Cautious Time Ahead

(for details pls visit www.OptionPundit.net)

What a week!! From OPN’s perspective, this was one of the best week ever for OP’s portfolio as it grew over +10% last week alone. There is no point to list details though, as currently OPN is not open, but I shall open trades for viewing to x-OPN subscribers (after Sept’07 expiration). Hopefully as an OP reader, you benefited from BAC, APPL and FXI hints as well. Thank you all OPN subscribers, I am overwhelmed with the requests to restart the OPN. I am still occupied with some priorities and I shall let you know via mailing list when I start again.

All the key indices fell across the board. The S&P 500 fell -1.4%, the Dow lost 1.8%, Nasdaq -1.1%, and the Russell 2000 -2.1%. Now whatever others may think I am bearish for short-term as most indices have closed below key support areas. Based on volatility we have seen in past few weeks anything is possible, so while I will be expanding “south” territory, I will also be marginally protecting “north” frontier. As soon as it changes direction in either direction, I am ready to embrace it.

One watch-out, though volatility has risen and hence Options have become expensive (Good for Option sellers, Iron condors, credit spreads), be mindful of Sept 18th when FOMC is going to decide markets’s fate via “interest rates” and depending upon outcome, markets may move wildly in either direction. That week is also Sept options expiration week which will add fun to volatility. Recall Aug 16th, that was also option expiration and it triggered several adjustments just to realize that markets were back. So be careful. Whatever experts may say, I don’t see a solid reason for rate cut. Except housing, construction and sub-prime, there is nothing so bad. US Economy is still growing, world economy is doing great and other sectors are performing pretty well. But that’s me.

Apple, huh, I don’t know why Mr Jobs did that? Why price cut to embarrass and frustrate loyalist. It’s aaple die-hard fans that makes Apple what it is today. I am surprised that consumer research team at apple had not anticipated what kinda impact a price-cut within few months will have, unusual at Apple. The damage is done (IMHO). Let’s look forwards, Apple has offered $100 rebate to previous buyers. Apple sold about 600,000 sets, that is 600,000×100 i.e. $60millions cost to the company (app ~ $0.02/EPS). Unless this credit is being given in form of “A-Vouchers”, it is a direct hit to the bottom line. Sure, I have no doubt that they are outsmarting all the big guys in Mobile phones and are expected to sell huge numbers but this incidence shook my confidence. Hopefully, financial wizards at Apple learn from this mistake and make it up quickly. “Brand value” and “big fans” are what create a “Moat” around Apple, else it is no different from rest in this commoditized market, and “they” don’t wanna mess with this just to meet or beat numbers.

Interesting time ahead, whatever you decide, whichever direction you pick, I would urge caution,

Profitable trading, OP


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