Feb 8th, 2008 – end to a good week

I had a good week of teaching. There was great snow all week long. And to top that off, my trading acct was up more than 5% this week. Gotta love that. Wednesday was the only day I really got to trade, however I did have trades in place nearly everyday.
I do think we are in for some more down in the medium term, but in the short term I am playing for a little bounce. I continue to scale out of my short biased trades, and scale in to long biased trades.
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Current trades:
AXP – Exited 1 unit of my bearish Apr 45/37.5p spread for 2.35. I may have been premature, but my guess is that we see a monday/tuesday rally in the Mkt. I don’t think people want to be long going into the weekend, but if nothing adverse happens over the weekend I think we may see a sustainable rally early in the week.
AIG – Sold 2 units of Feb 55/50/45p butterfly for 2.10. This spread has been great. I still have 2 units of this trade on. The trade went off during lunch with my ski group, we all had a laugh. The past two months have been great in this trade. It still is funny for me to think made more on this trade than all my losses for the past year. (I don’t let losers run).
AIG Daily Chart

AIG – NEW ADDITION. This may be big! I added a two month calendar spread on an two of my four accts. I added Mar/May 55c calendar for 1.32. I plan on adding to this position, I also am looking to build a Mar/May 45p calendar as the market moves up. With these two positions combined the Breakevens are 42 to 61. HUGE. There is an overlap in each calendar 48 to 53 is optimal. If all goes well these positions can pay for their initial debit (1.32) by the end of the first month.
AIG Risk graph for Mar/May 45p and Mar/May 55c calendar. I like this alot. I plan on putting on a full 5% allotment on this trade. It seems pretty safe, with a high probability of success and a manageable downside.

MSFT – I have 100 sh, and I am considering placing diagonal calendar (Selling Mar 30c, buying July 35c), this receives a .12 credit as of the friday closing prices. It also puts this into Theta (time decay) territory. If I buy the Jul 27.5p it also protects this entire spread to a 281 max loss. Very interesting. I my play it this way if the market pops. I will be able to get better prices.
Here is the MSFT risk graph with this strategy. I earn the most @ stock price of 30 and above at Mar expiration.

UA – I entered 1 Apr 35/30p for .90. (underlying @ 45.40). Stops are tight, and the downside is small. Reward to risk 4:1.

This is the chart I am reviewing going into the week:

My thoughts on Market psychology includes once the week is here and the world hasn’t blownup, people will re-enter the market and push prices up. I think to the 136/137 levels in the S&P. (38.2% retracement, break of support, and major downtrend line). I will be shorting with both hands at the downtrend line, if no positive catalyst is in play. Just a thought.