Friday, August 28, 2009

And I just Remembered Something!

I would like to REITERATE that I am almost entirely in CASH right now except for the portion of my portfolio that is SHORT (against weak areas of the markets). Despite the fact some of my posts have felt rosier lately, I am extremely bearish for the next long while.

The deflationary side of this Greatest of Depressions (Yes I am calling it that for a reason) will come back soon, and it will come back with a bitter vengeance. I recommend cashing out now while you can, buying short term treasuries with some of your money and cash with the rest.

The price of gold and silver are going to suffer some serious blows as a result of this, and you can bet that this will be one of the best opportunities of our lifetimes to pick up these rare and valuable assets are remarkably low prices. As always I am more bullish on silver as it is a much more finite resource and still doesn't even have the monetary premium that gold has on a market level (there is 1 ounce of gold per human above-ground on earth, and only 1/6th of silver).

If you do have the stomach, now is the time to get your Short-selling ducks lined up in a row. I am using long-term puts for the most part and will probably scoop up a few shares of ultrashort ETFs as well. But I'm anticipating agonizing market lows for all the perma-bulls out there, so I will leverage those losses with my options calls.

I said it will be "interesting" when the traders come back. I mean it. If you know anyone who has heavily bought into this rally please forward this information to them and urge them to even take SOME of their profits now. It is running out of steam very very fast. We are at the top of the track folks, the clicking of the lift has stopped and there is nothing but gravity for a long ways from here....

As always if you have any questions please email me and I will reply at my earliest convenience. I'll be posting a few more trades early next week.



Oh, Mr. Orwell, You're Goin' so Topsy-Turvey Down There!

Those great and passed-on dystopian writers are most likely spinning just a tad in their graves as weak speak. Actually they've probably Gordian-knotted themselves up years ago - perhaps they will make a final contribution to mankind outside their dire literary warnings; a double Gordian knot anyone?

All jokes aside this is some serious stuff. One of many and many more, I might add, and one of the signs of the deterioration of a country. This article I stumbled upon earlier says that a piece of legislation is trying to be shoved through congress that would authorize el presidente of IOUSA (Thanks, Agora!) to have some sort of "kill-switch" mechanism for the internet.

Hours could be spent deliberating and counting out the nastiness of this piece of legislation, but unfortunately it is one drastically over-sized and legalese set of pages that is tossed atop what is becoming a mountain of government burden. Pray that people get wind of this and wake up temporarily enough to get this thing struck down.

Otherwise you might not see this blog anymore! Now THAT would be hear-breaking! Oh, by the way, hope you guys are enjoying the official "Investophoria" domain. HUGE change, I know, I know. Long overdue, to boot.

In the markets today, not too much to mention for action. The broad indexes were ever-so-slightly lower today in the US, Canada's up a bit. Very light volume. Things should be more Die-Hard, Bruce Willis, Action-Style once the traders come back from their cottages after Labour Day weekend. Are you ready?

Have a Great Weekend, all!

Tuesday, August 25, 2009

Bi-Polar Mr. Market, and the little (big) rally that Could...

This one's short and sweet. Remember back when I wrote my "psychology of trading" series? Remember how I said Mr. Market is most often extremely bi-polar?

Right now we are in the euphoria stage, where investors are piling onto the moving train that is this rally based on small tidbits of news that look great on the surface. An example is the housing data from today - Though home sales were up the only areas that saw real increases were homes below $100,000.00 - the very bottom trough of the market.

The jumbo loan market, where the banks are having to take the majority of their write-downs, is still totally dysfunctional (as it should be, considering the crazy-high asking price so money of these people who over-paid are asking). In fact, even the suburban markets from 10 years ago are hurting badly - you know the ones where most of the buyers are actual prime borrowers?

But the rally runs on, full steam ahead. Well, not FULL steam ahead. The last two days it's sort of stalled flat. Consolidation for a last big pop maybe? Hard to say. What isn't hard to say is that this rally COULD go another 100+ points from here and still be in serious bear territory. In fact in another 100 points the shorting opportunity might just be two steps above magnificent. See this chart for the breaking-news details! (The upper trend line is still a WAYS away, as well as the nearest weekly Moving Average).

Another little fun indicator of the stall is the fact that Obama was clearly trying to talk up the markets with his Bernanke-praise (A guy I personally think, hope and pray will go down in history as the LAST piece of the mass-incompetent Federal Reserve puzzle that was started 96 years ago). No go, Mr. President!

We will see soon enough how much steam this rally really has. Puttering yet? It's tough to tell. But there is much more drama our hyper-medicated Mr. Market has yet to act out. Much much more.

Happy investing all.


Monday, August 24, 2009

As Promised - a list of my so-far options purchases

As promised I will give you a quick run-down of my options contracts and the price acquired. Remember, an option gives you the right, but not the obligation, to buy or sell as share at a later date. The buy or sell side depends on the type of option (call or put).

There are a few effective means of utilizing options even if you are a long only investor. The best one is to use the technique known as "hedging" your positions.

Basically this means that if I own shares of, say, Teck Resources, but I think the market may take a serious dive overall, I can cover the losses on my shares. Market timing is difficult and thus this is a fairly cheap way to cover your losses and roll them back into the stock.

Here's an example:

Say I purchased Tck.b on January 1 of 2007 $33.00 per share. Now I know the fundamentals of this particular company are strong and that they are in an industry where they have good market share, good trade relations, and churn out some serious cash.

However I also know the fundamentals of the broad market are not looking so hot, and I also know that when major indexes dive hard, even the best stocks get dragged down by the "Fear Factor".

So what I can do is hedge my long position in Teck with a put option contract (or several of them) to make up for any broad losses I might take. Because I am trying to hedge for a long period of time, I personally go with an option contract that is at least 9 - 12 months out (which is usually about the furthest out you can have contracts written on the open market).

So I will buy the put contract (each contract = 100 shares. Lets say I have 1000 shares of Teck so I will actually buy 10 contracts) at $32.50. Because there is a huge time premium on this type of option I will probably pay around $5.00 per contract. Basically I am using $5000.00 to protect my $33,000.00 investment. Or in other words I am risking about 15% to protect the 100%.

Now, if the stock goes up 100% from there to $66.00 by January 1 2008 I have made $33,000 and my "insurance" has expired worthless. So I forfeit the $5000 for peace of mind and I'm net $28,000.

However, let's say the stock does exactly what it actually did. After a very long-term head and shoulders it tanked all the way down to $3.35! (I recommended it as a buy not very long after this point, remember). Well now your stock is only actually worth $3,350.00!

But not to fear, those put options have been growing in value with each passing day the stock has tanked. Even if you were a bad timer and sold them when the stock was at $7.50/share, they would still be worth $22.50 + per contract, giving you $22,500 back. If you then took that money and piled it back into the stock (even at $7.50), that would have landed you an additional 3000 shares.

Look at today. The stock closed at around $28.50. Your now 4000 shares would be worth over $90,000.00!

Of course, you say, this is a past-tense example. You can quantify ANYTHING using the past.

Fine. I will show you what I'm doing now and we can quantify that in the next 6 months using the future!

Here are the Put contracts I have taken out over the last 7 trading days:

PUT BAC November @ 17.50 - 10 contracts @ $2.00 / share

PUT BMO December @ 40.00 - 5 contracts @ $3.00 / share

PUT COF January 2010 @ 40.00 - 5 contracts @ $6.60 / share

PUT JPM December @ 40.00 - 10 contracts @ $3.00 / share

PUT GS December @ $170.00 - 2 contracts @ $18.00 / share

There will be a few more added over the next week or two (unless something really violent and to the downside already starts). I'll keep you posted.

Happy trading all!