Back in Black

Well almost in the black. The market has done what I thought it would by staying in a tight range even with oil coming down. The economists at Merrill Lynch are still seeing slower growth throughout the world economy. My view is that these numbers are already priced in to most stocks so we are at bargain levels. Financial stocks have stabilized and are poised for an upmove here. Made some good short term trades on the airline and retail stocks as fuel prices have stabilized for the time being. Move to neutral on those sectors now. Pick up some good names in the commodity sector here as the 4th quarter approaches and yesterday's winners will be marked up.

For those of you not too familiar with my trading style, let me revisit some of my themes:
1. Buy stocks when they are in a cheap market.
2. Buy good names in good sectors on pullbacks.
3. Buy volatility in beaten down stocks that have based for a few weeks. Time is needed to wring out the sellers.
4. At all times, sell out of the money calls. Take in some premiums and trade around the positions. You can always buy them back if you want to. Remember, a cheap sale is better than an expensive buy.
5. And most importantly, the market will always move to the point of most pain before it reverts to the norm.

My Mets still 2 1/2 games ahead of the Phillies.

Day Tripper

Well its been a while on the old blogger. The more things change, the more they stay the same. Still like stocks here. Cheap valuations, oversold technicals, bearish sentiment, low interest rates. Buy writes still give an awesome risk/return in this environment.

Take a look at Muni Bonds. Yielding 120% of Treasuries. History has shown this to be a great trade. We are talking 15%+ on a bond position! The market is pricing in huge defaults by municipalities, way out of whack with the risk profiles.

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.

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.

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.

Smoke on the Water

A few things are making me nervous about this market run:

1. Oil making new highs on expanding economy. Wait, I thought oil was a commodity not a consumer staple.

2. An old time naked put seller V.N. has closed up shop again after covering his out of the moneys. Last time he was forced to cover back in 1998, we had a 5% drop the next month.

3. Talking heads confused once again how the market can go from bad to good in a few weeks.

4. No real interest in the MLB playoffs.

I like buywrites on some defensive names here.

Just a Good Ole Boy

If I was a betting man, the trade here is to fade the flight to quality. Maybe get long some closed end hi yield funds which are at 52 week lows, and short treasury ETF's. The flight to safety is a lot like out of the money put buyers after they have taken a hit. Sure it lets you sleep at night, but you are locking into a bad position usually. This was a pattern that I saw in the merger arbitrage game. When no one needed puts, they were cheap to own. Once the proverbial shyte hit the fan, the out of the moneys would trade at ridiculous prices. For example, back in early 2001, GE was trying to buy HON. With GE trading around 50, the deal was worth 52.5 for HON share holders. The spread, where HON actually traded, was 2.50 or 50 for HON. The 40 puts were trading at $.80. Guess where the stock opened after the EU slammed the deal? Thats right, 39. No real protection, but you had to own them.

Pizza in a Cup

I've been asked what is the difference between making markets in options, trading merger arb spreads, and building diversified portfolios. The answer is your risk/time ratio. That is how long do you have to get out of a bad trade or position. In the first two cases, you would take on large risk, but have a small time frame. In the last case, we look at a longer time horizon hence taking less risk. This also allows us to rebalance quite frequently in order to capitalize on volatility.

Very scary to be leveraged up on the long side here. Gold/oil has started to diverge which should create a squeeze in dollar/yen as it has the last 2 years. 10yr also backing up to 4.75 which should send in the asset allocators soon. But I forgot, TTID.

Hollywood Nights

Nothing has changed, but nothing really is different either. GOOG once again taking the NDX lower. Nice divergence with the DJIA. Saw the same thing in February before a little jig. Options prices getting a nice pop, odd for expiration week. Feels like summer already. Watch Gold here around 670, 50-day MA with a triple top near 700. Funds will pile in on a break of the range.