July 14 – Gap open, breakdown

Action which should scare the bulls.

It is getting very ugly out there. I feel very blessed to have found a few strategies to use during these times, as well as the discipline to sit on hands when I have the impulse to hit the buy button.
I haven’t even been listening to the news too much. Every now and again I hear these chronic bottom callers, and I wonder who gives these people money to run funds, and why do they do this?
Perhaps they are looking to gain some fame, and they figure the upside is great (new funds to the guru’s fund), and the downside is limited (if they’re wrong, so was everybody else). Either way, I realize the only glory I am after is financial independence. And sometime that is playing small and not getting hurt when hurt is all around.
Today was interesting. The market gapped up big in the morning, yet within 15 minutes the sellers were there. What the market determined was that the Fed and Treasury have a long road ahead, and a proposal for FNM and FRE isn’t going to stop bank failures like IndyMac. We are in a brutal situation. I am playing FNM with a very good strategy. My potential loss is 2000 (w/commission) with 10K as an upside. I am looking to flip the positions through this turmoil.
The market confusion and panic also lends itself to issues across the board. Mass liquidation of funds from hedge funds. To the savvy investor, this represents opportunity. 2 weeks ago, I mentioned that I was 94% in cash to look for opportunity. I have use that cash margin to buy fire sales. A few a day is all I need to make a very good month. I have been filling up my acct with these type of trades. Currently I am 80.4% in cash, with 13% of the acct in spreads which can double or triple overnight.
Presidential accomplishments: “inspirational”

It feels to me like something very dramatic will happen in the next few days. About three weeks ago I wrote that VIX of 22-24 didn’t feel as if was adequately compensating the trader for the true market risk. It is getting to a point where it may be. However, I think there is something big coming. A huge washout. Today’s reaction to the FNM FRE rescue adds some validity to that assumption. We will see, but I don’t want to act until the pain is spread throughout the marketplace.
Today the accts were up another 3%, and I added some very nice postions, and removed some directional risk:
FNM – Added 2 more units of 7.5 calendar for .01. Then the 7.5p option disappeared from the board. It made me slightly nervous.
Added 2 units of the 10p calendar for .05
USB – Added 4 units of 25c calendar for .03-.05. Added 1 unit of 27.5c calendar for .05. The underlying is plummeting. Closed @ 23.33. There is panic in the banking sector. I chose OTM calendars because I think eventually these spreads will be worth something. I played a similar spread last year and sold all the way up to .55. It took a few months though.
Exited 2 units of Aug/Sept 30p calendar for .25. I still have 1 more unit that hasn’t been filled. Enough already. I have better plays to take over for these losers.
URBN – Exited 3 of 4 units of 32.5p calendar for .60. It just didn’t work out. I was opened these for .52 to .55. So there is nothing wrong with a scratch.

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