--------------------------------
Commentary
When I was a little boy and some bad event occurred, usually in the form of
an economic hit to the family purse, my mother would say, "Better this
catastrophe than another". The expression had a more uplifting lilt in her
native Yiddish language, which she and my father always spoke when we were
at home. The result was that the listener received a spirit of hope and knew
that this calamity too would pass and that we all would survive. Since I
grew up during the Great Depression, she did seem to say it quite often.
<sigh>
Anyhow, today was such a day on the market. Between oil bumping up to $60
again, and two Fed Governors hinting, in separate speeches, that interest
rates might have to be raised rather then cut, there was general
blood-letting causing many, including the NLV to lose in excess of 1% of
their portfolio value today. To give a 1% per day loss some perspective, if
today's loss rate continues, you are plumb out of $$$ regardless of your
portfolio's initial size; $5,000, $50,000, or in BillGatesian terms,
$50,000,000,000!
Adding to the NLV hemmorhage was the fact that when I rejiggered my trading
method last week, I introduced a subtle error into one of the hundreds of
formulas I've put into Excel and SQL Server. That error, not a major one
mind you, still caused me to enter STOs on Allegheny Technologies Inc. (ATI)
when I should have just bypassed the opportunities. Had we not had today's
market hiccup, my error would have been insignificant, and we still would
have had a strong probability of profiting on ATI.
But the market did hiccup and both ATI positions were stopped out (BTC)
creating about a third of the loss we suffered today. Too bad, but at least
I found the error before it could wreak its damage throughout the balance of
the year and/or years ahead! In actuality, I discovered the error about a
half hour before the market began tanking and decided then that since I'd
already gotten into the positions, and the error did not significantly
affect the probability of profit, I decided to ignore it but made the
changes to the Excel formula before I STOed two more positions today. And
had I not corrected the error, I would have STOed (opened) another ATI
position today, the third day in a row, that's how good the probabilities
were on grabbing profits based on the rest of ATI's factors. ("Aside from
that Mrs. King, did you enjoy the speech?") <got tired of the Lincoln and
Kennedy allusions so I just made the Mrs. King question up.>
While I have two more positions that are hovering near their stop-loss
points, I'm not panicking yet. If the market continues to tank today, I'll
lose them and maybe others as well. That's what stop-losses are for. And so
long as we don't roll over into a bear market for the next few months, I
should be ok, hopefully even making up and surpassing the hit taken today.
This week there's a lot of economic data coming forth and Fed Chairman
Bernanke gets to say his piece in a two day q&a before congress. If he's got
any pity on the stock market, he'll ameliorate the words of the two other
Fed Governors spoken today. That would make the market hop to again, at
least until the next Fed Governor opens his mouth.
How wishy-washy we investors are, yes? <g>
--------------------------------
Paper Profits Table
Read 'em and weep. Both the S&P and the NLV are still showing marginally
fair annualized returns; oh how I long for those good old heady days
of...yesterday! Oh well, there's always tomorrow.
--------------------------------
Closed Transactions Table
Well we can still make a living this year if this is the worst day of the
rest of the year. Better today's catastrophe than another, so hang with us,
ma.
--------------------------------
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 S/L Tgt Sell By Date
DO 06/16/07 $60 $0.80 $0.45 $1.15 03/09/07
WFR 07/21/07 $35 $0.60 $0.35 $0.90 03/09/07
Buy to Close (BTC)
Symbol Expires Strike STO BTC Profit/Loss
Days Held AROM
ATI 04/21/07 $80 $0.66 $1.05 -$0.39 2 -
855.8%
ATI 04/21/07 $85 $1.20 $1.79 -$0.59 1
-3,307.6%
HRB 01/19/08 $20 $0.60 $0.95 -$0.35 1 -
181.2%
GM 01/19/08 $15 $0.55 $0.35 $0.20 16
100.0%
And all this time I was worried about General Motors Corporation (GM). It
BTCed at my target price just fine and gave us our only bright spot of the
day.
--------------------------------
Administration
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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