Cheap Sunglasses

So I am scanning the media this morning and one of the TV shows has a market analyst whose bullishness on tech in 99-02 is noteworthy. This morning, he was the "bear" in the conversation. That is all I needed to know, 300 points later on the DJIA and it confirms most market moves. This afternoon a report on how to "hedge" your home from losing its value. A little too late? The market is a forward looking discounting mechanism. If you listen to what the money honeys are saying, its too late to act. I would take some profits SPX 1485-1495 in order to reload on a pullback, but still looking for a rally above 1540 in Q1 2008.

Gold had a nice dip last week, but I did not buy it. Oil missed 100, probably headed for 78. Aggressive traders could buy put spreads on oil ETF's. Volatility will crash on the way down. This is a commodity play, not an equity play. Stay away from energy stocks unless the chart looks like a breakdown.

Volatility is still high, would be a seller of OTM options vs stock, especially in financials.

I found my thrill, on Blueberry Hill

Had the trigger ready to put some shorts on at 1495 SPX, just a bit outside, would have been nice. Ah the beauty of the market, you can get another shot if you preserve your capital. One way to do this is to trade options. Yes, that is the derivative of choice by myself. Having grown up in the pits with my values on paper, it is the only way I can make rhyme or reason of any trade. Today I will start on some basic strategies:

I. Buy writes. Get long a stock you like and sell a slightly out of the money call. Very simple, able to earn good returns with some downside protection. What every investor is looking for. Of course I look for large cap names that have a nice spread between the 30-day historical and implied volatility. Stay away from any event like earnings or merger plays. You want a flat to mild up trending stock. For example, if you bought KO when it broke 50, wrote 55 calls all year, rolled the last one up to 60, you would have easily turned a 20% gain into 30%. That buys a few extra cases of diet coke.

II. Straddles. When a stock hits a 52 week low, I like to buy the ATM straddle to see if we bounce or break. Look for more than 15 day paper, and keep the trade on a short leash. Some recently good trades were on the financials as panic selling created the waterfall and then a mild bounce.

Bad, Bad, Leroy Brown...

Long and wrong. What to do. I think we hold em and let some go on a rally back to the 1500 level SPX. Hate to double dip in this volatile environment, but still some names are being stomped. Would nibble on more big cap tech here if underweighted, add to financials if flat. Probably the best move is to buy call verticals going long deltas and skew.

Pour some sugar on me.

With all this bad news, the market holds. That means it wants to go up and watch the shorts go screaming for the exit. I see new highs come year end. I also see the far-east settling down. Waiting for a good entry in gold, seems it makes a new high every day. Once we get a bounce in the dollar, since everyone is short, gold will come down also. My view on crude is stay with the trend, looking to get long also, but not at these levels.

Stay with the winners in equities: tech, drugs, and consumer staples. You can bottom fish, but tax selling ain't over in some others. Financials are good values, but you will probably have to wait a year to get a good rally in them. Small caps are under owned, look at some charts for breakouts in beaten down names.

Still like buywrites with the VIX over 23.

Countdown to November 17 begins......now.

Grasperino

You notice this guy on CNBC who is the current star "journalist". You see his book is out on the shelves. No wonder he has the latest word on everything. I don't call that unbiased, just clean business. Call it for what it is, let the buyer beware. If I made a statement without disclosure, I could lose my job, how come reporters have that option?

Now back to our regularly scheduled market, time to take a breather after a 68% retracement of the latest downdraft. I would not be surprised to see a test of 1515 SPX before we make new highs for the move. Still like the short vol play after 3Q earnings, tax selling, and mutual fund distributions. Set up them buywrites.

Hey Delilah

So the market did not crash on Monday, or Tuesday, or Wednesday. In fact, we have held the 1495 SPX level quite easily. With a retest early in the week with afternoon rallies closing out the days. Money managers are busy setting up their end of year holdings. Have you seen MSFT this week? Long tech, out of anything financial seems to be the game.

Speaking of financials, speaking to a prospect the other day, he asked my opinion of a beaten down mortgage company, suggesting he thought is was a buy. I said, how could it be a buy if the CEO just cashed out after they sold a convertible to a larger institution. Hey, I used to watch the CNBC Dennis Koslosky interviews with him sitting in Bermuda also. That stock was a buy at 8 too after crashing from 60, but the CEO was a crook, not a bad business model.

867-5309

So here is the scenario, middle of October, options expiration, news about currency dislocation all over the tape, two middle market baseball teams in the World Series (probably), market coming off new highs from the summer, a really bad selloff on Friday: 1987 redux???

If I was still a floor trader, probably take one of those 10-1 shots here on some cheapy puts. Something like buying a lottery ticket and you know what the last number is. However, now that I work with clients, I am already positioned with some cash and was able to be a net buyer on the day. If there is that "Black Swan" event, our portfolios are pretty diversified and bonds and commodities will do well.

Looking for 1495 SPX to hold, I would start to get nervous with a weekly close lower than that. Buywrites looking real nice here with VIX blowing above 21.