Not fighting the tape, Fed and Treasury

Anyone who reads this blog knows I think the market is going to tank big time at some point. Capitulation is a descriptive term I'm especially fond of.

In the short term, however, I am riding the bull. I'm not solvent enough to fight the tape, the Fed and the Treasury. They are throwing mind boggling resources at the problem. This is causing a lot of money on the sidelines to now take risk with securities. I don't think that's very smart but I'm not going to fight it. A good trader is an adaptive trader.

I'm long FAS, SPY, GE and GLD with calls. As soon as fear starts building up again they will be closed out and I'm trading the other way. The Fed and Treasury have fired almost all of their bullets and if they are not successful the market will panic....down to single digit P/E's. When fear is back, and I think it's just a matter of time, I plan to ride the bear until the bulls are throwing up in the streets.

Then I'll be bullish again....

Gilley's

The Fed and Treasury are drunk and riding the bull like they're at Gilley's. Short term the market likes it and some are calling a market bottom. I'm not buying it. Printing money to buy our own debt and banker's toxic assets isn't the solution.

Short term we may be bullish but before this bear market is finished we will be in single digit P/E's. As a trader I've bought some FAS and SPY calls so as not to fight the Fed, the Treasury and the tape. These are very short term trades.

I sold some XLE 35 puts yesterday because with the pressure on the dollar, commodities such as oil will probably not drop all that much. It was my first sale of premium in a while.

Interesting times..

Capitulation

I don't know when it's going to happen but capitulation is definitely in the cards. Right now there is a decent bull/bear tug of war going on with the Fed riding the bull like they're at Gilley's.

We are in a depression not a recession. In past recessions the bear market left stocks with single digit P/E's and investors running for the hills supposedly never to return. But they did return after it was clear that the bear had ended and the bull was underway. Only problem was they missed the most violent leg up. The old sell low buy high maneuver. If stocks went to single digit P/E's after recessions where are they bound to go after this historic fiasco and depression we find ourselves in?

I can't say where the market is going this week or next but I am confident we will ultimately see capitulation. The next time there is a lot of fear I'm going to load up on options for the ride down toward capitulation. I think the bottom will be S&P 600 if the U.S. is lucky. When one does the math to get stocks to single P/E's the numbers are scary low.

Whatever you do don't buy into the argument that we're at a market bottom. I can't recommend writing any covered calls or writing puts unless they are on precious metals or bear ETF's. After capitulation that's a different story altogether.

How will you know when you see capitulation? Anyone who was optimistic and bullish will have been taken out to the woodshed to be ripped to shreds by the bear. When your barber and mechanic swear off stocks forever it's time to ride a massive bull rally that most will miss out on due to their fear.

Sold SPY puts for 38% gain, holding FAZ

I didn't want to hold the SPY Mar (10 days to expiry) 75 puts over the weekend so I took the gain. My FAZ April 30 calls that I bought for 6.00 ended with a bid/ask of 9.70/10.00. I'm letting this one run. I would have held the SPY's but time decay was going to start being an issue and if it looks like the final down dive I'm expecting I'll just jump back in.

TBT and GLD calls haven't moved much. I think TBT's three point drop after the Fed announced it's buying our own Treasuries was an overreaction. These yields have to rise. My GLD calls are June 94's and with the world crapping on their currencies I expect this to continue to rise. I also think precious metals will rise as the market takes it's next fall.

After the next fall assuming it's a capitulation I will be looking to write out of the money puts like a madman. Until that time I think it's too dangerous to write puts and covered calls. That is why I haven't been an "option premium collector" lately. Well actually I have been on existing positions but I'm hard pressed to feel safe being bullish or even neutral on most issues to establish new positions.

So my experiment as an active option trader (buyer) continues. I'm making money but I'm also getting stopped out a lot. For those of you who are avid premium writers please don't lose faith in me. I'll return to the fold sooner or later. I'm just sowing some wild oats :)

Bought SPY puts and FAZ calls

Made some bets that the market drops after a hefty runup. The Fed's actions seem more out of desperation than anything. The numbers they are putting out to battle the crisis are mind boggling.

Long GLD and TBT calls

Gold is soaring as the Fed's action will weaken the dollar. I took the TBT bet because I don't believe the Fed will be able to keep yields that low and all they've done is reinflate the Treasuries bubble. We'll see.

Fed buying treasuries

This is a game changer for the financials, TBT and gold. Stay tuned.

Bought JPM Jun 10 puts

I keep wondering why JP Morgan isn't as cheap as BAC and C. Evidently Jim Rogers is wondering the same thing as he's heavily short JPM. The stock does keep making lower highs and lower lows, however. I purchased these puts at what I see as the new lower high. I've bought some time since we seem to be engaged in a pesky cyclical bull within the long term secular bear. Stop losses and conservative position sizing are in place to manage risk.

Rosy news from banks...huh?

It started with Citi Chairman Pandat leaking a letter that Citi was profitable. Today another Citi top exec is quoted as saying Citi needs no more government money and is one of the most healthy banks out there. Bank of America says they are interested in writing new jumbo loans and that Merrill Lynch and Countrywide were terrific acquisitions. To put there money where their mouth is they are hiring a bunch of people to write these jumbo loans.

Huh? Isn't this just a response to their being strings attached to free money? Isn't this just a concerted effort to show lack of stress before the government stress tests? Or are things suddenly better? Have home prices suddenly dropped dropping?

Personally I don't buy it for a second but it's great for my FAS calls. I'll be slowly moving up my trailing stop. So long as the public believes it and pours money into the financials I'm along for the ride. I just think the emperor ain't wearing no clothes...

WTF is with ERX?

ERX the 3X Energy Bull is down when the market and oil are both up substantially. I'm preparing a letter for my Congressman...[Note: If I would have bought ERX calls instead of posting this bit of silliness I'd be worth a few more ducketts.]

Trade Management: NLY Annaly Capital Management

2/2/09 Bought NLY @ 15.27
2/2/09 Sold Feb 15's @ 1.00
2/23/09 Sold Mar 15's @ .57
3/12/09 Bought Mar 15's @ .05
3/12/09 Sold Apr 14's @ .55

The Mar 15's were basically worthless but the time that we were going to have to wait until options expiration was not. Therefore, I bought them back and sold the next month options. Cost basis less commissions is 13.20. This is a good example of how covered calls can make a stock that is dropping in price still be profitable.

NLY will be paying a sweet dividend soon which in my book lowers the cost basis even more. This trade is in a Roth IRA so there is no tax difference between premiums collected and dividends received.

In .FASDA @ .95

I'm going to ride the FAS train as far as it will take me. Like I said earlier this financial rally might be a little long in the tooth but maybe not. I don't want to miss out if it is and if not I'll get stopped out for a small loss. This is Livermore's not fighting the tape type of trade. It also serves as a hedge to my active shorts.

Financials continue to lead

Historically financials lead us in and out of bear markets. We are in a long term secular bear market and I expect when the bear is finished ravaging it's prey stocks will be in the single digit P/E's. In the meantime it looks like we are in a short term cyclical bull within a long term secular bear. Financials remain strong although I don't know how much is related to the mark to market hearings and the uptick rule.

I haven't been stopped out of my QQQQ, GS and BBY puts but I'm getting close. It's strange not to see the market awash in a sea of red. I'm looking for some longs to get excited about but I wonder if this cyclical bull isn't long in the tooth and we are in a Depression in case you didn't know.

Foreclosure filings hit an all time high and unemployment numbers are only getting worse. People are saving more and that's good but not for retailers who love our spend first mentality.

Short Goldman Sachs

Bought GS Mar 90 put for very short term trade.

Added some GLD calls

I bought some GLD Apr calls. My read of the charts is that gold has just touched it's higher low and is bouncing off of it. I also see that this rally doesn't seem to have any legs to it and if we see a retracement down gold should rally as a safe haven.

Stop listening to the noise...

I'm pissed at myself. I got stopped out of FAS puts first thing this morning. I should have let my long FAS run but I listened to the noise out there. I'm keeping my time spent on trader chats to a minimum and doing what I think is right.

In that regard I see weakness in the follow through rally so I've bought QQQQ puts as well as BBY puts. I have limited position sizing to 5% of portfolio and have stops in place. This time I'm really going to let my winners run...really.

Closed out FAS at 3.72, short FAS now

Closed out FAS at 3.72 for 17% gain. Bought FAS Mar 4 puts for .85 right before close with stop at .60.

Long FAS at 3.17

I was stopped out of my QQQQ puts and went long FAS. Mark to market hearings and Citigroup being profitable for 2 months are very bullish for financials. We are overdue for a bear rally as well.

Shorted NASDAQ...

I bought QQQQ Mar 24 puts. This rally seems very weak although I don't like that there is leadership in financials. I have a fairly tight stop loss set and with conservative position sizing I only have 4% of portfolio at risk. [Note: Bought these at .45, bid/ask was .54/.57 at close. Decided to hold overnight. Stop limit raised to .45 so unless large gap down there will be no loss. Trying to let winning positions run and cut losers early. A rally is coming soon but when is the big question.]

GLD calls update and some thoughts..

I'm letting my GLD calls run. Yesterday I bought the GLD Mar 91's for 2.15. As of this writing I have moved my stop limit up to 2.95 so profits are locked in. I've been slowly moving the stop limit up. If the market sinks today gold should continue it's rise. If it rallies I will probably get stopped out. In any event, I'm not sure I want to hold these over the weekend because there may some news over the weekend that would cause the market to gap up on Monday and my calls to gap down.

With the market in turmoil gold has seen another run up. It bounced off of it's higher low support level supposedly to it's higher high resistance level. I think that there is a good chance that gold will move above $1000 unless the market starts a significant bear rally.

The last few days were great days to sell puts or buy calls on gold issues. As I've stated I've adapted and not written any puts for a while on stocks that are not precious metals because even 40% out of the money isn't safe in a slow bleed environment. Stocks are sinking faster than time decay erodes.

I'm probably not going to enter new covered call positions for a while because the market is in slow bleed mode and that is not enough downside protection. In addition, when the market rallies it will probably be a violent move up and the covered calls will limit gains.

I hope every one's portfolio is protected with index puts, healthy cash positions and tight stops. This market has been an incredible learning experience. [Note: out GLD calls at 3.45 for a 60% one day gain. I just didn't want to hold over the weekend. Nice few days with SPY puts and APOL puts. Diggin' playin' the dark side with tight stops...all cash in taxable. Have a good weekend.]

Update from the dark side..

In my taxable account I'm in cash, SPY Apr 60 puts, APOL Apr 55 puts and GLD Mar 91 calls. In this account I'm not selling option premium I'm buying options. The account is up over 5% on the day.

Until things settle down I'll be writing covered calls on my long positions in other accounts and only selling new option premium on the precious metals and against treasuries. Time to adapt and change.

On my blog list are 3 sites you might want to check out. They are Slope of Hope, The Evil Speculator and Stock Tock. There is some excellent intraday commentary and analysis for those looking for an alternative way to trade. [Note: with the market getting killed it was a very profitable day hear in Darth Vader land...adapt and fight on!]

Trade Ideas; GLD, SLV, GDX, TBT

It looks like the precious metals have corrected and are near a bottom. It might me a good time to write far out of the money puts on GLD, GDX and SLV. I say far out of the money because this market is very unpredictable and it gives us a nice margin of safety. I've written a bunch about the precious metals and like them because they're a safe haven, a hedge and they're money.

TBT is down premarket. This might be a chance to write far out of the money puts on it. We are in a treasury bubble and yields are way too low. When deflation inevitably gives way to inflation treasury yields will need to rise. When the U.S. asks China and others to buy record amounts of debt this year they will need to pay them better yields.

These trades seem fairly safe to me. I would still write puts way out of the money or if you're writing covered calls, write them in the money. Things are different now. This is a Depression. On rallies buy out of the money index puts for protection. Stay safe and good luck.

Joining the Dark Side

In my personal taxable account I am 80% in cash and 20% in SPY puts. I hold no bullish positions whatsoever in this account. Quite unusual for an Option Premium Collector, huh?

In other accounts we have moved to cash as much as possible but still hold quite a few long positions including some naked puts. We have increased our protective put holdings and have short call positions fairly snug up against the stock prices. We have been rolling down calls as prices drop. For example, we've rolled down GE three times this month and there are still 17 days left until options expiration.

The truth of the matter is that I feel great about my taxable account. I have limited risk and I'm not fighting the tape. If their is a bear rally I'll be stopped out and our long positions in other accounts will benefit. If not, I'm Darth Vader and have a chance to swing for the fences instead of the singles an option premium collector makes his/her steady fare.

If nothing else I hope everyone bought protective puts like I've been harping on for weeks. And by the way, it feels better than I thought it would here on the dark side.. [fortunately I bought some APOL puts this morning because these SPY puts are getting whooped....for today anyway.]

Tired of fighting the tape

I've been selling my in the money index puts and buying multiple out of the money index puts. When I bought my SPY index puts they were not in the money and the gains are pretty incredible. I'm adding to my shorts and paring my longs. I've been rolling down my longs like it's my job....Hey it is..

Bernanke and the Senators look angry, confused and in over their heads. We are in a Depression and I'm done fighting the tape. If there is a bear rally that's great because we still have long positions that will benefit. To be continued...

Have the longs rolled over yet?

Let's just kill all the optimism so we can get to a bottom. Is it the death of equities time yet? Have all the bulls been castrated?

I hope everyone is holding up alright. We're taking a little bit of a butt whooping but precious metals and protective puts are keeping us around to battle another day.

This is ugly history we're a part of. We are in a new Depression. Scholars will be analyzing this economic quagmire forever...and unfortunately it's still not over. Stay safe my friends.

Capitulation?

Is the market going to capitulate? Are all the longs finally going to throw in the towel? I'll be honest I've thought about going to all cash and just buying index puts until further notice.

I'm looking to continue to adjust our portfolios. I'm going to see how the day plays out but there will definitely be some adjustments. How are you playing this mess?

Oil Bulls are Back?

For those of you that trade oil ETF's including ERX, XLE and OIH here is an article I recommend reading: http://tinyurl.com/dy8o5f. In fact, I check this website at least 5 days a week. This trader's blog is rarely misleading.

Basically the large commercial players have been trimming their short positions for 3 weeks in a row. I have held off managing some of my ERX positions as you know. In any event, panic selling will always cause us pain.