May 6th- I had a dream

I woke up this morning with a stark realization

Yes indeed I had a dream. I woke up early with a thought, which I believe was divinely inspired. Yesterday I thought to myself, “Maybe I should get long this pullback”. This morning at 4:30, I thought to myself, “What pullback!”
Fundamentally this country is in a heap of crap. Without looking at a chart, I intuitively believed the we have 1 up and 10 down (actually it is 2 up and 15 down), I plan on exiting the remainder of my mutual funds on a rally.
Also, how often do TV’s talking heads declare the worst is over. And then only a week later, after the market has fallen dramatically, the bring on the “doom and gloomers”, and get the once market buyers talking about how they will “weather the storm”, or they believe this is a “great buying opportunity”. Or they use the naive line “I am a long term investor”, blah, blah, blah. I am a long term investor too, I just decide not to take large losses over a long period of time. I have noticed this line of thinking on all the upmoves during this downtrend. I thought Tim Knight made his point beautifully in yesterday’s blog.
Finally, to use the thought that “I am a long term buy and hold investor” without hedging my portfolio is basically saying, “I am unwilling to learn, or too lazy to think about managing my money in a portfolio”. I know a very astute long term investor, who put together a collar strategy (for a credit to his acct. In otherwords, got paid to take out insurance) to protect his portfolio.
To be investing long only in this market is a fool’s game. I know long term the market always goes up. Right…
Well it has taken 7 years to get back to the high of 2000 in the S&P index. The Nasdaq is only half way there. And it took 24 years for the market to make it back from the top in 1930. Even if the trader/investor didn’t know how to bias themselves short the market, why would they spit into the wind of a hurricane?
Although I am not really a fundamental guy, think about this:
1) $4 and talk of $5 gas. (I know the UK and Europe live with much higher fuel prices, but driving across the UK from the Cliffs of Dover on the English Channel to the Holyhead Island on the Irish see is just 295 miles. The width of Colorado is 376 miles.)
2)The difficulty for people to refinance their homes.
3) The recent market march is based on people getting $600 each in tax rebate (republican payola), and low interest rates for the financial companies (but more loosening is nearly over).
Now, to confirm some of this I opened a chart and made a few lines. Here is what the tea leaves tell me.
Most importantly, we are running into Major Resistance from:
Overhead inventory at this 1410-1430 level
200 day MA @ 143.28 (and decreasing everyday)
Touched the underside of the Primary down trendline
Retraced 50% of the total down move from highs in October to March lows on lighter and lighter volume.
Near the top of the Bollinger Band channel
There is talk of resistance becoming support at the SPY 139 level. I think it may be more in the 137-138 area, and of course the 50 day MA at 135. We will see how that holds. In the medium term, the market seems to want to try for the 200 day MA at 143. I don’t doubt it gets there, but I will be selling into that rally.
As I prepare for the trading day and look at my position Greeks, I notice a few notable things:
Deltas (non-weighted) are positive 893. This prefers a upward bias, which I do not have.
Gamma – negative 1521. Gives me more volatility risk than I prefer. I would like to roll the remainder of my May calendars to June.
Theta – positive 554. I like the speed at which I am earning on my short May and June options.
Vega – positive 1335. I like this, as I see general market volatility should rise in the next few days
Yesterday’s entries: Quiet day, but the acct was up 2% on the day. 16% for the month of May.
YHOO – 1 unit of a diagonal spread. Buy July 17.5c/ Sell 25c against it for 5.50. This offers an opportunity for a 37% gain in the first month, and the opportunity to roll it into a credit spread for July.
SIGM – Entered 1 unit of June/July 20p for .30.
FNM had incredibly bad lack of earnings in their report. The stock opens down. This is the 3rd quarterly loss in a row. So what should happen??? It is up 10% off the low. WTF?
Entered SDS 57.02 (effectively short the mkt) on an S&P break down with very poor A/D line, stopped out at 56.69. Bummer
AMX – Long 1 unit Aug 60/70c for 2.87 on a break to the upside into a gap.
Mystery Stock – Added another large unit of the 55c calendar. Whew. this is getting big. Legged out of a very small portion for .10.
SIGM – Sold June/July 20p calendar for .40. I am a little pissed that I chickened out and pulled my .25 orders, that I may have been filled on. But that is OK. The stock moved up sharply today, away from my strike. Yet the spread moved out. Very nice.
LOW – Sold 1 unit of Jun/Jul 25p for .30. I just wanted to lighten up to a 5% allocation. I was a slightly overdone. There is a 4:1 reward to risk on this trade, with breakevens 22.80 and 27.50.
TXN – Rolling the last half of my May/July calendar for .56 and .57. I made the trade near the down trend line @ 29.64. I originally put this trade on for .50. And I rolled the first half @ .48. Now it is a June/July for a .02 credit. Very nice. This takes off significant Gamma risk from the position, about half. It is all part of a larger plan… ***Muuhaahaa***
COF – added 2 June 55/50/45p Butterflies for .72 and .70 @ underlying price of 56.85. I don’t think we are done with this Consumer Credit crisis. 5:1 reward to risk. Breakevens 54.30 and 45.70
When the day was finished my acct was down .6%. Up 15.4% on the month. I am good with that as I consolidate gains. At one point I was up 4% and down 8%. That is to be expected.
My positions greeks have changed since yesterday a little, for the better.
Delta + 120
Gamma -1212
Theta +472
Vega +1291
Markets rallied today from an opening gap lower. Gap down 8, up 11 on the SP at the end of the day. Volume was the lightest in the month of May.
A random thought… Is Dick Armey a real name…. I think I would have chosen Richard, or Rich, or Fred, or…._____________

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