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Commentary
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Today was somewhat startling for me, but happily in a positive sense. I was
busily shaping up my new approach and so paid little attention to the minute
by minute market gyrations. It was only about an hour and a half before the
market close that I noticed the Dow was up slightly but the Nasdaq and the
S&P were down. What surprised me most was that the NLV Portfolio was having
one helluva fine day as you'll soon see. It is near a record high of its own
since its inception on October 5, 2006.
Meanwhile, the S&P keeps jumping up and down all over the place. First
behind the NLV a couple of points, then ahead for a couple of days, and now
behind us again. So, I'm thinking, should I really be "tampering" with my
trading approach? Especially when today in my system testing my computers
spat out four likely candidates each promising a better than 95% chance of
making money; that's better than 19 to 1 odds! However I deemed the amount
of profits attaching to these candidates, in absolute dollars, was too small
when compared to the amount of margin I would have to tie up.
The new candidates were offering less that $0.25 premiums for only a few
extra points on the probability of making money P(win). Thanks, but no
thanks. I passed. Tomorrow, I'll resurrect some of the benchmarks I chucked
just a couple of days ago to see if I can get a better balance between
premium size and probability of profits. That's what experimentation is all
about. Tweaking benchmarks, monitoring results, comparing them with prior
results, deciding whether it's worthwhile to accept or reject the new
results. It's keeping me quite busy, thank you, but I love it!
As for the market indicators, oil is up again, threatening to hit the $60
mark. That's a baddie. Interest rates are down slightly. That's a goodie.
And half-way through the earnings season, average corporate earnings are
still over 10% (that's good) but just barely (that's bad). I've already
mentioned the mixed signals the major indices gave us so all this is leaving
traders in a somewhat apprehensive mood. From a technical standpoint, many
are saying that the markets are over-sold and due for a pull-back; maybe 4%
to 7%. And the fact that many Fed biggies are due to speak this week adds to
the nervous mood even more.
But fundamentally, all seems to be pretty much ship shape so where does that
leave me? While I'm still optimistic for the intermediate and long-term, I
gotta remember that I trade in the short term. (30-days or less), so I'm a
bit nervous, too, not because I think the market's going to tank badly, but
because I think there are so many more nervous nellies out there that they
might just become stampeding bears which will affect my bullish postitions,
negatively. So I'm probably going dump a couple more positions than I
planned to tomorrow before the stampede starts and wipes out their paper
profits. I also don't think I'll be looking to add any positions again
tomorrow, unless some gem really sparkles its existence before me. I tell
you this, it ain't gonna mean no steenkin' two-bit premium even if it shows
a 99.99% probability of making dinero! If an overall rush to unload starts
with my luck, I'll end up with that 0.01% chance of losing money all over my
face.
Anyhow, that's my tentative Tuesday pre-market take... unless, of course,
the market starts winking her seductive charts and flashy tickers at me,
then all bets are off. I'm so weak! <g>
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Net Liquidating Value (NLV) Portfolio
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Paper Profits Table
Lookit dat, lookit dat, wudja? On a lackluster market day our NLV Return
bounded to a sizzling 24.94%; within striking distance to our 4th quarter
2006 results. Meanwhile the S&P dropped to 20.55% so that now it trails us
by more than four points. Another way of looking at these two number the NLV
would have returned 21.4% more income YTD than the an investment in the S&P
(24.94% / 20.55%)! Only 329 days to go 'til New Year's. <sigh>
Closed Transactions Table
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; S/L Tgt-Stop-Loss Target
Sell to Open (STO)
Symbol Expires Strike Premium BTC Tgt Sell By Date S/L Tgt
None
Buy to Close (BTC)
Symbol Expires Strike STO BTC Profit/Loss
Days Held AROM
None
Administration
None
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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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