Feb 11th – The week is bouncing around. AIG is in trouble

Dow changes a few components. It removes MO and HON, and adds CVX and BAC. They have taken out some slow movers and replaced them with ‘movers’. They have changed components in 1999, 2004, and now 2008. Whatever it takes to make it hot and keep the market resembling going up. But both of these additions are struggling, so I don’t think they will have more impact.
AIG announces that they are unable to properly value their CDOs. It is getting crushed. I have been picking up Mar/May 45p calendars for 1.25 to 1.30. I picked up a second tranche of 45p calendars for 1.11. Seems interesting to me. There is a 12% volatility skew between Mar and May. The big news is now out. Now we have to wait for the specifics. I have about a 1% allotment at this time. I didn’t yet put on my 5% as I was planning. I doubt I will be putting on a full 5% spread, but I may be putting together a 2-3% position around the 45 strike, with some protection to the downside. The bummer here is that I was planning on exiting my butterfly today or tomorrow, and putting on the 45p calendars in it’s place. The 2003 low was 42.30. If it breaks that, it hasn’t been that low since 1998. Crushing.
Last week Pete Najarian from Fast Money noted that there was a huge amount of put buying on AIG, it upsets me greatly that this news was probably leaked last week. Hopefully there in a SEC investigation on the put buyers. I am not too worried as I have not lost that much. I am down mainly due to the huge volatility skew today.
MSFT- bought second and final tranche @ 27.93, as per my plan. I usually play in the tidal pools, it is pretty amazing to see the Volume of the stock. Huge blocks at every price.
DSX – bought 1 unit of Jun 25/20p spread for 1.6. This is my attempt at shorting the transports.

SDS – SP ultrashort. Bought right on the downtrend line of the SP 133.47, SDS underlying price 64.58. This was a double test of the downtrend line. The SP immediately sold off hard. I am using this as a MSFT/AIG hedge and a day trade. Well it rallied up to 64.95, then sold off, and I was stopped for 64.49. I don’t want to get in the way of this rally. TRINs are low, and the A/D line went positive.
WEN – Sold 1 of 3 remaining positions. Feb/Mar 22.5p for .95.
This has been a very tricky day. I have made some good plays, and had some go against me (AIG). I was obviously blindsided on that one. But I was pleased I scaled out of the butterfly over the past week. Sold for 1.20, 1.50, 2.10. I will be out of the butterfly by Wednesday.
At the end of the day my accts were down .8%, and that sucked. I don’t like having my NAV drop, however I think I made some good adjustments. And I am preparing well for the next expiration month. There is a 3 day weekend coming up. I would like to put more positive Theta working for me by the end of the week.