Commentary
You've probably read and heard about today's market melt-down sufficiently
without a complete analysis from me. Suffice to say, most everyone,
including me, got burned. I tell you this, however, I still stand by
everything I've said the past few days: Fundamentally, the economy still
seems ok, and that this (over-?) reaction from the investor community is
based on panic and little else. So we finally got the short-term correction
that the Negative Nellies out there have talked us into. All that was needed
was a catalyst to ignite the fire and they got one with the Chinese stock
market dropping more than 9%.
Let's keep today's 3.29% DOW drop in perspective. It comes at the tail of a
four year bull market which saw the DOW rise by approximately 65%! Not that
I'd like to see it but using the DOW as the yardstick, we could well
"afford" to give back another six or so percent (like the Chinese did) and
still have a hefty base upon which to grow into the future. Maybe afford is
not the right choice of word here but I think you know what I mean.
We're still not out of the woods, however, short-term corrections usually
take a few days to simmer down so we can still experience more market
turmoil, both here in the U. S. and around the rest of the globe. Keep in
mind, a short-term correction is not usually the harbinger of a bear market.
Bear markets usually linger for months and bring much, much pain. But bear
markets are usually tied to the fundamentals of the market and the economy.
Today we have no big unemployment, no high interest rates, no major sectors
of the corporate community coming up with dismal earnings reports and
bleaker outlooks.
Since there's no way I, nor anyone else for that matter, knows what tomorrow
will bring all I can do is guess. And since my guess might be as good as the
next guy's here's what I guess: tomorrow will show another loss but not as
big as today's. And Friday will bring the smallest loss yet. The next three
days will be sort of a thermometer as to whether we are indeed only
correcting, or have finally entered the next bear market phase. On the other
hand tomorrow will bring a more sophisticated investor back to the market.
Then it's whoopee time all over again (but again waiting for the next
correction, and so on ad nauseam). My guess is also based on all things
being equal like no other bad news occurring, especially in the geopolitical
arena. Stand by, please.
Paper Profits Table
It's ugly! The only "good" news here is that if there were only 1,000 ways I
could make a dumb error while trying to learn stock market dynamics since I
started back in May 2005, I just made dumb error #999. Without going into
all the details, I assumed when I placed a stop/loss order with my broker,
that before it would be triggered, some third party would have to fill his
or her order at the price I entered my stop/loss. Wrongo! Right off the bat,
one of my stop/losses was triggered at a hellacious price. The market
specialist at the exchange really trimmed my tresses with a phantom asking
price that no one but me was stupid enough to "take". About 20% of my losses
today is a direct result of my ignorance.
Fortunately, my blunder occurred right at the opening. By simply drilling
down in the myriad menus (and sub-menus) my broker's online software offers,
I was able to change the stop/loss pricing option from their default to the
one I actually want. It must have worked because only two other positions
were closed and then only because the asking prices on the screen were real
in that that was what some real person had just filled on their positions.
This doesn't mean that I'll no longer lose money. To the contrary; today's
market may suck in other panicky investors who seek to close their position
at any cost. That action would suck me in as well, but that's what honest
investing is all about. Ya takes da good wit' da bad! Frankly, I wouldn't be
averse to a little more on the good side tomorrow. Please?
Closed Transactions Table
Read 'em and weep. Naturally, the above discussion holds here as well.
Put Trading Activity for Today
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
None
Account Balance less Margin available to invest: 52.1%
Account Balance less Margin and Voluntary Reserve requirements available to
invest: 22.1%
Buy to Close (BTC)
Symbol Expires Strike STO BTC
Profit/Loss Days Held AROM
COH 01/19/2008 $35.00 $0.70 $1.75
-$1.05 11 -829.5%
AKAM 05/19/2007 $45.00 $0.75 $1.15
-$0.40 12 -243.2%
AKAM 01/19/2008 $35.00 $1.25 $1.85
-$0.60 14 -328.2%
A lesson I learned today is that I should limit my positions in any one
company. The NLV made money on AKAM last week but had a concentrated loss
today. So at one point I had four or five positions open in AKAM because the
premiums looked juicy. I still have one left. Let's see what happens with it
tomorrow.
Comments or Questions?
If you have any comments or questions, please direct them to Leonard
leonard@irsdehassler.com
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. I also
reserve the right to cease publishing this missive, or change its publishing
frequency at any time without further notice or liability to you.
Copyright (c) 2007 Leonard Mednick, MBA, CPA (Ret); Managing Member LIME
Holdings LLC
_________________________________________________________________
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