SURVIVING THE GAME
FEBRUARY 23, 2009
2009 – 16

WTF. I’m sure all of you are familiar with that wonderful email short form. I believe it describes the current market conditions perfectly. How ugly can this get? Dow 6000, Toronto under 6500, maybe. Despair has turned to disgust and both investors and traders are abandoning this market in droves. Volume is not huge and VIX is not spiking to the moon which shows it is a lack of interest, not panic selling. We are now down 15-20% this year on the major indices with no bottom in sight. And it’s only Feb. 23rd. Not really funny but there was a great line from Jim Crammer tonight. He was quoting his wife, Karen Crammer aka the trading goddess, and said “ well Jim, there is only 7100 more points to go before we get to zero”.

Model portfolio stopped out of many positions last 2 days. Will send Position Summary as well. Holding on to 7.8% gain so far this year. Given that, and with huge uncertainty it is, as we used to say on the trading floor, “ time to get small “. That means close out most positions, take your gains/losses, reduce risk and sit back and watch for a while. As I mentioned in newsletter 2009 – 14 this is no time for heroics, it is time to be VERY cautious.

POSITIONS/FILLS:

Encana, my beloved butterfly. Stopped out of long APR $46 calls at $395.00 each and bought back short APR $60 calls at $39.00 each. I’m a little ticked about this one, thought it was going to be a solid winner for you. You still have long APR $74 calls but not much hope for them. Hold them for now. They are not worth much.

Time to close out the leftover short calls that have been hedging your losses. Buy back the following tomorrow after the open, not at the open. Let things settle before entering your trades.

Buy back the 30 DIA JUN $87 calls.
Buy back the 30 DIA SEP $87 and 30 $92 calls.
Place order to buy back 40 USO JUL $45 calls at $25 instead of $10.
Buy back 3 SPY JUN $90 calls.
Buy back 12 XIU JUN $14 calls.
Buy back 10 CAT JAN 2010 $35 calls.
Buy back 20 AA JUL $7.50 calls.
Buy back 20 AAUK JUN $10 calls.
Buy back 25 SPY APR $85 calls.
Buy back 25 SPY JUN $83 straddles.
Buy back 25 SPY SEP $83 straddles.

This will clean up most open positions and lock in gains while reducing risk dramatically.

OPEN POSITIONS:

You are left with some USO options. Hold

You have a few long calls in ECA and DIA. They are basically worthless so just hold them for now. Will most likely expire worthless.

You are still long SU and short the JAN 2010 $20 calls. The only surviving trade from the long stock/short call positions. SU is down $1.90 from entry at $18.90 on Jan. 23rd but option is also down $1.90 so position is exactly flat despite stock being down. I love options. Hold exit stop at $15.00 on SU.

SPY APR $80 straddle. Hold. Closed at $1073.00. Entered at $993 on Feb. 19th. Exit stops at $68.00 and $92.00 on SPY.

NEW TRADES:

VIX is still quite high at 52.62. This encourages options selling so you can add one new position. Short term, only 3 weeks and 3 days to expiry. Sell 25 each SPY MAR $78 straddles. Closed today at $786 - $807. Should net approx $790 per straddle. Exit stops at $68.00 and $88.00 on SPY.

That leaves you with 2 SPY straddles and out of almost everything else. If we don’t calm down soon you will be out of those as well and 100% cash. Let’s see what happens over the next few days.

That about sums it up. A wild, wild market with huge risks so stay small and hang in. They say it will get better. I hope they are right.

Options Guy
Editor
Surviving The Game
optionsguy@shaw.ca