EXM Options

Given the huge selloff in EXM yesterday...today, I took a $7 July CALL position $0.65 per contract - assuming that yesterday shook out a lot of sellers. The stock is sitting around $6.70. I am not as confident in this trade because I am going against my original theory of this stock trending to lower values based on it's channeling history...so I will put a stop on it at $0.50 and a limit on it at $0.85.

Update: I should have trusted my gut...that one tripped my stop before I could even finish breakfast! Ouch, a quick 25% loss to offset those nice gains.

Update 2: I quickly established a $6 July PUT position against EXM at $0.55 since EXM is clearly dropping like a rock today. Something I was thinking about doing this morning as insurance against my gut was to use a straddle. Had I used a straddle I would have definitely been in a much better position as my CALLs would have sold at a modest loss and my PUTs would still be running in the money. Will have to see where this goes...

Relative premiums on options

Friday morning I was poking around the options chains and noticed that the GNK 22.50 July Puts (which were slightly out of the money) were trading at $1.20. What that means to me is that a lot of people were betting that the stock would go down since they were willing to pay substantially over $1 for an option that was still not in the money. So I went over and looked at the EXM options chain and noticed that the slightly out of the money July $7 Puts were only trading for $0.50. Huh? Since the sector usually has large swings and tends to trade together... there appeared to be an opportunity here. So I snapped up a bunch of EXM $7 Puts at $0.50. Again, since I do not have the ability to follow the market every moment, I put in a Limit sale at $0.80 to lock in a 60% gain ($0.30/$0.50). We will see how they perform today (Monday)...so far so good.

Update: Apparently somewhere around 11am (Eastern) it sold for $0.80. Nice.

To further the point of the dispairity (as of 5 mins ago - and forgive the crude formatting):

Stock____Price_____Strike____Put Price__Comment

EXM____$6.98_____$7.00____$0.80____In the money by 0.3% but 20% discount

GNK____$21.65____$21.00___$1.45_____Out of the money by 3.1% but 45% premium

Options - day 3

Since I am just playing around with options...I decided to sell my $8.00 July PUT calls at 1.00 to lock in a 67% gain ($0.60 --> $1.0). Since the underlying stock EXM has started to reverse - I decided to take the opposite position just to see what happens. So I purchased a $8.00 July CALL option at $0.95. Since I can not follow the minute by minute I decided to simply put a limit order to sell if the option rises to $1.05 to lock in a 11% gain. We will see what happens.

Update: About an hour after I put in the $1.05 limit, it triggered a sale....nice. 67% gain followed by an 11% gain. Beginners luck for now...

Options

So I have been following options for a long time and even occasionally "practiced" some simple stratagies. But then life gets complicated and I push it to the back burner. I really would like to get more into options since they really open up some very interesting investment strategies which are simply not easily achieved with regular stocks. Besides the fact that they move a lot faster (both to the up and downsides) they provide the ability to more easily capatilize on the movement of stocks in any direction without necesarily needed to know where things are heading. Now wouldn't that be nice ;-)

Given the choppiness of the market these days...I figured I should take another look...as motion is the key to options.

So...yesterday I bought basic PUT positions on Excel Maritime (EXM). The July contracts for $8 puts were selling for $0.60 and the stock was sitting around $9.15. Now the reason I selected a PUT is because EXM has traded in a range of $3 to $10 over the last 8 months (see chart below, FYI I almost loaded up on $5 CALL options down at $3...oy what a missed oppt'y!)...and it has been sitting at the top end of the range for about a month. That tells me that it will either start to retreat or breakout soon to the upside. Since the BDI and the general market seems to be having some issues with breaking out from 8,700/3,500 I was betting that it would retreat again.

So where are we after one day?

Today the stock has fallen to $8.71 (-5%) and the put option is now worth $0.75 (+25%). Now the real question...do I purchase an offsetting CALL option to protect the gains using a staddle? You tell me...

I forgot to push POST yesterday...so I will give you a realtime morning update for the second day...stock is down an additional 11% pushing the overall option to $1.05 (+75% from purchase)!

I am a seller...

Yesterday I used the strength in the DOW (the pop up across 8,700) to sell a lot of holdings.  Now, I am not necessarially thinking that we are going to immediately tank again...but...we are buying a home and need to put some money into a safe place to ensure stability (for that brand spanking new 30 year fixed super-conforming mortgage at 4.8125%).  

Since there still seems to be a lot of mixed data out there...both in the financial markets (still alot of bankrupcies of big companies / oil back at $68 / layoffs) as well as on the world stage (Iran vs. Israel / North Korea blowing things up) ... things just are not stable enough for backing a pending home sale.  I understand that home sales appear to be shoring up...great...but at what price.  Having personally just gone through the process...it sure still feels like a buyers market.  This is the spring...historically the time when people HAVE to move due to kids in school.  I am betting that this blip of inproved sales is just that...a blip.  A combination of really low prices and the need for some movement.  Things will not be so rosy in real estat in the fall.

Sorry about the delays but an international relocation with 3 kids is just about all I can cope with at the moment.  

Deleveraging...

The media seems to be very fond of stating that "Wall Street is deleveraging".  They all seem to think that this is good.  I happen to agree with this fact....but...why aren't they in the same breath mentioning that the US Goverment is simply Re-Leveraging in return?  We are spending money that we do not have in the hopes that we get a good return in the future.  Isn't that the same thing as buying on margin/credit?  This is going to be a mess in about 5 years.  Let's assume that in 2 years things start to turn around...guess who will be knocking at our door:  Mr. Inflation of course.  What do you use to fight inflation?  You raise the fed discount rate.  What happens when you do that?  You stiffle the economy again (but at least you have an economy to stiffle so the theory goes).  

I heard Sec. Geitner on the talking shows this weekend keep insisting that this administration was interested in fixing the issue...not just pushing the problem off and creating more bubbles in the future.  I beg to differ.  This administration is simply using different levers (the past administration gave you money back in the form of tax cuts and rebates to delay the pain).  This administration is playing with the value of the USD to accomplish the same task.  Either way we are simply "Cross-Leveraging" the issue from the Financials to the US Gov't.  I guess the taxpayer is more forgiving than I imagined.

Now that hurts...

Top 10 declining metro areas

• Cape Coral-Ft. Myers, Fla., down 50.8 percent, to $110,900
• Saginaw-Saginaw Township North, Mich., down 41.4 percent, to $43,900
• Riverside-San Bernardino-Ontario, Calif., down 40.8 percent, to $201,300
• San Jose-Sunnyvale-Santa Clara, Calif., down 37.7 percent, to $525,000
• San Francisco-Oakland-Fremont, Calif., down 37.4 percent, to $487,100
• Sacramento-Arden-Arcade-Roseville, Calif., down 36.9 percent, to $187,900
• San Diego-Carlsbad-San Marcos, Calif., down 36.4 percent, to $332,800
• Phoenix-Mesa-Scottsdale, Ariz., down 35.5 percent, to $155,900
• Grand Rapids, Mich., down 35.2 percent, to $80,500
• Sarasota, Bradenton-Venice, Fla., down 35 percent, to $178,100 

Many of the sales that did occur involved distressed properties. Foreclosures and short sales accounted for 45 percent of all transactions nationwide during the fourth quarter, up from about 38 percent in the third quarter.

Are you hoppin' mad?

So it appears the housing stimulus plan works out to be $275B to aid 9 million families.  Last time I checked that worked out to be about $31K per family.  We better take a closer look:

It looks like $200B is aimed at " 'rescuing families who have played by the rules and acted responsibly,' refinancing traditional mortgages for up 5 million homeowners who now are close to owing more than their homes are worth."  Personally I would like to see what's their  definition of "played by the rules and acted responsibly".   $200B/5M means they are giving ~$40K per family to apparently compensate them because they are upsidown in their home.  Huh?  If you buy a home and the value goes down...don't you just stay in the home and suck it up?  What does lowering their payment accomplish?  Seeing as how the average price of a home in the US is now $175K...that means that the taxpayer is effectively subsidizing ~22% of these homes. Grr...

Now for the other $75B...that is going to people "stuck in sub-prime mortgages they can't afford as a result of skyrocketing interest rates or personal misfortune"...apparently all 4M of them.  $15K for each of them.  Grrrrrrrrrrrrrrrrr...

It's a damn shame us hardworking folks who "buy houses they can afford with mortgages they understand (say the 30 year fixed kind)" are the ones getting screwed.  But just remember...it is in YOUR best interest...HA!  What a joke.  Do they even know what our interests are anymore?  Apparently not because they feel a high speed train from LA to Vegas is in my best interest...

History Course: Great Depression

Now I am not comparing the curreny meltdown directly to the Great Depression...but it is important to know thy past.

1. Dow fell from ~400 to ~40...~90%.  Currenly we are only down about 40%.  Just imagine how you would feel if this were just the halfway point...

2. It took the Dow about 25 years to recover to par value (1929 to 1954)

3. From the low of ~40 it took only 3 months for the market to double back to 80...and then stabalize at 60.

4.  If you had waited for the market to stabalize and then invested in Q4'32 (DJI=60), you would have made 500% (6X your money) by the time the market returned to pre-crash levels.  You need to invest once a bottom materializes. It is less important that you find the exact bottom...you can wait for some stability before pulling the trigger. 

Presidential Tax Braket Estimates

I saw this the other day and figured I would pass it along without too much commentary:

One interesting thing to note...while the statement Obama keeps making that "Only the top 5% (above $250K) will experience an increase" is technically true...this shows that anyone making over $100K actually will fare worse with Obama.  Something I am sure McCain would love to say but obviously can't since he will still piss off the 90% of America who makes <$100K. 

And remember...the top 5% of the earners already pay 60% of the taxes...I guess we will see how long the top earners will tolerate ~70%.