at least a little bit, even if it doesn’t go to the bottom.  And this time I’ve given myself until November.  I was pretty excited to see Dow component AIG miss big time on their earnings after hours.  That should pull the market down.  But I’ve been wrong before.

Also: ZION has absolutely no business being almost $35.  I wish I had some free monies to short it.

The Ultimate No Fail Strategy (that isn’t working too well)

Out of frustration with constantly loosing money instead of gaining it I am trying to devises a more conservative strategy that is fool proof. (I guess that is every investors dream) This is how my current strategy works. I buy shares in diversified funds that payout a monthly dividend over 8% yearly. I choose dividend paying stocks so that I can buy on margin and have all of the margin interest payed for me by the divided. This essentially doubles my buying power for free. As soon as I buy shares of the fund I immediately put in a 4% take profit and simply hold on to the funds until they reach that 4% take profit level. If the fund declines significantly in value I buy more of that stock in order to lower my overall average price/share. Which then allows me to lower the 4% take profit order. My hope is that the funds will increase in value enough to trigger the 4% take profit (which is essentially 8% profit due to the double buying power). If I could do just twice in one year that would be a 16% return, which would easily beat the S&P (especial this year), If I could get it to trigger 3 times in one year I would make 24% which is a really decent return when the only risk I am exposed to is holding diversified income producing funds.

I have devoted around 90% of my portfolio to this strategy and have bought into ARK, AWF, CHI, CRF, CLM, DNP, ERC, ERH, ESD, FCC, GIM, and the only one that has triggered the 4% take profit was CRF (it did it in 2 days), All the other funds have just declined in value. I have stuck for a about 2 months now and have continued to purchase shares as the prices lower to try and keep that average price per share down. I guess the downside of the strategy is if the market is bearish, you will have to wait a long time for those take profit orders to trigger. So overall it just isn’t working very well yet, I have however lost my money more slowly which I guess is a accomplishment of some sort. I still have faith though, eventually on one of these bounces all of those 4% take profits will trigger. (I hope )

I’m really kinda liking that butterfly strategy Nate was talking about in the last post, Ill have to study up on how that works.

-Jarred

On the movie theme: in Master and Commander do you remember the seaman that had HOLD FAST tattooed on his knuckles? He gets some of his brains knocked around and doesn’t say anything for awhile in the movie. Then in an epic quote he tells the lads of the ship that the devil is at the helm of the Acheron and they better hold fast. Well that was lil’ market today, it took a nice fall and then held fast at 1240. I swear that I must have sat at my computer for an hour and stared at 1239, 1240, 1241, 1240, 1240, 1241, 1242, 1243, 1240…you get the point. But it finally broke but only by 5 points. I think that we will see further downside tomorrow but I got out of a lot of my positions. It was hard to keep track of 8 positions. And I got out of PNC which was starting to violate the sleep principle. [They say if a position keeps you up at night you should sell it down to where you can sleep]. PNC did me right by finally heading south in the last hour. And I hope to reenter at a higher price. I actually hope the whole market rallies a bit so shorts are cheaper because we sure aren’t done with this bear market.

And interesting trade that I did today was a butterfly in BAC. I bought a 27.5 put and 22.5 put and sold 2 25 puts against it. A butterfly is an option strategy that limits your risk to what you paid for it and has a much bigger potential. I’ve never put one on before so I’m just dabbling. I was even able to leg into it by buying the 27.5 and the 22.5 puts earlier in the day and selling the 25 puts later in the day when BAC was lower (the late day sell off plays again).

It looks something like this.

+1 Aug 22.50 put @ .54

-2 Aug 25 puts    @ 1.07 (2.14 total)

+1 Aug 27.5 put   @ 1.75

Total cost                  .15

So I’m risking $15 for the chance to make $250 if BAC is at 25 by August expiration.

-Nate

I remember watching the movie “Next” . It’s a movie where the main character, played by Nicholas Cage, is able to see into the future but only by a few minutes. He’s basically broke, forced to hash out a living by making small bets at blackjack casinos. Other parts of the plot aside, this is the most ridiculous thing I think that I’ve ever seen from Hollywood. If someone could see even 5 minutes into the future he/she would be the wealthiest person alive within a week even if they had to start with $5. Scalping small gains in stocks or forex, you could parlay your winnings into the trillions.

Right now it seems that the market is directionless, or at least I am. The bears say that with good economic data out today and oil’s retreat the market should have rallied strongly. The fact that it posted a small gain is bearish. The bulls say that just the fact that Thursday’s selling didn’t continue into today is a victory. Then there’s the lack of leadership in the market, Elliot Wave theorists who think the market will bounce followed by the end of the world, CNBC’s cheerleading, the government’s bailout of the housing industry with record foreclosures, etc. Next week will be an interesting week. I should have trimmed some of my gains. But I’m just too greedy. I’m hoping for a huge market sell off next week. But in reality nothing will probably move too much until we get the GDP or unemployment numbers. Being able to see into the future sure would be handy right now.

Edit: The takeover of a couple more banks by the FDIC, like the did with IndyMac should help my cause as the majority of my short positions are in PNC.

Today was a good day for the bears. I have been holding tooth and nail to my short positions. WFR dropped today but never saw the 38 handle that it reached in yesterday’s after hours. I need to sell out of it tomorrow and not get too greedy. I think I should be okay with a 400% gain. DRYS dropped again today. I don’t know which way it’s going to bust out of the triangle on the charts and was sick of seeing it as a $200 loss so I sold today at market close for a $40 profit. I bought 5 sept. PNC 55 puts for 1.10. I was glad to see that I wasn’t alone. Some institutional investor bought 2000 right before me. His $20,000 investment makes my $550 plunge feel a little bit better. And this is on a strike that had an open interest of 1 before today.

I’m really thinking about this phenomenon of the late day surge. If the market has rallied, it rallies more. If it has sold off, that too intensifies. It doesn’t work all the time. But this seems like a good way to make money playing the e-mini futures. I’ll keep you posted.

-Nate

So WFR turned out to be a darling. It was somewhat of an irritation and just wouldn’t go down. But they missed their earnings and were down 25% after hours. I have been getting creamed with these earnings. I’m glad that one decided to go my way.

I’ve recently lost some serious coin in ZION, PNC, and even my bonehead move in BAC cost me money. So I just hope to get where I was last week.

Oh, and I was definitely wrong Monday with my call that Tuesday would be a huge down day. I can’t believe that the Dow finished up 150 points. These banks are crazy! I’m just waiting for them to crack. I tried buying 3 Sept puts on PNC today but didn’t get filled on my price. Financials shouldn’t be rallying. And my thoughts are that they’ll come around by at least September. And once they get filled I’m thinking I’ll turn them into a vertical and sell some August puts below them. That’s the plan anyway. I haven’t been doing so great on any of my directional bets so I figure I’ll let some theta work for me while I step off on the sidelines for a bit.

-Nate

P.S. Maybe another gamble on WYNN earnings?

I believe that oil future prices will start to take a pretty big drop here in the next few weeks - months. I think this for the following reasons.

-The possible upcoming oil future regulation now in the works

- Currently inflated price well above the demand.

-New supply, or at least the possibilityof new supply options here in the united states will probably become available. Even if it will be a considerably long time until those new supply options are tapped,  just the options becoming available would probably bring down the price of the futures.

I am particularly looking at USO a fund that invests in the futures contracts of crude oil.  It looks like it has hit some resistance there at about $117. I haven’t gone short yet,  But will wait until there  is a decent rally before buying my puts.  

I am going to mark this one as a success not because this oil idea but because if you would have bought calls on FNM when I had the idea to a few posts ago, you would be looking at about about %330 gain on the position today.  Yes something went right

-Jarred

I got killed today. I play a loose game and take pretty wide fluctuations in my account. Today was 10% on the downside. I must be getting better at this whole thing because I’m not too emotional about the thing. I’m pretty confident that DRYS, STT, and MUR still have some more downside. I am waiting for a good drop to rid myself of WFR. I don’t think I’ll have to wait long. The earnings were pretty ugly after hours today. AAPL down 10%, AXP down more than 11%, TXN down more than 12%, SNDK, MRK, etc. I was watching CNBC and it just seemed like everything was getting killed. When even CNBC says that “we’re headed for a lower open tomorrow” you know things are going to be ugly. The s&p futures are down 12 points and it’s not even 7 p.m. EST. So hopefully I can make up some of my losses with what should be a massacre tomorrow. I’m predicting that that down sheds at least 300 points.

Also, today I did something stupid. There is no way around it. It was just dumb. I knew that BAC was coming out with earnings and after seeing the huge runups in banks after they beat; I really shouldn’t say beat, I should say when they don’t have horrific numbers. But I wanted to jump in on some of those and thought BAC would be a good canidate. I bought 100 shares in the premarket at 30.30. After the open it proceeded to dive down a dollar. I thought about doubling up but I’m glad I didn’t. If if it had paid off it still isn’t good risk management and a bad habit to get into. Well it bounced back up. I put in a limit order for 30.90. I just wanted $50 for my trouble after commissions. It kept running up and up. The quote says that it even hit 30.90 for the day but I didn’t get filled. I thought for sure that I would get filled so I headed to Calculus. When I came back I was down $100. At that time I talked myself into believing that this was a long term play. I at least bought a 27.50 put for insurance. At the end of the day I had lost a little over $200. That is the exact opposite of winning big and losing small. I should have known better looking at the straight vertical it has already done on the chart. I sold my position in the after hours knowing that I can buy it back tomorrow cheaper if I want. I then shorted 100 shares of ZION at 25.50 with the premise that this bank is less likely than BAC to survive this mess. I’m tempted to buy AXP tomorrow. I do believe that it would be a great long term hold but I hate the long term. I’m too impatient. Plus value plays tend to get more valuable. Or in other words, it could still get cheaper.

I would like to shout out to Allen Taylor who is our first RSS reader (that I know about) and might even be our only reader.

-Nate

If you slept through the trading hours of this 3rd Friday of the month you didn’t miss much. MER somehow traded higher by the end of the day. GOOG had a nice beating and IBM got pegged as close as possible to 130. There are some that say that stocks have a way of moving very close to the strike where the highest open interest is on the options board. This reduces the option prices for the strike price and benefits the big dogs that write the majority of options. They’re about the only ones with the power to move the stock in any sort of way anyway. This is known as pegging.

I didn’t take any trades. I really thought about buying a put on SOHU but I’m not too sure where this market is heading. I feel pretty confident in my positions so I’m letting everything ride even though the IV crush across the board and the negative theta are eating into my account balance.

I saw on old buddy that I grew up with at the water park today. He makes great money flipping houses even in this downturn. That kinda makes me feel like an idiot for being as poor as I am, even though I am happy for him.