2007 01 30 NLV Portfolio Report

January 30, 2007 Year to Date Results

Commentary

If It Ain't Broke, Don't Fix It?

Looking at our YTD results, you might say, "Leave well enough alone."
We've increased our NLV Return to an annualized rate of 14.69% while the
benchmark S&P is still in single digit territory, 9.02%. But you can't count
the S&P out. And while we're gratified to achieve a return that's about
three times what a cd pays, and twice the performance of the S&P to date,
I'm still not happy. Therefore, I'm looking to change a few of my basic
parameters to see if I can beat my performance vis a vis the S&P even more
next month.
I'm really treading in unexplored territory here; for me at least. I don't
have the long experience in trading nor do I have staffs at my disposal to
carry out the daily nitty-gritty such as data accumulation, screening,
investigation, programming and other sundry administration. This takes away
from the time I have left to study, analyze and create the environment in
which I want the NLV portfolio to exist. Nevertheless, I still must make
some changes if I want to discover where our approach can be improved.
This can't be done on paper only. The only testing lab we have that means
anything is the market itself. I'm of the belief that while backtesting
ideas on historical data may shed some insights, for the most part, it may
overlook other subtleties such as the effects of commissions, slippage,
taxes, and over-zealous curve-fitting. More importantly, it never can
simulate the subjective emotions a trader undergoes under the stress of
making myriad decisions with insufficient information. So the only place to
really test theories is out there using real money under real pressure.
That's where probabilty theory comes in. It can help us set signals on when
to act and how to act in a high percentage of the trades and with a certain
degree of confidence. There is no one way to use probability theory. I look
at it like a bag of tools. And like a carpenter with his saw, hammer and
screwdriver, depending upon the plans he gets will determine his output.
With the market however, even with our bag of probability tools, the best we
can do is to follow our plan and know that if we do enough trades under it,
we'll probably emerge at the end of the year with the goals we've targeted.
There never is certainty in the stock market, that's for sure.
All this prose is prelude to this. Starting February 1, as I mentioned
before, I'm making significant changes to my approach. In fact you might
almost say that I'm going to be using an entirely new method from selecting
the options at interest, deciding how much to invest in any particular
position, and when to exit the trade. This is not to say that I'm entirely
throwing out the baby with the bath-water. Much of the probability framework
I've been using will still be in place. But I'll be measuring and utilizing
volatility in significantly different ways. Explaining all the differences
is beyond the scope of this report but I will say this. Volatility is the
most important numerical component in investing, short or long-term. All
attempts to price options, stocks, futures, commodities, bonds, etc. must
take into consideration, the key variable, volatility. Fail to consider
volatility in your investment strategies, and you just might as well go down
to one of the friendly casinos in my home town and plunk all you have on red
or black at the roulette wheel. (BTW: that's a sucker bet. Over the long
haul you'll lose $5.26 for every $100 you bet. But with an understanding of
volatility and its application to a particular roulette wheel, you still
might be able to shave a few basis points off your loss)
However I came to this game to win. Not just pare losses. So I predict that
even if my new approach seems to produce better, I still won't be happy. So
I'll bet I'll be blathering more about volatility and probability in the
months to ome. And you can take that bet to the bank! <g>

Net Liquidating Value (NLV) Portfolio

Paper Profits Table
Good News: Yeah, 14.69% looks nice. Money doubles in less than 5 years with
this return. Why a fella could even retire if he were making that kind of
return, consistently. And since we don't know how consistent this return
would with tomorrow, let alone next month, that's why we're back at the
drawing boards as explicated above.

Bad News: Not really bad news again, but while we gained 1.65 points, the
S&P gained 6.96 points kinda narrowed the gap between us to 5.67 points.

Closed Transactions Table
Didn't BTC anything today so...
Good News: None
Bad News: None

Put Trading Activity for Report Date
Generally, we want STO Premiums to be as big as possible and we was BTC
Premiums to be as small as possible. This would give us
optimum profits. In other words, we want to buy low and sell high, but with
put writing its always in reverse order. Note that all Premium, STO, and
Profit/Loss Columns should be multiplied by 100 to get the per contract
numbers and that all positions we enter into will always be for as least two
but probably more contracts per position.

Abbreviations: STO-Sell to Open; BTC-Buy to Close; AROM-Annualized Return on
Margin

Sell to Open (STO)
Symbol Expires Strike Premium BTC Target Sell By Date Stop-Loss
Target
ANF 05/19/07 $60 $0.55 $0.35 02/20/07 $0.85

Buy to Close (BTC)
Symbol Expires Strike STO BTC Profit/Loss
Days Held AROM
None

Administration
I really shouldn't do this except that I still have another (different)
position in UAL Corp. (UAUA) so I peeked. Oil shot upward today so that had
I waited another day to unload my old position, I would have lost even more.
Meanwhile I'm hoping for oil to come back down (it's the arctic weather
forecast for the midwest for the coming week that's got oil and natural gas
bouncing upward) before I have to BTC my other UAUA, soon.

Disclaimer:
This is the fine print and is designed to protect me in these litigious
times, and until I get better wording for this disclaimer, you are under
notice that I am not selling my services nor any other product, nor am I
trying to induce you to trade along or independently, with me. I am merely
offering a journal, so to speak, of my portfolio's transactions and results
with the hope that you will glean information and educate yourselves in the
stock market in general and option trading dynamics in particular. Trading
in the stock market and in options involves substantial risk and much money
may be lost. Beginners, especially those with little or no understanding of
the stock market, lose most, if not all of their capital in a relatively
short time. In other words learn from me and my mistakes and if you want to
risk your money in the markets, that's your business and has nothing to do
with me. I am not your representative, broker, advisor or any other type
agent acting in your interests. As a matter of fact, if you want to invest
your money, I recommend you hire your own advisor other than me.

Copyright (c) 2007 Leonard Mednick, MBA, CPA (Ret); Managing Member LIME
Holdings LLC

_________________________________________________________________
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2007 01 29 NLV Portfolio Report

January 29, 2007 Year to Date Results

Commentary

Econ 101
There are several dozen economic indicators published each month from
various sources (government, academia, non-profit organizations) that
traders closely follow. Each of these indicators has the power to move

markets up or down, depending upon the results and the traders' expections.
For the remainder of this week we have a couple of dozen still to absorb.
Two of the more important ones are of the Gross Domestic Product (GDP) on
Tuesday and the Federal Open Market Committee's (FOMC) report to congress as
delivered by Fed Chairman Ben Bernanke on Wednesday. GDP, sometimes simply
referred to as "the economy", is an attempt by economists to sum up the
total value of the goods and services a country produces. Then they compare
the current number with past numbers while the market decides whether the
number met or disappointed their expectations. As such the GDP is one of the
more important shaking and moving numbers we get.
In the current scheme of things, however, I think the most important
information we'll get this week is what the FOMC's decision will be on
interest rates. Most traders expect that Dr. Bernanke will stay the course
on interest rates for the upcoming month and that he will give words to the
effect that inflation is still a threat but that we are on course for a soft
landing of the economy (as opposed to a recession which many economists have
been predicting for a couple of years.) Traders can live with this language
but if he adds, amends or deletes even one word and his statement is
interpreted as either more ambiguous than usual or downright negative, then
look for all hell to break out in the marketplace. That's because the two
biggest drivers in today's markets are interest rates and the price of oil.
I've already reported on oil somewhat in earlier reports.
FYI, the two major goals of the Fed are to control inflation and to assure
an employment environment where everyone who wants to work has a job, and
that employers don't have to go begging for applicants. If more people are
looking for jobs then there are jobs available, then unemployment creeps up
and there is downward pressure on wages. Tres bad, economically and
politically because that also means that there are fewer consumers in the
market place buying either less items or no items at all.
Conversely, if there are more jobs available then there are applicants then
there is upward pressure on wages and businesses pass off the increasing
wage expenses to consumers in the form of higher prices. This is one of the
biggest causes of inflation. Nothing more than supply and demand again. Just
remember: Inflation Bad! And the Fed uses interest rates (with a few other
economic tools) to try to adjust the rate at which the economy grows or
diminishes.

Net Liquidating Value (NLV) Portfolio

Paper Profits Table

Good News: For the most part the Dow, S&P and the Nasdaq stayed pretty close
to flat-line for the day. But while the Dow and Nas were up slightly, the
S&P lost a point or so. Happily, our portfolio despite taking a small
beating in our 21-day stops still managed, on paper, to beat the S&P again;
this time by a healthy 10.98 points (annualized). And while many investors
would be delighted with our performance to date (13.04% annualized return on
investment), I know that my trading approach is too new and subject to too
many more tweaks (some to be highly significant but untested by time) for me
to start resting on its laurels.

Bad News: This is not really "bad news" but what I'd really like to see is
my tortoise NLV beating the volatile S&P hare on a consistent basis when
both of us are in the black (green in the table's case, above <g>)

Closed Transactions Table

Good News: This may be reaching somewhat, but our Avg Win dropped just $2.94
while the S&P's dropped $18.45. So now our average has almost caught the
S&P's. It would be nice if we could overtake the S&P, too, wouldn't it?

Bad News: In the P(win) and P(loss) departments, we dropped almost 6 points.
Technically, though, so long as we enjoy a P(win) that is more than 50% we
still have the edge and the edge is what every trader looks for be they
long-term investor, short-term speculator, or outright gambler.
The aggregate of our small losses today did reduce our Avg Net PL/Trx. But
so long as this number remains positive, and we're beating the S&P returns,
we remain good to go.

Put Trading Activity for Report Date

Generally, we want STO Premiums to be as big as possible and we was BTC
Premiums to be as small as possible. This would give us
optimum profits. In other words, we want to buy low and sell high, but with
put writing its always in reverse order. Note that all Premium, STO, and
Profit/Loss Columns should be multiplied by 100 to get the per contract
numbers and that all positions we enter into will always be for as least two
but probably more contracts per position.

Abbreviations: STO-Sell to Open; BTC-Buy to Close; AROM-Annualized Return on
Margin

Sell to Open (STO)
Symbol Expires Strike Premium Target Price Sell By Date Stop-Loss
Price
IDCC 03/17/07 $30 $0.90 $0.55 01/31/07 $1.35

Buy to Close (BTC)
Symbol Expires Strike STO BTC Profit/Loss
Days Held AROM
LCC 01/19/08 $25 $0.70 $0.80 -$0.10 11 -
52.5%
PG 01/19/08 $60 $1.30 $1.45 -$0.15 6
-137.5%
MRK 01/19/08 $35 $0.55 $0.65 -$0.10 4
-259.1%
ZMH 01/19/08 $60 $0.80 $0.65 $0.15 12
62.3%
UAUA 01/19/08 $25 $1.20 $1.25 -$0.05 24 - 17.8%

When you see Days Held that are less than 21 days, the chances are that
there was an earnings report due in the next day or so, and since I do not
want to gamble on whether the street will think the report lived up to their
expectations or not, I BTC early. Earnings announcements, are probably the
biggest consistent driver in what the price of the stock (and its derivative
options) will be right after the announcement. In many cases the
announcements are made when the market is closed. In those cases there is
nothing I, nor any other investor, can do to protect our investments if we
guessed wrong. Hence the stock/option will gap down and our stop-losses will
not be able to take us out of the market before our loss grew too big.

I learned this lesson the hard way. About a year and a half ago, one day I
was up $1,000 at market close on a position but when it reopened again the
next morning after a perceived negative announcement, you can imagine my
chagrin when I saw that that same position was now down $4,000. Yikes! So
the rule I started following then was that if there were no scheduled
earnings announcements within the following 30 days, I would consider STOing
that position.

I followed that rule until earlier this month when I shortened it to 21-days
because of a bigger than expected position loss I'd taken which would have
been a profit if only I'd cashed out the week before. I'll probably
reconsider this rule when I make other changes to my trading method in
February. I don't like the pattern that four out of five 21-day policy
positions finished with a loss, however small they may be.

Administration
Delaying my BTC over the weekend on UAL Corp. (UAUA) saved the NLV portfolio
almost $200. I guessed right on both the oil market (supply and demand as
well as geo-political) and what I thought was the excessive way investors
beat down UAUA on Friday. But I had to get lucky to do it. Therefore, I won
the profit/loss battle but I put myself in jeopardy of losing the
self-discipline war! If, in the long run, my trading approach yields me
better returns than the S&P, then I've got to take the goods with the bads.
Otherwise, why don't I just follow my instincts, biases, and outright
guesses. That would save me the beau coup hours each day that I devote to
education, research and position screening. And while I may save some hours
each day, I'll probably go back to losing another $30,000 or more like I
lost in the first 17 of the total 21 months that I have been actively
trading.
If I break my discipline again, you have permission to slap me on the side
of my head! <grin>

Disclaimer:
This is the fine print and is designed to protect me in these litigious
times, and until I get better wording for this disclaimer, you are under
notice that I am not selling my services nor any other product, nor am I
trying to induce you to trade along or independently, with me. I am merely
offering a journal, so to speak, of my portfolio's transactions and results
with the hope that you will glean information and educate yourselves in the
stock market in general and option trading dynamics in particular. Trading
in the stock market and in options involves substantial risk and much money
may be lost. Beginners, especially those with little or no understanding of
the stock market, lose most, if not all of their capital in a relatively
short time. In other words learn from me and my mistakes and if you want to
risk your money in the markets, that's your business and has nothing to do
with me. I am not your representative, broker, advisor or any other type
agent acting in your interests. As a matter of fact, if you want to invest
your money, I recommend you hire your own advisor other than me.
Copyright (c) 2007 Leonard Mednick, MBA, CPA (Ret); Managing Member LIME
Holdings LLC

_________________________________________________________________
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2007 01 26 NLV Portfolio Report

January 26, 2007 Year to Date Results
Commentary
Mea Culpa. Mea Culpa. Mea Culpa!
One of the rules I embedded in the method I created for option trading is
that I don't keep a position for longer than 21 days. This is win, lose or
draw by the 21st day. Now I may bail out sooner if the trade either hits my
target or is about to announce a corporate event like its quarterly
earnings. The reason for rules, in general, is to take my personal biases
and emotionalism out of my decisions. And the reason for the 21-day stop
rule is that I figure if the underlying stock isn't moving my way in this
time then I want to close it out (BTC ) in order that I may free up funds to
invest in a more promising candidate. I'm thinking that my original
probability based selection is not going to work and that it might even turn
against me. However, as I mentioned in an earlier report, I am not fully
invested at this time but I am trying to "catch up".
If you've been reading or viewing the news, or even keeping up with my
reports, you know that the price of oil per barrel has been quite volatile
for some time. This means that in any particular day (or week) its price can
swing considerably up or down. As you can imagine, closely related to oil's
price swings are companies in the Transportation Sector like Airlines and
Trucking. As Transportation fuel expenses go up, their profits fall
accordingly.
One of the NLV's holdings is UAL Corp. (UAUA). Just when I should have been
dumping UAUA (on a 21-day stop) oil reached a relative high in its recent
price range. So I rationalized that since I don't see any really bad news as
to why oil was going up (like when British Petroleum's Alaska pipeline shut
down a few months back and it looked like the US was going to have to buy
more Mid-East oil to the tune of 400,000 barrels per day to make up for the
deficiency), it looked to me that all that was happening was traders were
just running scared; like maybe they had a collective bad hair day.
Another reason for my rationale, today was one of those rare days that my
screens gave me nothing, nada, zip to invest in. That's right, out of the
more than 100,000 individual option contracts that I screen each night,
there wasn't one candidate that met all of my criteria. The market simply
refused to give me any probability-based opportunities to place any "bets".
And since I wasn't fully invested anyway, and I had nothing else to invest
in and UAUA looked like it might make a nice continuing investment, and I
also thought that oil was bound to drop during Monday's session, I asked
myself, "Why not?" So I did. Bad boy! Naughty Boy! I really should be
punished for this so whip me, flog me, take away my penchant for food but
please let me reduce the pending $187 dollar loss I was looking at!
We'll see how things turn out Monday where several other holdings hit their
21-day stop as well.
Net Liquidating Value (NLV) Portfolio
Paper Profits Table
Good News: While oil and interest rates (which increased slightly)
negatively affected the S&P and me, the NLV lost slightly less that the S&P
so that we were able to widen the gap positively, percentage-wise, between
the index and our portfolio.
Bad News: The S&P and NLV still both lost equity today. We just lost it more
slowly.
Closed Transactions Table
Good News: None
Bad News: None
We found no buying or selling opportunities, today. Accordingly, we had no
runs, no hits, and no errors. It's doubtful we'll find many days like today
so next week should be a little more thrilling, especially since there's
going to be a lot of economic news, not the least of which Fed Chairman Ben
Bernanke will be telling us whether the Fed will be increasing our interest
rates (doubtful) or just letting everything ride. Depending upon how his
words are parsed, we will get a reaction from the market and here's my
fearless prediction: you'll be able to read into his statement that the Fed
will continue to do nothing about rates; increase them because inflation is
rearing its head; or decrease them later this year. You invests yer money
and you takes yer cherce! I kid you not. <g>
Put Trading Activity for Report Date
Generally, we want STO Premiums to be as big as possible and we was BTC
Premiums to be as small as possible. This would give us
optimum profits. In other words, we want to buy low and sell high, but with
put writing its always in reverse order. Note that all Premium, STO, and
Profit/Loss Columns should be multiplied by 100 to get the per contract
numbers and that all positions we enter into will always be for as least two

but probably more contracts per position.
Abbreviations: STO-Sell to Open; BTC-Buy to Close; AROM-Annualized Return on
Margin
As mentioned earlier, there were no transactions today, so there is nothing
to report.

Sell to Open (STO)
Symbol Expires Strike Premium Target Price Sell By Date Stop-Loss
Price
None

Buy to Close (BTC)
Symbol Expires Strike STO BTC Profit/Loss
Days Held AROM
None

Administration
Regardless of whether delaying the UAUA BTC proves successful or not (saving
me $$$), I will try harder in the future not to break any more of our rules.
Chronic rule-breaking is a sure-fire way to get burnt really bad.

This does not mean that I won't be amending the rules from time to time.
That's fair, if implemented in advance, of any new tactics. To that end, I
will be changing some of the rules in my screening process beginning
February 1, 2007. I will be basing the size of each of the STOs on a
different probability algorithm, as well as increasing the amount I will
allow at risk at the beginning of each new STO. This will get the NLV to a
fully-invested position a lot quicker, and one hopes a lot smarter. I also
hope that a big, nasty bear doesn't come along to spoil my party before we
get some of those bigger net profits rolling our way.
Disclaimer:
This is the fine print and is designed to protect me in these litigious
times, and until I get better wording for this disclaimer, you are under
notice that I am not selling my services nor any other product, nor am I
trying to induce you to trade along or independently, with me. I am merely
offering a journal, so to speak, of my portfolio's transactions and results
with the hope that you will glean information and educate yourselves in the
stock market in general and option trading dynamics in particular. Trading
in the stock market and in options involves substantial risk and much money
may be lost. Beginners, especially those with little or no understanding of
the stock market, lose most, if not all of their capital in a relatively
short time. In other words learn from me and my mistakes and if you want to
risk your money in the markets, that's your business and has nothing to do
with me. I am not your representative, broker, advisor or any other type
agent acting in your interests. As a matter of fact, if you want to invest
your money, I recommend you hire your own advisor other than me.
Copyright (c) 2007 Leonard Mednick, MBA, CPA (Ret); Managing Member LIME
Holdings LLC

_________________________________________________________________
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As a way of background, you may or may not know that around feb of 2005, I decided to learn more about the stock market and get actively involved. After a couple of not inexpensive seminars (max attended one of them) and reading a couple of books, in may of 2005 I decided to concentrate in only trading options. As a result I began to study the ins, out, wherefores, etc and after acquiring and ingesting dozens of books more on the subject (and NOT too insignificantly LOSING about 25k or more), on 10/5/2006 I finally started settling down with a system I'd written that utilizes both microsoft sql server and excel, intensively.

There was an immediate improvement with my trading results so that I ended the 4q06 with a respectable profit and managed to whittle my entire 2006 results to a more decent (but still, alas) a loss. Mind you, my system is not perfected by any means and, I still tweak and otherwise modify it frequently, at least it now gives me a dashboard, so to speak, with which I can better control and learn from my trading decisions as I continue along into 2007. but always keep in mind that NO system, mine or those of the billionaire hedge funds, can ever guarantee wins! All I am trying to do is to beat the overall market (the S & P 500 index in my case) on an ongoing basis. That's how the managers of mutual funds, hedge funds, and other financial managers are usually rated. And, incredibly enough, the stats I've read and heard about from many different sources say that 90% of the managers FAIL to beat the sp500 by year end. This means that all the expense loads you pay to these managers are for the most part wasted because they can't even beat what you could have gotten by investing your money in a SPY (the symbol for the s & p 500 index Exchange Traded Fund). And the internal load for SPY runs, I believe, less than 0.25%. That's less than a quarter of one percent for those of you who can trace their lineage back to an ancestor called nancy.

Why I'm excited about my system is that for the last quarter in 2006, that my system was utilized I beat the sp500 results by 30%. If a manager can BEAT the sp500 by 10% he's usually considered to be worth his weight in gold. But at 30% he's usually given awards and medals, not to mention the multi-million dollar year end bonuses that wall street is so famous for. Waal I'm not in the super-star status, yet, so no medal for me. I need to sustain a winning streak for at least a full year, if not more. But at least now I have something to shoot for. But as I said, no system can be considered fool-proof. Markets can, and have, gone down. But even in a down market, when the day (or year in this case) was done, the successful managers lost less (or even made a small profit) than the sp500. and there are still so many more ideas that I have for incorporating into my current system.

Anyhow, for the last couple of weeks, I've been sending reports to max, along with a little of my trading philosophy for three reasons:

1) I'm hoping that a little of my enthusiasm for trading for a living rubs off on him,
2) it helps me in that I am forced to reduce to writing a journal, as it were, outlining my reasons for doing what I did, reviewing my fortunate decisions as well as my mistakes. The latter assists me in taking steps to try to prevent these mistakes in the future. A little more on this shortly.

3) if I'm at all successful, I will have the basis to commercialize my system through semnars, webinars, articles and books. Before I consider this item, I need to see at least a modicum of success for 2007.

Now let's talk about my mistakes. Going into the new year, I had about 15% of my portfolio invested in two commodities: oil and copper. They tanked in the last two market sessions. That's usually good for the market (and consumers) in the short run but it played some havoc with my scores. Because of my system AND the reports I'd been sending max, I was immediately able to spot why I lost as much as I did on them and tweaked my system so that in the future, WHEN (not if) similar circumstances involving other picks I may have made happen, I will be able to bail out almost immediately, AUTOMATICALLY thereby minimizing any losses that my portfolio may have suffered. I might also add, that a good deal of the $25k I lost in my first year and a half were due to mistakes AND not getting out as quickly as I did with the oil and copper positions I held. This means that I lost an extra $500 or so this time, when in the past I lost anywhere from $1k to $4k on similar situations. My new tweaks, I'm hoping, will cut the "extra $500" down even more.

So here's what I propose: I'm going to send each of you my daily updates, same as I do for max. again, I'm doing it for the same three reasons I enumerated above. I encourage you to ask me questions or discuss what you see with each other. It would be nice if I were kept in the loop as it would help me as well. Note that at no time have I asked you to turn your funds over to me for management. I'm a long way off from that. It's one thing for me to lose MY money. I don't want the responsibility of losing other people's money, expecially those of whom I love. So I have no other motive than what I've told you. I think it'd be really great if one, or all of you, became infected with my enthusiasm so I could pass along my system to him/her.

I can't begin to tell you the independence one garners when one can trade and make a living at it. This means that he/she does not have to put up with clients, vendors, employees, landlords, etc. A successful trader can live anywhere in the world where there's broadband internet; can set his/her own hours (my active trading takes about an hour's prep before market open and trading activity during the first and last hours that the new york stock exchanges are open. A total of three hours per day on the computer, max. of course I spend many more daily hours reading and puttering with my system, but that's fun for me. I would be always reading something and puttering with something even if the subject weren't trading.

Anyhow, nuff for now. I'll begin sending you daily reports a la max as of today. If you don't want them, let me know. You're not going to hurt my feelings. As irs dehassler was my passion for almost 40 years, so trading for a living is my passion now. You've got different passions and I respect them.