Stock Market Musings

The Dollar, The Market, Oil

2008-12-18T05:47:00.000-08:00

Okay, so the dollar's meteoric rise of late has begun to collapse. What did everybody expect? I don't think many people who know what is really going on honestly thought that the dollar would do anything but slide in value compared to other currencies when the Fed decided on this zero interest yield on treasuries plan.

It's quite surprising that Oil has continued to fall for the last couple of days. That's not what I would have expected. In fact, I would still expect oil to rise for two reasons. First, OPEC sharply cut production recently. Second, since the dollar is the currency used to buy oil on the exchanges, when the dollar slides in value, the price of oil rises.

The fact that oil has not risen with the slide of the dollar, and OPEC production cuts means that investors anticipate a recession/depression that will be so severe that the demand for oil will continue to fall down down down, similar to what happened in the 1980's. Given the strong upward pressure on oil from the dollar, and OPEC, the fact that oil is still falling says that investors expect this recession to be BAD. I feel the same way, 2009 is shaping up to be a bad year.

I'm staying out of oil stocks for now. There are a lot of unusual things going on in the market and I can't keep track of everything, and even though I still expect oil to rise, I just don't know.

I've still got my long term put options on Goldman Sachs. So far the Bernake/Paulsen insanity has propped up that institution. And I still think that before June they will get battered some more, so I'm holding on to that position.

I have several long term put contracts of RKH, the ETF for the retail sector. After the holidays and everyone announces earnings I anticipate that the retail sector will slide again pretty hard.

The market is kind of grinding higher. I think it will do that while Bernake/Paulsen work really hard to calm everyone down and spend taxpayer money to magically convince everyone that everything is going to be okay.

But sometime in the next 3-5 months, things will tank again, bringing the Dow down to around $5000. Until that starts happening, I'm just going to take it easy in cash. Actively trading the insanely volatile up/down market of the last couple of months is something I'm just not very good at.

Just Riding Goldman Down

2008-11-23T18:39:00.001-08:00

You, my loyal readers may be asking yourself, what is Big Jay doing in the market.

Well, I'll tell you exactly what I'm doing. I'm mostly in cash. I've got a small position in AIG (1000 shares) that I bought when it was trading around 2.25/share. And I've got a fairly sizeable (for me) 20 contract position in LEAP Put options for Goldman Sachs. They don't expire until June 2009, so the time decay isn't killing me off. And really, if you look at the GS chart for the last 3 months. It's just ugly. There is still plenty of downside left for Goldman, and I don't see the headwinds letting up anytime soon.

I got out of my JP Morgan puts about 3 weeks ago at a healthy profit.

For my real money speculative trades, I'm looking for companies like Accys Technologies which is currently trading on the Amsterdam exchange, or OTC, for $2.50/share. I like ESLR - Evergreen Solar which is around $4/share. I like these companies because it's extremely cheap to rack up lots of shares. Accsys takes soft woods like poplar, and through a chemical process modifies the wood so it looks and behaves like precious hardwood. Evergreen solar makes solar panels, and is currently undergoing some rough times because their financier was Lehman.

Both companies are positioned well for what I think is going to be the next 'bubble' - namely green technology. The sustainability freaks (like me) are going to want companies like AXS, and ESLR in their 'sustainability minded ETF's'.

I'm thinking that my new approach to speculative investing is going to go like this: Buy certain sectors of penny stocks at random in like, $500 - $2000 chunks. Hold on to them, and don't worry about performance for years. If I had bought Investools stock back when it was first listed on the AMEX in 2002, there were months and months where you could buy shares at .10 cents a pop. I know a handful of people who bought and chilled, then sold covered calls on the shares they owned. That's just beautiful.

Check Into Cash

2008-10-11T09:52:00.000-07:00

I still own my JPMorgan Put options. They're up like $30,000. And I plan on keeping them for a while. I still think JP Morgan is going to go down some more. Notice the megaphone pattern forming starting around June 2007. I bought this put option the day it was trading around the $50 level. On Friday the stock went up a couple of bucks. But not because of any fundamentals surely.

And I still think the market in general is going to go a lot lower.

However. I think we've gone down far enough for now. The next couple of weeks we're going to hear a bunch of talking heads talk about how nobody would have lost money if they would have just ridden out the storm and held on to their mutual funds. We will see a bounce and the DOW will grind upward a thousand points or so for the next 10 trading days.

The VIX will get down to 30 or so.

Right after Obama takes office (or McCain - yeah right) the stock market will crater. It will be a bloodbath. Everyone in the world will still be trying to dump all their money into treasuries.

Eventually, and I'm going to call this... within the next 18 months... the bond market will be in danger of collapsing and Ben Bernake will pull a Volker and crank up the interest rates. The stock market will fall further, and everyone's bonds they bought during the initial market drop will drop in value because interest rates go up.

THEN and ONLY THEN will it be the buying opportunity of a lifetime.

But until then keep your powder dry.

I'm thinking about selling some naked puts over the next couple of weeks. But I'm going to keep all trading positions small. I don't trust my judgment enough on a day to day basis to bet the farm on any one trade (except JPM and I'm not exactly betting the farm there).

Everyone Cashing Out

2008-10-08T22:09:00.000-07:00

I think everyone is rattled by the current market situation. Several times in the last couple of days individual stocks, as well as various indexes have reached support levels, and the support was just crashed through. Today it looked like we were in for a bounce, and it sort of happened. But in the last 1/2 hour of trading action the market went right back down to where it opened. I made some bad trades.

No biggie.

Today's trade JP Morgan Puts

2008-10-03T20:15:00.000-07:00

I was in cash all day today until the end of the day. I got into a JP Morgan Put option

30 contracts
42.5 Strike Price
March 2009 Expiration
7.75 per share
$23,250 Total Cost

We'll see how it goes.

For those of you who are curious - Here are my trades from the last 3 months. You'll notice - nothing fancy. No covered calls, no spreads. Just plain vanilla directional trades.

Date Range 8/1/2008 - 10/2/2008
Trade Date		Action	Symbol/Desc.	Qty	Price	Comm.	Net Amount	Gain/Loss for symbol

10/02/2008	O	STC	.QAAWA - AAPL NOV 105 Put	10	$15.25	$15.00	$15,234.91
09/29/2008	O	BTO	.QAAWA - AAPL NOV 105 Put	10	$13.20	$15.00	($13,215.00)	2,019.91
Total Realized Gain/Loss for AAPL					$2,019.91
ABFS
09/30/2008	O	STC	.FDQVG - ABFS OCT 35 Put	10	$2.75	$15.00	$2,734.98
09/25/2008	O	BTO	.FDQVG - ABFS OCT 35 Put	10	$2.40	$15.00	($2,415.00)	319.98
Total Realized Gain/Loss for ABFS					$319.98
ABX
09/11/2008	O	STC	.ABXME - ABX JAN 2009 25 Put	10	$2.60	$15.00	$2,584.98
09/09/2008	O	BTO	.ABXME - ABX JAN 2009 25 Put	10	$2.00	$15.00	($2,015.00)	569.98
Total Realized Gain/Loss for ABX					$569.98
AET
08/19/2008	O	STC	.AETUH - AET SEP 40 Put	20	$1.15	$30.00	$2,269.98
08/08/2008	O	BTO	.AETUH - AET SEP 40 Put	20	$0.75	$30.00	($1,530.00)	739.98
Total Realized Gain/Loss for AET					$739.98
AGO
09/30/2008	O	STC	.AGOWW - AGO NOV 17.5 Put	10	$4.00	$15.00	$3,984.97
09/25/2008	O	BTO	.AGOWW - AGO NOV 17.5 Put	10	$3.50	$15.00	($3,515.00)	469.97
Total Realized Gain/Loss for AGO					$469.97
AUY
09/30/2008	O	STC	.AUYWB - AUY NOV 10 Put	10	$2.35	$15.00	$2,334.98
09/26/2008	O	BTO	.AUYWB - AUY NOV 10 Put	10	$1.50	$15.00	($1,515.00)	819.98
Total Realized Gain/Loss for AUY					$819.98
BAC
09/09/2008	O	STC	.BACUA - BAC SEP 27.5 Put	10	$0.16	$15.00	$144.99
08/19/2008	O	BTO	.BACUA - BAC SEP 27.5 Put	10	$2.07	$15.00	($2,085.00)	-1,940.01
08/13/2008	O	STC	.BACUF - BAC SEP 30 Put	20	$3.05	$30.00	$6,069.96
08/08/2008	O	BTO	.BACUF - BAC SEP 30 Put	20	$2.01	$30.00	($4,050.00)	2,019.96
Total Realized Gain/Loss for BAC					$79.95
BAX
09/30/2008	O	STC	.BAXWM - BAX NOV 65 Put	10	$3.00	$15.00	$2,984.98
09/26/2008	O	BTO	.BAXWM - BAX NOV 65 Put	10	$2.35	$15.00	($2,365.00)	619.98
Total Realized Gain/Loss for BAX					$619.98
BBT
09/09/2008	O	STC	.BBTUF - BBT SEP 30 Put	10	$0.45	$15.00	$434.99
08/08/2008	O	BTO	.BBTUF - BBT SEP 30 Put	10	$2.40	$15.00	($2,415.00)	-1,980.01
Total Realized Gain/Loss for BBT					($1,980.01)
BLK
08/06/2008	O	BTC	.BLKHD - BLK AUG 220 Call	10	$12.20	$15.00	($12,215.00)
07/28/2008	O	STO	.BLKHD - BLK AUG 220 Call	10	$8.90	$15.00	$8,884.95	-3,330.05
08/19/2008	O	STC	.BLKUB - BLK SEP 210 Put	10	$11.80	$15.00	$11,784.93
08/08/2008	O	BTO	.BLKUB - BLK SEP 210 Put	10	$9.40	$15.00	($9,415.00)	2,369.93
Total Realized Gain/Loss for BLK					($960.12)
BVN
09/30/2008	O	STC	.BVNWE - BVN NOV 25 Put	10	$3.50	$15.00	$3,484.98
09/26/2008	O	BTO	.BVNWE - BVN NOV 25 Put	10	$3.70	$15.00	($3,715.00)	-230.02
Total Realized Gain/Loss for BVN					($230.02)
C
09/30/2008	O	STC	.CWD - C NOV 20 Put	10	$2.87	$15.00	$2,854.98
09/23/2008	O	BTO	.CWD - C NOV 20 Put	10	$2.43	$15.00	($2,445.00)	409.98
Total Realized Gain/Loss for C					$409.98
CL
08/08/2008	O	BTC	.CLIO - CL SEP 75 Call	10	$3.30	$15.00	($3,315.00)
08/08/2008	O	STO	.CLIO - CL SEP 75 Call	10	$3.00	$15.00	$2,984.98	-330.02
Total Realized Gain/Loss for CL					($330.02)
CNI
09/29/2008	O	STC	.CNIWJ - CNI NOV 50 Put	10	$3.80	$15.00	$3,784.97
09/26/2008	O	BTO	.CNIWJ - CNI NOV 50 Put	10	$2.65	$15.00	($2,665.00)	1,119.97
Total Realized Gain/Loss for CNI					$1,119.97
DEERE AND CO
09/09/2008	S	Sell	DE - DEERE AND CO	100	$61.14	$14.95	$6,099.01
02/11/2008	S	Buy	DE - DEERE AND CO	100	$82.86	$14.95	($8,300.95)	-2,201.94
Total Realized Gain/Loss for DE					($2,201.94)
DIA
09/23/2008	O	STC	.DIAVJ - DIA OCT 114 Put	10	$5.45	$15.00	$5,434.96
09/19/2008	O	BTO	.DIAVJ - DIA OCT 114 Put	10	$3.70	$15.00	($3,715.00)	1,719.96
10/02/2008	O	STC	.DIAXA - DIA DEC 105 Put	10	$7.00	$15.00	$6,984.96
10/02/2008	O	BTO	.DIAXA - DIA DEC 105 Put	10	$6.35	$15.00	($6,365.00)	619.96
Total Realized Gain/Loss for DIA					$2,339.92
DRE
09/30/2008	O	STC	.DREWE - DRE NOV 25 Put	10	$2.95	$15.00	$2,934.98
09/26/2008	O	BTO	.DREWE - DRE NOV 25 Put	10	$2.35	$15.00	($2,365.00)	569.98
Total Realized Gain/Loss for DRE					$569.98
DRQ
09/26/2008	O	STC	.DRQWJ - DRQ NOV 50 Put	10	$6.70	$15.00	$6,684.96
09/26/2008	O	BTO	.DRQWJ - DRQ NOV 50 Put	10	$6.00	$15.00	($6,015.00)	669.96
Total Realized Gain/Loss for DRQ					$669.96
EPI
08/06/2008	O	STC	.EPIJX - EPI OCT 22.5 Call	40	$0.65	$60.00	$2,539.98
04/08/2008	O	BTO	.EPIJX - EPI OCT 22.5 Call	40	$3.70	$60.00	($14,860.00)	-12,320.02
Total Realized Gain/Loss for EPI					($12,320.02)
FINISH LINE INC
09/09/2008	S	Cover	FINL - FINISH LINE INC	1000	$10.86	$14.95	($10,874.95)
07/28/2008	S	SS	FINL - FINISH LINE INC	1000	$10.39	$14.95	$10,374.99	-499.96
Total Realized Gain/Loss for FINL					($499.96)
GOLD
09/30/2008	O	STC	.GUDWH - GOLD NOV 40 Put	10	$4.20	$15.00	$4,184.97
09/26/2008	O	BTO	.GUDWH - GOLD NOV 40 Put	10	$3.40	$15.00	($3,415.00)	769.97
Total Realized Gain/Loss for GOLD					$769.97
GOOG
10/02/2008	O	STC	.GOPWF - GOOG NOV 430 Put	10	$53.40	$15.00	$53,384.70
09/29/2008	O	BTO	.GOPWF - GOOG NOV 430 Put	10	$51.40	$15.00	($51,415.00)	1,969.70
Total Realized Gain/Loss for GOOG					$1,969.70
GS
09/24/2008	O	STC	.GSMD - GS JAN 2009 120 Put	10	$15.15	$15.00	$15,134.91
09/23/2008	O	BTO	.GSMD - GS JAN 2009 120 Put	10	$20.45	$15.00	($20,465.00)	-5,330.09
09/30/2008	O	STC	.GSWD - GS NOV 120 Put	10	$12.20	$15.00	$12,184.93
09/29/2008	O	BTO	.GSWD - GS NOV 120 Put	10	$10.20	$15.00	($10,215.00)	1,969.93
Total Realized Gain/Loss for GS					($3,360.16)
HON
09/09/2008	O	STC	.HONUJ - HON SEP 50 Put	10	$2.30	$15.00	$2,284.98
08/08/2008	O	BTO	.HONUJ - HON SEP 50 Put	10	$1.95	$15.00	($1,965.00)	319.98
Total Realized Gain/Loss for HON					$319.98
KGC
09/30/2008	O	STC	.KGCWW - KGC NOV 17.5 Put	10	$2.65	$15.00	$2,634.98
09/26/2008	O	BTO	.KGCWW - KGC NOV 17.5 Put	10	$2.35	$15.00	($2,365.00)	269.98
Total Realized Gain/Loss for KGC					$269.98
KO
09/03/2008	O	STC	.KOUX - KO SEP 52.5 Put	10	$1.65	$15.00	$1,634.99
08/08/2008	O	BTO	.KOUX - KO SEP 52.5 Put	10	$0.80	$15.00	($815.00)	819.99
Total Realized Gain/Loss for KO					$819.99
LCC
09/30/2008	O	STC	.LCCWU - LCC NOV 7.5 Put	10	$2.65	$15.00	$2,634.98
09/26/2008	O	BTO	.LCCWU - LCC NOV 7.5 Put	10	$2.40	$15.00	($2,415.00)	219.98
Total Realized Gain/Loss for LCC					$219.98
MCK
09/30/2008	O	STC	.MCKWK - MCK NOV 55 Put	10	$4.00	$15.00	$3,984.97
09/26/2008	O	BTO	.MCKWK - MCK NOV 55 Put	10	$2.85	$15.00	($2,865.00)	1,119.97
Total Realized Gain/Loss for MCK					$1,119.97
MMR
09/29/2008	O	STC	.MMRWE - MMR NOV 25 Put	10	$3.90	$15.00	$3,884.97
09/26/2008	O	BTO	.MMRWE - MMR NOV 25 Put	10	$2.60	$15.00	($2,615.00)	1,269.97
Total Realized Gain/Loss for MMR					$1,269.97
OIH
09/19/2008	O	STC	.OIHJM - OIH OCT 165 Call	10	$7.20	$15.00	$7,184.95
09/12/2008	O	BTO	.OIHJM - OIH OCT 165 Call	10	$8.20	$15.00	($8,215.00)	-1,030.05
09/11/2008	O	STC	.OIHVK - OIH OCT 155 Put	10	$9.30	$15.00	$9,284.94
09/09/2008	O	BTO	.OIHVK - OIH OCT 155 Put	10	$7.85	$15.00	($7,865.00)	1,419.94
10/02/2008	O	STC	.OIHWG - OIH NOV 135 Put	10	$12.20	$15.00	$12,184.93
09/29/2008	O	BTO	.OIHWG - OIH NOV 135 Put	10	$10.85	$15.00	($10,865.00)	1,319.93
Total Realized Gain/Loss for OIH					$1,709.82
RIMM
09/29/2008	O	STC	.RFYWT - RIMM NOV 75 Put	10	$14.15	$15.00	$14,134.92
09/26/2008	O	BTO	.RFYWT - RIMM NOV 75 Put	10	$9.20	$15.00	($9,215.00)	4,919.92
Total Realized Gain/Loss for RIMM					$4,919.92
RKH
09/11/2008	O	STC	.RKHMS - RKH JAN 2009 95 Put	10	$8.20	$15.00	$8,184.95
08/08/2008	O	BTO	.RKHMS - RKH JAN 2009 95 Put	10	$7.80	$15.00	($7,815.00)	369.95
09/09/2008	O	STC	.RKHUP - RKH SEP 80 Put	10	$0.05	$15.00	$34.99
07/28/2008	O	BTO	.RKHUP - RKH SEP 80 Put	10	$2.45	$15.00	($2,465.00)	-2,430.01
Total Realized Gain/Loss for RKH					($2,060.06)
RUT
09/23/2008	O	STC	.RUTWJ - RUT NOV 750 Put	10	$57.40	$15.00	$57,384.67
09/19/2008	O	BTO	.RUTWJ - RUT NOV 750 Put	10	$37.00	$15.00	($37,015.00)	20,369.67
10/02/2008	O	STC	.RUYWJ - RUT NOV 650 Put	10	$49.30	$15.00	$49,284.72
10/02/2008	O	BTO	.RUYWJ - RUT NOV 650 Put	10	$39.60	$15.00	($39,615.00)	9,669.72
Total Realized Gain/Loss for RUT					$30,039.39
SII
09/26/2008	O	STC	.SIKWM - SII NOV 65 Put	10	$6.20	$15.00	$6,184.96
09/26/2008	O	BTO	.SIKWM - SII NOV 65 Put	10	$5.00	$15.00	($5,015.00)	1,169.96
Total Realized Gain/Loss for SII					$1,169.96
SPY
09/23/2008	O	STC	.SPYVT - SPY OCT 124 Put	10	$5.50	$15.00	$5,484.96
09/19/2008	O	BTO	.SPYVT - SPY OCT 124 Put	10	$3.80	$15.00	($3,815.00)	1,669.96
10/02/2008	O	STC	.SPYXH - SPY DEC 112 Put	10	$7.85	$15.00	$7,834.95
10/02/2008	O	BTO	.SPYXH - SPY DEC 112 Put	10	$7.20	$15.00	($7,215.00)	619.95
Total Realized Gain/Loss for SPY					$2,289.91
SYNA
09/30/2008	O	STC	.QYGWG - SYNA NOV 35 Put	10	$6.10	$15.00	$6,084.96
09/26/2008	O	BTO	.QYGWG - SYNA NOV 35 Put	10	$5.70	$15.00	($5,715.00)	369.96
Total Realized Gain/Loss for SYNA					$369.96
USO
08/21/2008	O	STC	.IYSIQ - USO SEP 95 Call	10	$6.40	$15.00	$6,384.96
08/14/2008	O	BTO	.IYSIQ - USO SEP 95 Call	10	$4.60	$15.00	($4,615.00)	1,769.96
Total Realized Gain/Loss for USO					$1,769.96
WM
09/12/2008	O	STC	.WMVH - WM OCT 4 Put	10	$1.97	$15.00	$1,954.98
09/12/2008	O	BTO	.WMVH - WM OCT 4 Put	10	$1.77	$15.00	($1,785.00)	$169.98
Total Realized Gain/Loss for WM					$169.98
Total Realized Gain/Loss								$36,005.67

Bailout Trades

2008-10-02T15:53:00.000-07:00

Okay, so my strategy for the last couple of weeks. Buy puts on everything. It's been awesome.

In the last couple of weeks I've made 5k+ each on goog puts, rut puts, aapl puts, rimm puts, citigroup puts, dia puts, gs puts, and . Boo yah. Do you like apples? How do you like them apples!

Since I'm not sure exactly how the bailout is going to shake out, I closed all my positions before the market closed today. You know how it is.

I'm hoping that the house of representatives keeps a tight hold of their cojones and votes this down tomorrow. Sheesh.

And you know, I realize that we're talking about some financial turmoil when that happens. We could be talking about A LOT of financial turmoil. I've been trying to think through possible scenarios, combined with reading a bunch of possible scenarios and I've come up with some freaky stuff.

I still don't think the government, funded by the taxpayer is the proper entity to deal with gummed up credit markets. That scenario chills me more than all the others.

Bought back NVDA Call Options

2007-02-27T17:04:00.000-08:00

Wow the market sure tanked today didn't it? It went down 4% today. It was all over the radio on the way home. I had briefly checked my trading account at about 2:00 PM eastern time, and noticed that my limit order for NVDA had been filled. That brings my account up after 7 days, and 2 trades from $50,000 to $52,400. That's a gain of 4.8% in 7 days. It's funny. The gains are in virtual money so basically it doesn't matter. I mean, I could go out and buy 2400 virtual double cheeseburgers at Mac Donalds with those virtual gains. Now I've got to figure out what trades to get into next. No big deal, and no hurry.

Just to review. The trade I made today was actually the second leg of a trade I entered into 7 days ago. Last Wednesday I sold 15 contracts of NVDA June 35 call options. That means I took upon myself the obligation that if the stock went over $35 by the third week in June, I would have to sell the option buyer 1500 shares of NVDA stock at $35 per share. At the time I placed the trade NVDA was selling for $33 per share. It was making a series of lower highs and lower lows, so it was trending down, and it seemed to be at resistance. I was paid $2.40 per share for the options (or $3600) and I put in a buy order for $1.70 (or $2550). If the price continued on the down trend, the option would continue to go down in price (which is what I thought would happen), and if time passed and the price remained the same, I knew the option price would decay as time passed. Today when the market tanked, the NVDA options dipped down as low as 1.65.

In the future, I'm not going to sell naked call options. That was a stupid thing to do. My technical analysis was correct, and the stock did what I expected it to do, but naked call options are never a good idea. I don't know what crazy gene invaded my body, but in the future I will cover my short call option positions with a deep in the money option, or with actual stock. Or I'll sell naked puts (which is the same risk profile of doing covered calls).

Even better than my virtual trading account flourishing, was my friend Kenny calling me up on the phone. So I want to briefly channel Jim Cramer and shout out to Kenny "Boo Yah!"

Bought Back SHLD Puts

2007-02-21T20:42:00.000-08:00

A couple of days ago I sold 10 contracts of SHLD puts at 6.70

I had put in an order to buy them back if the price went down to 5.40 -

That happened today and the order was filled. Profit on trade? $1300

Two Trades - SHLD, NVDA

2007-02-19T15:07:00.000-08:00

I sold 10 contracts of SHLD put options
190 MAR 07 SHLD at 6.70

And 15 contracts of NVDA call options
35 JUN 07 NVDA at 2.35

UPDATE TO STOCK MARKET MUSINGS

2007-02-13T20:36:00.000-08:00

A combination of factors left this blog bereft of updates. I haven't even looked at it for months. First of all I started posting on three different blogs. Texans For Romney (I love Mitt), Letters to Samuel - a blog dedicated to my younger brother Samuel - the coolest Bryner of us all, and Big Jay Reviews Everything - a blog that totally rips off the title from Orson Scott Card's weekly column at rhinotimes.com.

I did several entries on those other blogs. During that same time period my sister-in-law and her two kids came to live with us, which has been time consuming. Also during that time period the division in the corporation I work for doubled in size, requiring me to invest a great deal of time keeping my act together professionally.

I still haven't lost my interest in the stock market.

I do, however want to make a post in response to a random passerby who left a comment back in July. I wish I could have responded sooner.

Here is the comment:
"Virtual account? Does that mean you don't actually invest but just go through mock trades in preparation for when you will?

If you can make 30% in a matter of days, please invest real money now. Investing on a virtual basis has too high an opportunity cost."

That sounds like sarcasm to me. Maybe the individual was actually telling me to invest real money. But I doubt it. It sounds like an elitist barb tossed my way. So I would like to take the opportunity to respond.

I am not investing real money in the stock market, other than working toward fully funding tax deferred accounts that I can fund, namely my 401k program, and a Roth IRA. I am also working on saving money for an emergency fund, and generally reducing my family overhead. Money means different things to different people. I eventually want to be at a point in my life where my life energy, and my attention can be focused elsewhere on something besides earning money to pay my bills, and put food on the table. When I get to the point where my modest needs, and those of my immediate family can be met without my active involvement, then I will feel comfortable moving on to different projects.

But at this point in my life, money, and more specifically the job I do to earn money, takes up a disproportionate amount of my life energy and attention, compared to the other things in life I would like to spend my time doing. That's just my reality for now. Along those lines one of my goals is to get to a point to where $100,000 comes my way on an annual basis without my active involvement. One approach to doing that is saving $2,000,000 and investing it in bonds yielding 5% annually.

But I know a handful of people who do much, much better than that. That is what got me involved in studying stocks, stock options, and currency contracts. My field is facilities management. I actually worked in the facilities department for a company that specializes in training people to invest in the equities, and currencies markets. Part of my corporate benefits was that I got to go through these courses for free, as opposed to paying $45,000 to go through all of the courses. The education was good. But I'd like to know if I can actually do the trades consistently, and manage the trades while simultaneously holding down a professional job. I actually know people who have taken a small trading account of $10,000 and traded it up quickly to $50,000 in a very short period of time.

The thing that first got me interested in actually learning this stuff was when I was at the library with a group of friends. A couple of them were talking amongst themselves about stuff I did not comprehend. A few minutes later one of them had clicked a few clicks on his laptop, made some trades, watched the orders get executed. And ZAMMO. He had realized gains of $30,000. In just a few minutes. Whoa. What did you do dude? I have to learn what you just did.

I have learned a lot of stuff. Now I'm just working on getting positioned to actually be able to make trades with real money. But I happen to believe that I don't want to be making active real trades with real money if I'm risking the grocery money. And I don't want to fail to fund my 401k, and Roth IRA account just because I'm goofing off in the stock market.

But I will get to the point personally where I do have the funds to make real dollar trades with. At that point I also would like to have the confidence that I can execute trades profitably and consistently. That's why I have been practicing with a virtual account. I want to see just how big of an account I need to start with, and how much margin to keep in the account. What strategies work for me, and what strategies don't work? This is information I would like to know before actually putting real money into the system.

If that comment was sarcastic - "Put real money in now" - I want you to know that I do know people who consistently trade, and consistently beat the market. And yes they do make gains of 5% - 50% in a matter of days.

I've learned that I'm more of a base hit kind of guy. If I'm swinging for the fences all the time I have a lot of strike outs, and that raises my blood pressure and does all kinds of havoc on my sleep patterns. I end up doing all the wrong things at the worst possible times. But if I go for a reasonable return - say 1% - 10% each month. I do fine.

And for my long term money - the stuff I don't ever ever want to lose - like my 401K, and my Roth IRA - how do I have those allocated?

Right now the dollar is weak. That means that international stocks are doing better than domestic stocks. So I have 50% of my portfolio in international stock funds. They've done great the last couple of years. Eventually that will change. I'm looking for a trend reversal in the dollar. When the dollar starts doing better, I'll switch the 50% I have allocated in stocks back to a basic Standard and Poors index fund. The other 50% of the portfolio is in a broad based bond fund. I got the idea from Ben Stein who calls the 50/50 allocation the couch potato portfolio. In my 401k I just don't worry about it. In my Roth IRA, I sell out of the money covered call options at resistance on the S&P ETF when possible to augment (in a very small way) my holdings, but basically I'm looking for the market return. And in retirement accounts, ultimately that's what I'm looking to do.

But one day I'm going to have $10,000 in capital to deploy somewhere. And that 30% ROI in a mere 12 days is always going to be whispering in my ear. At that point I want to have practiced actually doing what I hope I can do for real.

In short.... I would be crazy to actually be buying and selling derivatives for real. At this time. But that won't last forever. And I plan to set myself up for success in the meantime.

And if that day never comes... hey I'm stuck alone in a hotel room in a strange city. This is more productive in my opinion than watching HBO.

THATS PROGRESS

2006-07-22T16:58:00.000-07:00

After several false starts, I concluded that $5000 was too little money to trade successfully with. So I re-set my account after blowing up my account. Again.

This time around I started with double that amount. $10,000 - We'll see how it works this round.
Here are the trades, and the results of my trades thus far.

July 12 - I bought a July 80 Put on IBM, 10 contracts at $4.70, with a sell trigger at $6.00.
July 13 - The sell trigger sold for a total gain of $1269.81

July 13 - I bought a UNH Sept 45 call for $4.60 - 10 contracts
I lost my nerve after the stock didn't do what I had predicted it would do. So I tightened my trigger point to $4.70
July 17 - The contracts were closed out at $4.70
Profit? - 69.85

July 17 - 5 SHLD 145 Puts for $7.80 - Sell trigger at $10
July 18 - The contracts were closed out at $10 for a profit of $1069.94

July 19 - 10 SPY 126 Puts for 1.95 with a sell trigger at $2.60
July 21 - the contracts were closed out at $2.60 for a profit of $619.92

Overall the string of winning and neutral trades has brought my virtual account up from $10,000 to $13,000. That's a 30% gain in 12 days. Not bad.

I have orders in to buy puts on monday. The orders are to purchase the puts for less than they currently are selling for, and a target sell trigger at approximately a 25% profit for each position. The positions I am interested in are on these securities:

DO
HNT
MRO
PBR
UNH

We'll see how it goes eh? The reason I am going short on these stocks is twofold. First, the market is in a bearish stance at the moment. Second, these stocks have hit resistance and are headed down now, so they are in my opinion more likely to take a further dive.

An IBM PUT, and a UNH CALL

2006-07-13T16:53:00.000-07:00

On 7/12/06 I purchased 10 contracts of July 80 PUT with IBM. It cost $4715. I put in a conditional sell order of $6000. It sold for that price today for a gain of $1270.

Today 7/13/06 I purchased 10 contracts of Sept 4i5 Call Options with UNH. The contract filled today for $4615. There is a conditional sell order of $6000 in there. I am crossing my fingers.

All the market indexes have made lower lows, while the VIX has made a short term high. Today the bears were definitely in control. Tomorrow will be a decisive day as lately we can't tell who is in charge for the intermediate term. I'm thinking that there will be a quick bounce tomorrow and then the bears will take charge again.

FOR REAL THIS TIME

2006-05-30T18:05:00.000-07:00

A few days ago I reset my virtual trading account. I pledged to myself, and to my nonexistent loyal readers that I would follow some rules. I made 3 trades. Each trade I put a buy-limit order in, and a contingent sell order. Each of them were executed both in and out of the trade in the last week. (I would have posted earlier, but I had sketchy access to the internet during that time)

Anyway here it is:


	Buy To Open	Sell To Close	% Gain	$ Gain
UPL	$ 1,864.95	$ 1,984.98	6%	$ 120.03
BA	$ 1,464.95	$ 1,634.99	12%	$ 170.04
CRR	$ 599.95	$ 675.02	13%	$ 75.07

FORGET IT - I'M STARTING OVER

2006-05-19T07:23:00.000-07:00

Okay, my account is down to $3000. This is stupid. I totally abandoned my rules and got into too much speculation and was wrong over and over. I'm re-setting my virtual trading account and I'm going to start over on monday.

A DOWN DAY FOR THE MARKET, BUT NOT FOR ME

2006-05-17T21:42:00.000-07:00

ACCOUNT VALUE: $5,420.61

I went ahead and closed out some of my winning positions to lock in some gains. I sold off two puts. So I'm going to have to re-deploy some of my cash, but I'll do some of the research over the weekend to see what positions I want to enter into.

It looks like my position in HELX is going to expire completely worthless so I'm out $900. That is a major bummer, because that would put my account over the $6000 mark if I could even just break even. But it looks like that won't happen. I've got a sell order in. If I can even sell it for $100 I'll take the money and be grateful. Oh well. I've got a history of bad bad timing with that particular security.

Rough Day At Market

2006-05-16T21:04:00.000-07:00

Account Value: $4,625.60

Now that's market volatility for you. But I accepted the big winners. The current positions aren't losers yet, except for HELX. But it's just sad to watch for now.

I just wanted to document the good times, and the bad.

BASE HITS

2006-05-15T13:43:00.000-07:00

For an individual to succeed in the stock market, it doesn’t take blockbuster moves, or strokes of genius. No need for home runs. To win in the stock market it takes consistent base hits.

What do I mean by the phrase ‘succeed in the stock market’? In my world, success in the stock market means beating the historical index month in, and month out. I’m not going to be precise here. But let’s just say that the historical return in the equities market is 12% per year. Breaking that down to a monthly basis means success is anything more than 1% per month. If you get a 1.3% return on your money in one month you should be jumping for joy. If you get a 5% return per month, you should jump for joy. If you make 20% per month, you should jump for joy. I am going to define a ‘home run’ in the market as anything more than 30% in one month.

So much here depends on your expectations. But let’s talk about one possible scenario. You have $5000. You want to eventually replace your current income which we will assume is $50,000 per year. You come up with a strategy that will pay out 3% per month. You implement the strategy. It will take 10 years before you’re making $5000 per month. At that point, ignoring inflation, you would have succeeded.

Covered Calls

So what is a decent ‘base hit’ strategy? A very common strategy known as covered calls. Covered calls can be thought of as charging rent on stock you own. You wouldn’t buy a house, and just wait for it to go up in value. You would put a tenant in the house to produce income for other investments. But people constantly buy stock and simply wait for the stock to go up in value. You don’t want to do that, you want to charge rent on your stock by selling covered calls. This is one of the easiest strategies to do, but out of all the base hit strategies it has the lowest return, and the highest entry cost. You’ll probably need at least $10,000 before you start using this strategy, and the returns you can expect range from 1-15%. How do you implement this strategy?

1. Pick a stock you wouldn’t mind owning for a long time.

2. Buy100 shares of this stock.

3. Sell a one strike price out of the money call option against this stock. One contract for every 100 shares you own.

4. Wait for the call option to expire worthless, or be exercised.

5. If the call option you sold expires worthless, you just got free money.

6. If the call option is exercised, you made money as well. You have to sell the person you sold the option to. But remember that the option was exercised because the stock went up in value. You made a profit on the stock, and you still get to keep the option premium.

7. Repeat process monthly. If you weren’t exercised you simply sell covered calls on the stock you own. If you were exercised you will have to purchase the stock again to sell covered calls. If that happens though, why not try base hit strategy number two?

Selling Puts

Another ‘base hit’ strategy that is similar to covered calls is selling naked puts. Selling naked puts is like charging rent on the money that is sitting idle in your brokerage account. The logic behind naked puts is this. You’d like to own a certain stock, but you would only like to buy the stock if you can get a good deal for it. You sell a put on a certain stock. This gives you the obligation to buy the stock if it goes down to a certain price or below. For taking on this obligation, somebody pays you a premium. If the stock goes down, and you are forced to buy that is fine. You wanted to buy the stock anyway. But you’re getting a good deal on the stock because the stock has dipped down. How do you implement this strategy?

1. Pick a stock you wouldn’t mind owning for a long time.

2. Sell a put option against this stock without owning this stock.

3. Wait for the put option to expire worthless or be exercised.

4. If put options are exercised, sell covered calls against the stock.

5. If put options expire worthless, smile and repeat the process next month.

Option Calendar Spreads

Another ‘base hit’ strategy that is similar to covered calls is option calendar spreads. Option calendar spreads are like covered calls with a little kick. Calendar spreads work just like covered calls, with one exception. Instead of actually covering the call option you sell by the actual stock, you cover the call option with another option. A deep in-the-money call option practically tracks the underlying security dollar for dollar. So if you can buy a stock for $50/share you can probably buy a long term deep in-the-money option for $8-15 dollars. What this strategy amounts to is buying time value for cheap, and selling it dear. How do you implement option calendar spreads?

1. First you pick a stock you wouldn’t mind owning long term.

2. Buy a deeply in-the-money call option that expires in 3 months or so.

3. Make sure that the net-debit for both trades together is less than the difference between the contracts’ strike prices.

4. Sell an at the money, or one strike out of the money call option that expires this month.

5. Wait for the call option you sold to either expire worthless or be exercised.

6. If it expires worthless, try to roll out of the long term, in-the-money option with a profit of 5% or more if possible.

7. If the option is exercised (this is what you want to happen) take the money and find another option calendar spread. You probably made 15-20% on this trade.

Ironically, the strategy to use if you have the least amount of capital is the option calendar spread strategy. When your account size gets bigger, it is probably a good idea to diversify strategies a bit. With the right amount of margin, you can reverse these strategies to deploy them with securities that you think are going to go down.

How powerful is this strategy? I know a gentleman who routinely makes over 15% per month on his portfolio using these strategies. If you started out with $5000 and wanted to make the kind of money in the market that would allow you to quit your job, you would only need to get your account up to $33,000 in order to make $5000 per month in the market. My friend who makes 15% per month in the market could go from $5000 - $33,000 in 15-16 months.

I’m not planning on doing that. That’s way too far into fantasy land for me. I don’t expect those kinds of returns. As long as I am beating the index, I’ll consider myself successful in the market.

New Orders Placed 5/12/2006

2006-05-12T16:28:00.000-07:00

I placed an order for 4 contracts each of puts for the following stocks.

AVB
BHI
CSX

For each one I put the order in for one strike price out of the money. I added an order (one triggers the other) to sell the puts for one dollar higher than what I bought them for. That's just in case I'm not paying attention one day.

I was going to do some spread trades. But I'm not sure how to make puts a calendar/diagonal spread. Maybe some other time.

HAMMERED

2006-05-12T16:06:00.000-07:00

Yeah, I know that everybody is getting hammered in this market. So am I. My account value is down to $5195. Most of my gains of the last couple of months are wiped out. The biggest problem is my position with HELX. I paid $900 for that jerk. 10 contracts. I'm getting hammered on time, and on fundamentals. I always get burned on HELX. When will I learn?

There's still time for my pitiful position on IWO. I'm holding out. It's back to spread trades for me though.

Giving in to Fear

2006-05-11T20:11:00.000-07:00

I decided that my profit target was too high for these options. I'm putting in sell orders to breakeven if possible.

HELX
IWO

Both of these have had a hard day. And why again did I buy May options on HELX? Because I'm stupid that's why. Time decay is killing this trade.

I don't think IWO is going to move to $87. Next time I will buy in the money options that don't depend on such a big move to go up in value.

TRADES AS OF MAY 9TH

2006-05-09T18:42:00.000-07:00

5/8/2006 - I finally bought my 10 shares of aapl stock back. The stock had gone up like 9 dollars so I took a loss of (94.83)

5/8/2006 - I also purchased 4 contracts of AEM August 35 Call Options for 5.50 each.
5/9/2006 - I sold the 4 contracts of AEM August 35 Call Options back for 6.50 pocketing a smooth
+370.02

5/9/2006 I purchased 10 HELX May 45 Call Options for .90 each. Time value seems to be slipping away on this one. I currently have a sell order in for 1.50, but I'm kind of losing my nerve. I think I might revise the sell order to just get out if I can sell the 10 contracts for 1.10, or even 1.00.

5/8/2006 - I purchased 3 IWO 87 August Call Options for $1.05. Currently these contracts are valued at .90 cents. IWO is the index tracking stock that tracks the Russel 3000 index. This is sort of a long shot, as the stock is currently trading at $81.00. I currently have a sell order in for $1.50. The stock has a strong upward trend, and should go up in the next couple of months. But to get as high as 1.50, it will have to go up like $5. Why do I get sucked into out of the money options so easily? I don't know. I think I'll revise the sell order down and be happy with selling it for 1.20, then deploy the $350 in this trade elsewhere.

Currently my account is valued at $6005.45. That's up 20% from the beginning of April. Of course those are not all realized gains. But it's not bad. Who can complain about 20%?

INTRO TO STOCK MARKET MUSINGS

2006-05-06T20:09:00.000-07:00

My other blog is about peak oil. This blog will be similar to my other blog in two ways:

1. There are a lot of other people out there who know more about this subject than I do.
2. There aren't a lot of people in my circle who I can talk to about this subject as much as I'd like to talk about it.

So I might be talking to myself. But that's no matter. Mainly I wanted to start this blog as a sort of trading journal. To keep myself honest as to how I'm doing. I was talking briefly about trading to a co-worker of mine (Chris) and while we were talking I decided to put some paper trades together and see how they've done.

Beginning capital: $5000

Initial trades:
3/31/06
Buy to open: UPL May 60 Call Option - 5 contracts @ 4.80 each - Cost basis: $(2414.95)
Sell to open: UPL Apr 65 Call option - 5 contracts @ .95 each - Cost basis: $460.03

Buy to open NDAQ Jun 40 Call option - 5 contracts @ 3.40 each - Cost basis $(1714.95)
Sell to open NDAQ Apr 45 Call option - 5 contracts @ .25 each - Cost basis $110.04

4/7/2006
Buy to close: NDAQ APR 45 Call option - 5 contracts @ .40 each $(214.95)
Loss of $105

4/12/2006
Sell Short: AAPL - 10 shares $66.70 each $652.02

4/13/2006
Buy to close: UPL Apr 65 Call Option - 5 contracts @ .45 each - $(239.95)
Gain of $220

Sell to Close: NDAQ Jun 40 Call option - 5 contracts @ 4.80 each - $2384.97
Gain of $670

My account value is currently at $5856, which is 17% higher than it was back at the beginning of April when I started. All in all I've spent maybe 30 minutes of my time actually putting the orders in. Plus another 30 minutes writing this blog. That makes a total of roughly $800 per hour spent. Not bad. That's more per hour than I make when I'm actually at work.

Who knows, I could totally crash and burn. But this blog will chronicle my victories and defeats. I also plan to post explanations for different strategies. Hopefully I can do it in a way that if you don't know beans about investing, eventually you would be able to do some of these strategies yourself. I know people pay thousands of dollars to learn how to successfully invest using some other vehicles besides basic stocks and bonds. Maybe we can talk to each other sometime. Until then... I'm signing off.