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%.

Forbes on Taxes

...

  

The road to $1,000

This past weekend I cleaned the other 2 air conditioners --> $70.  Although, I did have to have the A/C guys come out and fix one anyway which ended up costing me $35....so let's call it +$35.

Total:  $342

Oh yeah...and I bet your 401K is down a hell of a lot more than $342...but at least I have $342 more dollars than I would have had.  When the great depression strikes and apples are selling for $0.05...I will be able to feed the family for a while!

The road to $1000

Yesterday I decided to reconcile all my recent Aetna insurance claims (believe me I did not want to).  Since we are in CR, I need to pay in cash at the time of service and then get reimbursed later.  Due to recent workload isses, I ended up submitting about 12 claims at the beginning of this month.  Guess what...they had "missed" a few items...total ~$55.

Total: $307

PS - I liked Flogger's comment on the last $1K post.  It really is amazing that something as simple as just changing your mindset in small ways can pay off substantially in the long-run  (includes more than just financial matters)

$700B

So I really wanted to stay out of this because it is being talked about to death...but...I heard something troubling today. I heard that the pricing that was being used to purchase the bad loans was something OTHER than fair market value. I certainly hope that this is not true. If we (the taxpayer) pays one cent more than the fair market value for these loans then we are getting ripped off and our money is effectively subsidizing the banks.

At the end of the day I think it is bad enough that we are buying bad debt. I understand that we *HAVE* to or the whole market may "collapse"... but it certainly is not something that most of us would ever contemplate doing with our own money...oh wait...this *IS* our money (or should I say our debt since this will simply be written against the national debt).

In the end, it will be done...we just need to ensure that we get the best deal possible. I recommend we have someone like Warren Buffet step in and negotiate a good deal on behalf of the American Taxpayer. He has a great track record of driving a great deal...let's use our national resources here on this one!

The road to $1000

Day 3 (Friday): coffee at home, skipped lunch and did not buy a bag of candy that I wanted --> $4

Day 4 (Sat): nothing ;-(

Day 5 (Sun): opted for the "$115/night" room at Las Palmas vs. the "$165/night" room saving a total of $150 over the three night reservation...plus...we figured out that Payton was an "infant" and not a "child" saving another $60. Total for day 5: $210 (Jen assisted on this one)

Total: $252

The road to $1000

Day 2: Well today I did not really do much but I did brew my first 2 cups of coffee at home and I skipped lunch. In the states that may have saved me about $10...but here in Costa Rica that only saved me about $3.

Total: $38

Now...as far as the economy goes...today was a nice day on Wall Street. Amazing how one can feel "better" when their stocks going up 6% despite the fact they are still down 20%.

The road to $1,000

For the time being I am going to stay away from commenting about the market.  I think we all have had a little too much market talk lately.  For the record I have not done anything with my positions except watch them go down like everyone else.  Instead...

On the drive home today, I was wondering just how much we tend to piss away money in a seemingly infinite number of little ways.  Now I know that this is nothing new to most of you who have been through one or two financial books...most of the time it is called something akin to "The Latte Factor".  While I do not drink fancy lattes everyday from Star$$ it does not meant that we don't do this in many other ways.   And a penny saved IS a penny earned...so my gaol is to keep track of all the little things that I do daily and keep a running total.  That way I can see how long it will take before we get to $1K. 

Today I cleaned one of the A/C units in our house.  I know that would have cost me $35 so today I saved $35.   I have two more to get to at some point...so that should help...

Total:  $35

That is all for tonight

What's a billion here or there...

This morning I was able to watch about 20 mins of last week's "Meet the Press". I know...you are thinking "Really, you have 20 mins to watch TV"? Or maybe you were thinking "Really, you record Meet the Press"? But whatever you were thinking this morning I was struck with an ironic juxtaposition from the boob tube. And for the record the answers are...yes (but it was just 20 mins before the tribe descended upon me) and yes (I like to try and keep current on US politics since we are down here in Costa Rica and recording it just makes sense...)...

Anyway...During Meet the Press...Senator Obama was being asked about Pakistan and a soft-ball statement he made earlier about getting them to stiffen their fight against the crazies (i.e., terrorists). Obama went into one of his long winded not-really-gonna-answer the question modes. They were discussing how Pakistan should be spending the ~$10B we give them each year. Tom Brokaw was making an argument that more of the money should go directly towards fighting al-Qaeda or else we stop giving it to them. Obama went on about how more should be put towards schools and such. While I tuned the politics out...what resonated with me was the number $10B per year to Pakistan. That seems like a lot of money to me...but then...soon after I lost control of the TV (again...only 20 mins for dad) ...there was a quiz on the HGTV channel about how much Americans spend every year on their yards. Of course, Jen got it right and I was wrong...but the number was $37B.

Now since the population of Pakistan is about 170M folks (~half of the USA) and since they all reside in just 340K square miles (only 4% of the entire US area of 9.6M square miles)...it seems perfectly rational that Obama should have instead suggested that we simply re-landscape all of Pakistan. Hell, at just 4% of the area...they should have money left over to pave a few streets and throw up a few schools too....and with everyone proud of their yards...there would definitely be nowhere for the terrorists to hide-out anymore. Just imagine what they could do with even more of our tax dollars and a Lowes! I should have been a political think-tank guy.

ROH

Back in October 2007 we bought Rohm and Haas due to the fact it was a nice safe and steady stock with room to go up and a nice dividend. Well sometimes those stocks are attractive to the bigger fish in the waters....and on July 10 the big fish of DOW chemical put in an offer to buy ROH for ~$75 a share....~65% higher than where it was on July 9. Nice.

Now, they always say buy the rumor sell the news....so I sold it within a week of the "news". My fear: the deal would collapse and so too would the profits. Like we say...sometimes enough is enough. Since the stock for sure would not go over $75...it was basically dead money (minus the 2.5% dividend) until the deal was closed with only huge downside risk. I guess getting into DOW at a cheap rate could have been a good thing...but since I don't know the conversion details there is nothing to base that on. If I want DOW (with it's 5% dividend by the way) I will just go ahead and buy it directly. Might not be such a bad idea seeing as how it is hovering around a 5 year low and paying 5%....hmmmm

Tax Bill

There was a good article on kiplinger.com (What's Your Share of the Nation's Tax Bill? - Kiplinger.com). Key parts:

New statistics from the Internal Revenue Service show that the highest-earning 1% of taxpayers in America make 22.06% of all income reported to the government. That’s almost twice the 12.51% of total income earned collectively by the lowest-earning 50% of workers. Yes, 1.4 million taxpayers claim 22% of income earned while 68 million share just 12.5%.

But get this: When it comes to taxes paid, an even wider discrepancy shows itself -- in reverse. That top 1% of earners pay 39.89% of all the federal individual income taxes. The bottom 50% of earners pay just 2.99% of those taxes.

So I am not trying to argue that the "rich should not pay a little more"...but I am troubled by the definition of "rich". If half of the people pay only 3% of all taxes...that seems to be a bit low. It gets a little worse if you look at the "bottom" 75%...they only pay 15% of the taxes! Yup...that means that only 25% of the population is carrying the weight of 85% of the bills in America. Just imaging if one of the presidential nominees wanted to repeal the Bush tax cuts for the "rich" and lower the taxes for the middle class. Hmmm - let's say ~10% will be paying ~90% of the tax bill. Some might...just might...call that something close to Socialism. But putting that aside for a second...what about the old bar axiom...what happens if that ever shrinking population actually paying the bills suddenly decide to go somewhere else (kind of like our businesses are)??? Seems like that may also be a threat to our national security...

BREAKDOWN OF INCOME AND TAXES PAID BY CATEGORY
Income Category	2006 AGI			Percent of All Income			Percent of Income Taxes Paid
Top 1%	Over $388,806			22%			37%
Top 5%	Over $153,542			37%			57%
Top 10%	Over $108,904			47%			68%
Top 25%	Over $64,702			66%			85%
Top 50%	Over $31,987			87%			97%
Bottom 50%	Under $31,988			13%			3%

Source: IRS