OptionPundit

Category: Weekend Reading

  • OPNewsletter Dec +5.3% (Open)

    The December portfolio’s weekly update is now available at the OP Discussion forum (Member’s only section). To access the Subscriber’s Page of the forum, sign on with your own username and password by clicking here. Continue to read full post as  I shall be sharing links to good articles/ resources.

    OPNewsletter Dec 2009 Portfolio
    OPNewsletter Dec 2009 Portfolio

    OPN December portfolio has invested 68.2% of 10K assumption capital per portfolio spread and this is invested in 3 main sub-portfolios. Iron condor sub-portfolio alone is up +10%. I might open one more portfolio in the coming week and then we let it run for the month.

    OPNewsletter has consistently outperformed the broader market. Pls read customer reviews or If you would like to sign-up for OPNewsletter directly, pls click here to sign-up for the wait-list (as the subscription is by invitation only).

    Financial freedom is usually the number one goal that most investors aim for. Some want that freedom as soon as next month or next year, while some work through a very disciplined approach and prepare for long haul. Albeit, talk to any financial planner and he or she will direct you to that “one number” you need your net worth by to retire comfortably and often that number starts with $Million and or above.

    (more…)

  • Traveling Light, Writing Light, Trading Light

    It was a fascinating week, both from market’s standpoint as well as my travel perspective. We have closed OPN for 11.6% and now in the process of opening trades for March’08. If you would like to join OPN, click at the wait-list. Why wait-list now even though I done with initial set of subscribers:

    • So you get most for your bucks by joining at the time when new portfolios are being opened.
    • To limit subscribers as we have a dedicated forum where each and every portfolio is discussed and members also share thoughts and Q&A.

    The whole of last week was spent in the City of Chandigarh, a Union Territory, ~350KM north west of Delhi (India). Progress is loudly visible all around and the city is bustling with economic activity. Infrastructure was way improved vs. my last visit to the town. Baddi, a tiny tax free zone adjoining to Chandigarh, must have brought additional revenues to the city. You name any multinational company and you will find its label listed somewhere in the crowd alongside the roads. Property prices have gone through roof and land is now almost out of reach of middle class.

    standing_figures.jpg One thing I admired on this trip was a garden, created out of Waste, yes, out of Waste! This garden, named after “Nek Chand“, creator of this beautiful monument, was something unique I had ever seen before. He used broken tiles, broken rocks, bangles, etc. to decorate artwork. Arranged rock pieces as if it’s a small township ready to talk to you when you are watching them. To appreciate more, you need to think of the context, poor resources and “government” that he had to deal with.

    I pointed my P-n-S camera at several places to pick great shots, but unfortunately couldn’t with the tiny P-N-S. I needed my Canon EOS 5 SLR to use right exposure to show you fine details. Even pictures on the website, doesn’t do full justice. In reality these looks much more fascinating, a photographer in me tells that. I’ll ask for part-time work when I visit them next time. But think of it for a minute, Nek Chand (a road inspector by profession) saw creativity in the waste he saw alongside the roads. He conceptualized the idea, packaged it and executed it. What an eye opening experience! My right side of the brain was all hats-off to him, while left side kept thinking how beautifully he has packaged it that keep generating revenues for the state government.


    Coming back to Markets, I didn’t trade much. I did advise OPN subscribers to close portfolio before the FOMC announcement….

    Fed cut rates by 0.5% , exactly what I was expecting. Volatilities are dropping but it hasn’t dropped that significantly this time as it was las time. But it’s too early to say that. I expect Dow to pull back after touching 12.6k zone. Unless it crosses that, and 12742 lows, don’t confuse this with bullish rally.

    Markets behaved exactly that way after the rate cut, but to move higher the next day. Believe it or not, DOW is precisely where I mentioned in my note to subscribers i.e Nov 26 lows. But the most interesting thing that I find in this market is that “Railways” are doing excellent. BNI is up over 17% since Jan lows, RAIL is up +30%, almost the same story on UNP. Overall Transport if up a nice +15% vs Jan lows. Now think of it for a moment, something is brewing-up. I can’t point it precisely at the moment, but it seems to me that markets are looking past the recession that we are likely to see. I would like to see some strength in DOW before I turn bullish despite bearishness in the market.

    I am turning positive on financial sector (Yes, I am) but I am not going on shopping spree yet. If you were to look for quality names, I suggest you head over to my previous post, where I have been collecting all the names SWFs have been investing. These are the companies which should lose the minimum compared to rest. This is speculation, if you were to play speculation, play it safe. Always hedge for the fall, while keeping positive deltas and IV heading lower. If the economy booms, supported by cheap dollars, see rise of activities in the shipping lines as well. DRYS, EXM should see that. But before making any move, analyze Baltic Dry Index carefully. It should give you hints.

    Looking forward to next week, full of fun travel and trading,

    Profitable traveling, trading, OP

  • Is it Celebration time for Bears?

    (for details pls visit www.OptionPundit.net)

    Last week’s stock markets’ actions must have pleased Bears, as they are breathing in fresh air now. Markets did react in a pretty much “pundit way”. It touched 13,774, rested for a day and then touched 13,511 the next day. I am not a good chartist, but when I do see simple signs, I share. Was it very difficult to anticipate this action, not so much, check out the earlier post. One thing that has changed now though is my perspective. I wrote that I am with bulls and won’t change until DOW closes below 50day MA, and guess what, it did close just below 50day moving average. Good and bad! Good as Dow is now reaching oversold region, bad, it has another ~400 points to fall before any strong rebound (kinda Aug 16th action). If it’s going lower any further, it’s going to test a full retracement to 38.2% fib which is also a 200MA (~13140). So be careful!

    Call it luck or missed opportunity, I was not around on Friday as I was engaged in shifting my house. So damn tired that I really didn’t take any trading action. But when I opened my trading platform, the picture wasn’t so nice. 1 day alone wiped out full 6% point gains from my Nov’07 portfolio.

    One thing that worked very nicely in my favor was, closure of October portfolio well before October expiration. Old time subscribers know why I give away theta gains of the last fews days and either roll or close portfolio.

    October was a record month for OPN. I added three speculative sections, simply because those 3 had great (simple) set-ups for bull run. Overall October delivered +57.36%, a record so far. Here is a recap of October plays, all posted on the forum’s OPN section (access not opened):

    Speculative OPN:

    1. CAT -20.4%
    2. EJ +122%
    3. SNP+93.6% [This was a speculative trade for 120 call, don’t say I was out too quickly. I have lost appetite for 1000s% gains now :)]

    Income OPN:

    1. CAM +53,1%
    2. OIH +34.3%
    3. SPY +16.9%
    4. GDX +41.8%
    5. COP +13.1%
    6. FCX +47.5%

    One note for the old subscribers, note, everything is new except OIH. In Oct’07, OIH met my selection criteria and hence I added it, but all other were new. I was out of OIH from October portfolio before Friday, simply because SLB was announcing earnings and OIH contains 11.86% value in SLB. I think it was a good decision decision as OIH fell >6% in a single day, a very big move of OIH!

    Moving forward, IV has risen, same scenario what it was around Aug 16th. Seems history is repeating itself, so, again I am keeping cash ready for 1) Good plays that were beaten last week and may weaken even further and b) We will soon get into traditional “feel good” months. I will be a “speculative player” at the first convincing sign of bull’s return as I am fully invested for Nov’07 income portfolio to deliver my +6.9% month target (to double capital every year).

    A tip for earning players, next few weeks will have earnings from energy/metal/infrastructure players. Most of them are in bull run, so learn from SLB and play accordingly. I suggest with a bearish bias because missing earnings for any of those bulls will be disastrous for their price action. Before I wrap-up, as Cramer says, there is always a bull market, you need to hunt it for today, for this month, for this quarter !!

    Gold continues to shine, and if (and a big if) Fed cuts rates again, even better for the shining metal,

    Profitable trading, OP

  • An Interesting Week

    (for details pls visit www.OptionPundit.net)

    An interesting week as it was and of course a great week ahead, Fed cuts Fed cuts not?

    Other then Gold and Wheat, there was nothing much interesting past week. This was, however, one of the lowest pre-expiration weekly gains for my portfolio, simply because “Theta” refused to give any gains. Just for the sake of argument, if by Sept’07 expiration, markets stays where it was at the end of Friday, and IV stays where it is, the returns are going to be spectacular +15% just next week alone. But that is not going to happen. Interest rates’ cut will be announced on Tuesday (I don’t see a reason for a cut but I shall be glad for a cut as it will bring down my mortgage cost). Folks on Wall Street are not chatting “if” but “how much” rate will be cut? Interesting ! If there is a cut though, watch out for Gold.

    This week was also another winning week as it resulted over +5% gains. From a poor starting for Sept portfolio due to huge ups-n-downs in mid-late Aug, OPN portfolio is again geared to deliver double digit monthly gains. I am at crossroads though as most of my gains will come next week, but at the same time, this is also going to be a very volatile week. My bias is to close portfolio before 2:00 pm EST on Sept 18th with whatever gains I accumulate.

    1. IV will drop sharply after the announcement, while shorts will benefit, Long will hurt more.
    2. It will be a wild swing, no matter what the announcement is going to be.

    spy-iv-sept-2007.gif iwm-iv-sept-2007.gif

    If you haven’t yet noticed, let me show you two charts (SPY and IWM) that show how short-term ATM IV is rising for both SPY and IWM, leading to FOMC announcement. This will go down after the announcement so craft your strategy that will help you from 1) Large movement in either direction and b) IV Skew (but do take a note that long IV will also fall but probably not so much).

    Later I shall also share on what are key Support/Resistance points where market may move after the announcement and hopefully if I get time, I shall also share few trade’s examples. Stay Tuned.

    Hopefully you saw my comment on closing the CAM double diagonal in time to close the trade for almost break-even. Even if you didn’t see that, it can still be closed for almost break even. When I saw it breaking out, I quickly changed my trading strategy and made it part of my Oct’07 OPN portfolio.

    Stay tuned, Profitable trading, OP

  • 20 Pricesless Rules from Legends

    (for details pls visit www.OptionPundit.net)

    Money Magazine collected 20 best advice from some of the smartest investors (and other great people) who have ever lived. I found the collection too hard to pass, thought to share the great words of wisdom with OP readers. Here is the list but visit the website to see details and great tools associated with some of those words of wisdom (Thanks to Carla Fried of Money Magazine for compiling this great list).

    1. Be humble: When you do not know a thing, to allow that you do not know it–this is knowledge –Confucius
    2. Take calculated risks : He that is overcautious will accomplish little –Friedrich von Schiller
    3. Have an emergency fund: For age and want, save while you may; no morning sun lasts a whole day –Benjamin Franklin
    4. Mix it up : It is the part of a wise man to keep himself today for tomorrow and not to venture all his eggs in one basket –Miguel de Cervantes
    5. It’s the portfolio, stupid: Asset allocation…is the overwhelmingly dominant contributor to total return –Gary Brinson, Brian Singer and Gilbert Beebower
    6. Average is the new best: The best way to own common stocks is through an index fund –Warren Buffett
    7. Practice patience: It never was my thinking that made the big money for me. It was always my sitting. Got that? My sitting tight! –Edwin Lefevre

    And many more, read here (Top 20 Advice).

    Profitable trading, OP

  • Making Sense of Economics

    (for details pls visit www.OptionPundit.net)

    Every week we see loads of economic data that may move markets in either direction, but ever wonder how to make meaningful sense of it?

    Here is my latest book recommendation and addition to OP’s reading list. This book is a classic MBA economic text book but I think a worthwhile to be included into every investor or trader’s library.

    Introducing “Guide to Economic Indicators- Making Sense of Economics” by famous publication “The Economist”.

    This guide is a pocket-size powerhouse, packed with explanation of literally every economic indicator you may think-of. To use the words from the book itself:

    Written for the non-specialist, this highly accessible guide provides the keys to interpreting all the major and many lesser economic indicators that relate to:

    • GDP and GNI
    • Growth, trends and cycles
    • Population and employment
    • Industry and commerce
    • Money and financial markets, etc.

    The guide clearly explains the underlying economic realities of today’s world. It is an invaluable reference for anyone in business and studies.

    Now you may think of why to buy when there are tons of free websites that can offer explanation of each term. If you are like me, then you would love to keep this as a very quick reference guide in your bookshelf that you can refer to every weekend before data is announced following week. Now how to use this for option trading:

    1. Download the economic calendar from Bloomberg
    2. Refer to the calendar and interpret which are the market moving indicators (though Bloomberg identifies that, but you may wanna derive your own conclusions)
    3. Assess risk to your portfolio and prepare adjustments plans in advance (for instance, before FED meeting, I generally prefer to be out of Iron condors depending upon how far my short options are).

    Don’t expect this book to tell you how a perticular indicator will affect the markets. Think of it as dictionary and one will have to develop his or her own perspective. Albeit, I think this is invaluable tool and you may wanna include this in your “must have” reading list.

    Profitable trading, OP