Friday, December 21, 2007

A gold pin at 45, MRK puts expire

GDX pinned exactly at 45. If the conspiracy theorists knew about options they would be writing about that, but most don't, so they don't. Some option folks believe in the power of the pin, closing at or very close to a popular strike price on expiration day. I am half and half, the strike price does seem to have some power, but only some.

Like I wrote earlier, one trade I considered was buying the Dec 45 call on GDX back in September on the breakout for about 2.5 each option. Those holding the calls to expiration are looking at a 100% loss. Hindsight traders might say they got out at the top at 53 with a 350% gain (chart). Easy come, easy go, can be the life of the options speculator.

Santa Claus rally comes to the broad market.

My short MRK puts expire worthless, for a sliver of a profit, though a huge percentage profit based on the minimum margin required to sell the put.

My schedule still is super busy with other activities, so I will not be doing much in the way of trades or posts for now. Happy Holidays to all the readers.

Saturday, December 15, 2007

GDX lagging behind GLD

When the Fed did their surprise 50 basis point cut three months back, I thought it very bullish for gold. GLD is higher since then. However, GDX is just barely higher. I remember that one trade I considered was buying the Dec 45 calls on GDX. GDX traded well over 50 so a person taking the trade could have more than doubled their money with a well timed exit. The more sobering news is that someone still holding is now underwater and may take a 100% loss on expiration day.

This chart shows GDX lagging behind GLD.

My lone position is long MRK hedged. Strike price on my short puts is 50. It would take a memorable week for these options to be exercised against me.

Monday, December 10, 2007

Chicken Little and newsletters

On the Internet, on talk radio, there is a group of folks I term the Chicken Little chorus. They are always around. However, every couple of years, events raise their calls to a loud rattle, as they go about yelling "the sky is falling, the sky is falling." For most of my adult life, I can remember event after event, issue after issue where the Chicken, in various incarnations told me that the economic world was coming to end.

Here's a list of some prior events: the trade imbalance with Japan (mostly autos), the 1987 stock market crash, NAFTA, the first Iraq war and hype about elite Iraqi troops, the UAL takeover failure, the dot-com stock bubble and bust, ENRON, Worldcom, hedge funds going belly up. With each of these events, the Chicken told me the end was near and the reasons why. These days, subprime, the Chinese trade imbalance, and derivatives seem to be the hot topics.

Perhaps one day the Chicken will get it right, and the sky will fall. However, those that wait for that day, often live dim, dismal, joyless lives, in the shadow of paranoia, where most markets are manipulated, as are all news sources, except some two-bit newsletter writers that make their living by selling fear (not trading the markets).

I sheepishly admit that in my younger days, I felt a strong pull to the siren call of the doom and gloom being sold by the Chicken. The most extreme voices suggest buying gold, guns, ammo, food, and finding a bunker to live in. I find that there is a lot of really bad information being passed around the Chicken Little crowd. Don't believe the Chicken, especially when the Chicken has a newsletter to sell.

There are a lot of smarter folks than newsletter writers. If the newsletter writer is so smart, why does he/she have to hawk their newsletter to earn a few extra bucks? As always, if a reader is really interested in a newsletter, check with the Hulbert Financial Digest to get an audited track record. If they don't have a track record, the newsletter may be more in the entertainment category than the investing/trading category. That's fine for folks seeking entertainment, but not for folks seeking good useful ideas about where to invest real money.

Monday, December 03, 2007

Alive and well

I don't have much to add, my schedule hasn't allowed much time for the stock market, and that time crunch will worsen for the next month or so.

Random Roger has a compelling bearish case about SP earnings estimates being revised down (link 12-3-07). Bullish Jim did a nice study about what follows after two big up days (link 11-28-07 ).

I did manage to time the bottom pretty close with my recent sells, that never feels good. However, with my time crunch, better to be safe and take some small losses than watch the ship go down because of the equivalent of a fire in the kitchen that spreads because of carelessness.

Positions: long MRK hedged