Commentary
Fed Chairman Ben Bernanke did not disappoint, today! From his lips to our
ears, he said that economy-wise, all is well with the universe, and further
implied that He (Uncle Ben) still sits on His throne. Fierce buying ensued
and the Dow made another All-Time High. Most of the other averages did
(somewhat) likewise.
So what's wrong with this picture? Well, there's tomorrow, for instance.
Uncle Ben will be pronouncificating (don't look it up, I just invented it
<g>)some more, and then there's some unemployment data that's to be
released. If the job market looks like it's heating up -- all bets are off.
Perversely, a better job market means potentially higher wages and that's
b-a-d for companies and consumers. Higher wages push up prices, that's
inflationary, and Dr Bernanke is the sworn enemy of inflation. His current
weapon of choice to fight this evil? Increasing interest rates. That's bad
for companies, too. Pushes up prices, you know, old bean. The Fed think's
that in that case, that's good. But isn't that inflationary, too. Just
asking!
Investors dislike this (low unemployment claims data) scenario so much that
the bulls will run away and hide, while bears come in acrunchin' stock
values. Bad for investors, bad for markets, and of course, bad for S&P and
NLV! So's here's hoping you and yours get fired, and all your friends go on
welfare! And that's good for the economy? Go figger! <g>
Paper Profits Table
As mentioned, the markets were kind to the S&P and the NLV. The S&P,
however, is still pulling away from us. I'm hoping my new policies will
reverse that trend in the weeks ahead. One by-product of the new policies is
that their results will take longer to show up. I expect that. Meanwhile,
there's always luck to help us to help us sooner. The good kind, I mean,
silly!
Note the slight changes in the last column (Rating). I've color-coded the
NLV / S&P (nee NLV vs S&P) numbers so that you can get a feel for their
relative values. The four colors and their values are Red - Not good, Green
- Good, Blue - Excellent, and Violet - Superior. Even though the NLV Return
is at a somewhat respectable 14.74%, since we're running at only 0.7 (70%)
of the S&P that's gives us a grade of Red - Not Good.
Closed Transactions Table
No STCs today. Again, our new trading policies should make for less churning
in the portfolio and, we're hoping, higher profits at least two ways. More
Option price erosion and lower transaction costs.
Notice there's a modification to the last column(s). Like in the Paper
Profits Table, In order to give you a better feel for the relative values,
I've used the same color-coding scheme but not quite the same numerical
mappings. I've also dropped the alpha ratings ("Not Good", "Excellent", etc)
column and substituted it with the numerical ratings (upon which the alpha
was based, in the first place.)
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
MGM 01/19/08 $45 $1.00 $0.40 $1.40 08/02/07
Yesterday I said that I chose to make my Reward/Risk Ratio (R/R) 1.2 to 1. I
"lied"! When I went to actually implement this ratio, I really didn't like
the potential results so I changed it to 1.5. This means that if all works
to plan, in the long-run I'll have bigger net profits. Only time can tell so
I really hope not to have to tamper with this ratio again for the next
couple of months or so.
If you're really sharp-eyed and retained yesterday's discussion of the R/R
derivation, you'll see that a 1.5 to 1 ratio is imbedded in the BTC and S/L
Tgts above. In other words the NLV stands to profit $0.60 ($1.00 - $0.40)
and lose -$0.40 ($1.00 - $1.40) if the trade goes the wrong way. Dividing
$0.60 by $0.40 gives us 1.5 to one.
We've still got 24.4% of our available funds (Total Cash less Margin and
Reserve requirements) left for investing opportunities tomorrow.
Buy to Close (BTC)
Symbol Expires Strike STO BTC Profit/Loss
Days Held AROM
None
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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Check out all that glitters with the MSN Entertainment Guide to the Academy
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