Going into today I thought we would be seeing a brief morning selloff, followed by a rebound. The long term 9 month downtrend is coming together with the 5 week uptrend. It looks to be coinciding nicely with next week’s Fed announcement. My trades are primarily sideways.
I managed to exit the remainder of my XLE 77p calendar for 1.23 (very small profit) @ 83.47.
FAST- remainder of May 40p for .20 @ 49.24. I think someone made a mistake at the beginning of the day and bought these. I am quite sure they will be expiring worthless.
The portfolio is up nicely on the day 1.4%, and I am 1% off the portfolio’s all time high. Very nice. TXN has popped up, as has UST, and AIG has continued to drop. Perfect
Essentially what I see on both of these charts is a coiled spring starting to develop. My fundamental thoughts are as such:
40% of S&P earnings are made from out of the US. The IWM is much less as they are smaller companies. If I was pair trading this, I would be long S&P, short IWM.
I am trading well today, patient and well planned.
AIG – I have been riding my 45p down the trendline. Now I am hedging with long exposure in the way of May/June 46c calendar. There is a large Vol Skew in this trade. May is 60.5% vs June 47.2%. I choose this 46c calendar due to the breakevens and previous lows as support. Breakevens without the current 45p protection is 40.2 and 53.2. That pretty much covers the range of AIG for the past few months. I think the news of ABK possibly getting downgraded is weighing on all of financial institutions. AIG has a history of not letting all the bad news out at once. That seems to be the cause of this volatility Skew. Earnings isn’t until the end of May. I will be out of the trade by then. I bought these from .64 down to .56. I picked up a 1/3 allocation. I was trying to buy these down to .50 for a 1/2 allocation.
Here an article from RealMoney.com from “RevShark”
The financials have taken the wind out of the early positive action. Our old friend Ambac Financial (ABK – commentary – Cramer’s Take) is the driving force, as concerns are now growing that after additional writedowns by Ambac this morning, there is a bigger risk that it will be downgraded to less than investment grade and trigger another $20 billion or so in losses at major financial institutions.
That is what is pressuring financials. Without a bottom in that sector, buyers are sitting on the sidelines and are not willing to put capital into this market. It doesn’t much matter what earnings reports might show if we are still dealing with more debt issues and further liquidity problems.
XLE – I bought just a few calendars of this. 82p May/June for 1.47, 1.46, and 1.45. Nothing big, but I like the breakevens. 78 and 87 for a 23 day trade.
DTV – Exited 3 units @ .45. I still have 6 units on. Earnings on May 7. I may have more time to rebuy some positions. After commission this was a 37% winner.
Closing report – So far so good. The acct is up 3% on the day, and I am adding some good Theta decay exposure with a long bias. SPX weighted Deltas = 18.4 positive, Theta @ 314 positive. 64% cash.
I am going to celebrate the day with a nice long bike ride.