Sunday, September 25, 2011

Storytime: Coleco, RIMM, and Silver

I have some time this morning and a story comes to mind. When I was a young cub, I worked with another young man who invested all his money in Coleco. Old timers might remember the Coleco Adam, a highly hyped computer in the 1980s that was supposed to be the next big thing. Other computers from that era include the Commodore 64, Atari 800, Apple II. My buddy was so sure of this that he bought Coleco stock at full margin.

The stock cracked, and to meet the margin call, the guy borrowed money from his mom. Eventually Coleco went belly up and all the money was lost, 100% of the invested money, plus the loan from mom. My buddy had to eat bag lunches for years to pay that loan back.

Fast forward to more recent history and Research in Motion RIMM. Similar events seem to be unfolding, and the best hope might be a buy out. The core business of Blackberries is fading and the company no longer seems to have ability to compete against Apple, Google, Microsoft and others.

I threw silver into the subject line because that market has that feel to it. Too many little fish are in the net at higher prices. The bulls I see remain defiant and confident in the face of a full blown crash. That kind of sentiment tends to mean that more pain. Obviously silver won't go to zero, like Coleco did, or RIMM might, but a lot more pain may be in store for all those unrepentant bulls. Silver is a tiny cap market so is subject to wild swings and more prone to manipulation than other markets.

Saturday, September 24, 2011

Song of the day: Whipping post

The Allman Brothers classic "Whipping Post" fits the mood of this market (link). Some markets have broken down such as silver (SLV), emerging markets (EEM), China (FXI). Others are hanging on, such as gold (GLD), stocks (SPY), support levels are not yet broken. Bonds (TLT) got a huge boost from the new Fed Twist of selling short term notes and buying long term bonds.

It is scary times to be sure. I don't feel any great need or desire to be the hero. I am concerned about my gold position. GLD 150 is the line in the sand, if that doesn't hold, I could be in some trouble, with my short 159/154 put backratio (long 1x GLD Oct 159 puts for every 2x short GLD Oct 154 puts). Max profit is GLD 154 at expiration. One problem is that the drawdown is enormous at 154 if we get there immediately.

Monday, September 19, 2011

Non-event events, is Greece next?

The one sentence cliche version of this post is "buy the rumor sell the news."

Some recent non-event events were the S&P downgrade of the U.S. rating, the resignation of Apple CEO Steve Jobs. To make it more clear, the possibility of these events happening were brought up for many years, as big reasons to avoid certain markets. In the case of the U.S. debt rating, avoiding long term treasuries, and avoiding AAPL for Jobs. To the consternation of bears everywhere when the news broke, both times mostly out of a clear blue sky with little warning, the market reaction lasted for a few hours, perhaps a day. After that powerful bull rallies rolled forth.

Many fear the possibility of default in Greece. One difference, is a default would be widely telegraphed, compared to the S&P downgrade, or the Steve Jobs retirement. Could Greece be a third news event that has markets react opposite to what bearish traders hope for? We won't know until the event actually occurs, but be prepared for that that possibility. Sometimes a news event is a non-event.

Wild markets today. I am surprised at the rally off the lows for stocks (SPY).

Friday, September 16, 2011

7-0 for September

I count seven winners, zero losers for the September cycle. A welcome positive month after some big losing months. The modest gains are not close to overcoming the monster losses I took earlier.

Best trade was a short SPY put backratio (short two Sep 105 puts, long one Sep 110 put). I closed two legs for a profit on 9/6 "Unwinding SPY positions", and the third short leg expired worthless. The bottom line is about a 300% profit, basis the initial credit. I also had short put winners in GLD, TLT, EWZ.

Going forward, I have complex positions in GLD, SPY, long delta, short theta. Short puts in PFF and layered short puts in TLT. Net long all those symbols, but delta is small, so exposure is small. I'll have less time for trading and blogging for a while, but I will continue as time permits.

Thursday, September 15, 2011

Buy TLT (sell puts)

Buy TLT via selling Nov 96 puts TLT@111.7
I used a limit order and it went through early today. My posting of trades may be delayed and sporadic for a while, but I will keep posting when time permits. I remain bullish on bonds for a bit longer.

I don't have any great insights on the markets. I am glad I am long SPY delta, and short theta, the bearish stock market bets have been demolished during this rally. SPY 125 may provide some upside resistance. GLD looks it wants to continue to drift lower, which is fine with me as long as support levels hold. Max profit for me is GLD 154 at Oct expiration.


Tuesday, September 13, 2011

Buy SPY (sell puts)

Buy SPY via selling Sep 109 puts, SPY@116.8. I am thinking support at 114, 112 and 110 are big hurdles for bears to over come.


Sunday, September 11, 2011

Jack Bogle interview

Here is a link to a 20 minute Jack Bogle interview (Marketwatch link). For those who don't know, Jack Bogle is the founder of Vanguard, and the lead advocate for indexing.

For the gold crowd, Bogle makes a few comments about gold starting at about the 17 minute mark in the video.

I doubt the interview will convince any indexer skeptics to become indexers. Much more compelling than the interview is performance and historical data. Indexers tend to outperform 80% of actively managed money. The primary reasons are that index and rebalance, buys when asset classes are cheap, and that indexers tend to have lower transaction and tax costs than active management. There may be short time periods where active managers outperform, and there will always be about 5% of active money that does extremely well. Indexers tend to avoid over investing in hot sectors, or hot asset classes, which is what many active managers and individual investors tend to do. Chasing what is hot, tends to lead to poor long term performance.

Here is a link to a discussion on the video at the Boglehead forum (link2).

Saturday, September 10, 2011

Instapundit: Disaster Prep

The recent blackout in San Diego and Hurricane Irene have brought attention to disaster preparedness. Instapundit dug up an old post (link). Popular Mechanics has a lengthy article on the subject (link2). For those that prefer lists, Popular Mechanics has a checklist in PDF format (link3).

The stock market has been imitating a yo-yo. Up and down. It has been a wild ride. The tiny group that has been on the right side of these moves has made huge money. The larger group that have been on the wrong side have lost. For now I am sitting tight. For stocks I still lean a bit bullish, but that means little, because I've been wrong so many times lately, and my account balance reflects that.

Tuesday, September 06, 2011

Unwind SPY positions

I unwind two legs of the SPY Sep backratio with SPY@116.6
I sell the long SPY Sep 110 puts, cover 1/2 the short the Sep 105 puts. Making this move adds to my SPY bullish delta. I am still short 1/2 the Sep 105 puts with no protection for Sep. Stock market rallies steadily from the opening smash down low.


Monday, September 05, 2011

Waterfall decline in Germany and market roundup

EWG is the Germany ETF (5-year chart) and is down 5% in Monday trade. There is minor support at 18, and then it may be back to the March 2009 lows of 13 or another 30% down. SP futures (link2) showing -29 to 1140 (SPY 114), and Dow futures -218 this morning. Overnight readings sometimes get better, sometimes worse by the time New York opens up.

I would not jump in the German waterfall on the long or short side. Fast markets are not for me. There is almost certainly much more news to come, as the Euro debt crisis and now a German leadership crisis is unfolding. German is one of the few strong economies left in the Euro currency union. If it pulls out, the Euro folds, or become unrecognizable. There is no stomach for giving more money to their financially distressed neighbors. The German decision to shutter all their nuclear plants I see as a strike against them. I see it as an emotional decision that will make German companies less competitive, due to higher energy costs. The decision also illustrates how emotion driven German voters can be.

A quick chart round up shows GLD making new highs, TLT new highs, SPY still above the recent 110 lows. Asset reallocation may have been part of this recent stock rally, with folks selling bonds and putting that money into stocks. There is unlikely to a second round of that unless bonds make new highs. One catalyst for the latest bond rally, is money fleeing Europe. Gold also benefits as money flows out of the Euro.

As for U.S. stock investors, I see more than a few articles about how staying put was the right move in 2008/2009. Keep in mind that top to bottom that was over a 50% decline, and we are down less than 20% off the recent highs at SPY 118 (137 was the high, 5-year SPY chart). My trading focus is the support area at SPY 105.

Another open question is whether $2000 gold means anything. I am undecided on that one. The recent $200 tumble may have been that reaction already. Shorts may have stops just above $2000, and there seem to be a lot of shorts in this gold market.

Bonds, I still have a bullish trading bias, despite what seem to be absurdly low long term rates. As I wrote before, I may start to look at trading the bear side of bonds (TBT) in the Oct/Nov time frame.

As for the President's upcoming speech, I'm not expecting much. Said to say, the current chief has a reverse-Midas touch. Most everything he touches turns to ashes. Latest in the news was a solar plant the President visited in 2009, going bankrupt (link4). It cost the U.S. government over $500 million in loan guarantees for 1100 jobs that lasted about 18 months.

Thursday, September 01, 2011

Buy TLT (sell puts)

Buy TLT via selling Oct 95 puts TLT@107.6

Option cycle is moving towards decay with Labor Day coming up. As I wrote, I see little chance that the Fed will let interest rates boom higher. I am already short some Sep puts and Oct 92 puts on TLT. Just like my most recent trade, by the time I type this up, it is moving against me, with TLT now at 106.7 on news. Woof.