Archive for December, 2008

ECONOMIC REPORTS

MONDAY 12/15

NY Empire State Index, Net Foreign Purchases, Capacity Utilization, Industrial Production

TUESDAY 12/16

Building Permits, Core CPI, CPI, Housing Starts, FOMC Policy Statement

WEDNESDAY 12/17

Crude Inventories

THURSDAY 12/18

Initial Claims, Leading Indicators, Philadelphia Fed

FRIDAY 12/19

None

 

 

EARNINGS OF NOTE

MONDAY 12/15

SWHC

TUESDAY 12/16

ADBE, ASUR, BBY, GS, HOV

WEDNESDAY 12/17

CAG, GIS, JOYG, MS, NKE, TTWO

THURSDAY 12/18

COMS, CAN, CCL, DFS, FDX, LEN, ORCL, PALM, PIR, ROMM, RAD

FRIDAY 12/19

KMX, CTAS, DRI

 

            Bernard Madoff.  Here’s a guy that by all accounts was well respected.  He was former Chairman of the NASDAQ, and market maker on 350 plus stocks.  It ends up that Bernie is a crook.  He was running a $50 billion PONZI scheme.  There were red flags and complaints to the SEC about possible irregularities but no action was taken by Chistopher Cox and his people.

We have a situation where many investors will be irrevocably hurt.  The systemic effect of this is yet to be felt.  Charities were among those that were invested in Madoff’s deception either directly or through “Funds of Funds”.  A couple of thoughts come to mind:

·         If an investment sounds too good to be true.  It is too good to be true.

·         We need to demand that we have regulatory agencies that protect the investor. 

·         The crisis of confidence that has justifiably permeated the investment community will continue to trigger more hedge fund redemptions.  I am convinced that a vast majority of those in the business are on the up and up, but unfortunately the baby gets tossed with the bathwater and we may be driving a whole generation of investors away from the market.

·         As a result of continued redemption activity, the stock market will have to fight through the bearish sentiment of selling pressure that comes with redemptions.

·         I don’t even want to think the worst, but other schemes may still be waiting to be discovered.  The only reason Madoff’s scam came to light was because of the economic downturn and investors pulling their money out of the funds.

In my mind, this only reinforces the importance of learning how to responsibly and effectively manage your own money.  As a retail investor, you have the opportunity to take control.  No one cares about your money more than you do.  Don’t trust it to anyone else.  Do your due diligence and learn to invest.  Best, Robin

 

 

 

 

 

I felt there would be a pull back (see last weeks’ blog) and we got it big time on Monday as the DOW was down 680 points.  The ISM report contributed to the decline as the report was down 2.7% month over month.

Tuesday began a climb out of the hole that Monday dug.  Buying pressure stepped in and drove the DOW 270 points higher.

Much volatility highlighted Wednesday’s trading.  Despite ugly economic news from the ISM Non Manufacturing activity and a terrible ADP jobs report, the market managed to post a 172 point gain. 

Thursday was all about jobs as unemployment hit multi-decade highs.  Layoffs are now beginning to be commonplace as companies are trimming their expenses in order to maintain margins.  The DOW was off 215 points.

The much anticipated Non-Farm Payrolls was horrendous at  533,000.  This was the largest montly loss of jobs in over 25 years.  Unemployment increased .3%.  Unbelievably, the DOW finished higher by 259 points.

The market has been up 8 of the last 10 sessions, yet week over week the DOW was down 194, the SPX off 20 and the COMPQ 26 points south.

IF YOU WANT TO LEARN HOW NOT TO LOSE MONEY IN THE MARKET GO HERE.

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TOOLS OF THE TRADE

THE SHORT PUT

 

As discussed last week, short options come with obligations.  It is the traders’ obligation if assigned, to purchase the underlying stock at the designated strike price of the short put.  The risk in “selling to open” a short put is the strike price down to zero.  It isn’t likely that a stock would go to zero within the time frame that most traders typically sell short puts, however, it is possible.  The strategy takes advantage of “Theta” (time decay) of the option, so the preferred application of the trade is to sell the put with 30 days or less to expiration.  Time decay is very rapid within the last 30 day of the options’ life and it is only necessary for the underlying stock to remain above the strike price of the short put for the trader to profit.  Therefore, it is prudent to choose a strike price that is unlikely to be assigned. 

The following criteria should be considered when selling puts:

·         Sell puts only with 30 days or less to expiration.

·         Conduct your due diligence to determine if this is a stock that you would want to own, should you be assigned.

·         Do your chart analysis to determine the trading range and support levels of the stock.  Select a strike price that is at or below support.

·         Do a probability analysis using a probability calculator (which is readily available on the internet) to determine that the position has a high probability of expiring out of the money.

·         Consider buying a long put beneath the strike price of the short put as a hedge.  Not only will that provide a downside limit to your loss, it will also decrease your margin requirements to initiate the trade.

Examine and study the risk graph and develop an understanding of the risk/reward associated with this trade.  Next week, we will begin to explore combination and spread positions.  Best, Robin

ECONOMIC REPORTS

MONDAY 12/8

None

TUESDAY 12/9

Pending Home Sales

WEDNESDAY 12/10

Wholesale Inventories, Crude Inventories, Treasury Budget

THURSDAY 12/11

Export Prices ex-ag, Import Prices ex-oil, Initial Claims, Trade Balance

FRIDAY 12/12

Core PPI, PPI, Retail Sales, Retail Sales-ex-auto, Business Inventories, Michigan Sentiment-prel

 

 

EARNINGS OF NOTE

MONDAY 12/8

HRB, NSM

TUESDAY 12/9

AZO, PBY, KR, MTN

WEDNESDAY 12/10

FCEL

THURSDAY 12/11

CIEN, COST, KKD

FRIDAY 12/12

NONE