SURVIVING THE GAME
JANUARY 5, 2009
2009 – 1

Here we are, a new year is upon us. Lets hope the markets treat everyone a little kinder than 2008 did. As I have stated before I expect 2009 to be flat but with continued volatility. I am looking to take a long equity position, most likely in index funds as opposed to individual stocks, then use options to start hedging risk and collecting premium to enhance return. Will let you know as soon as I see a good entry point. Probably if we get a pullback to Dow 8500 or lower.

Model portfolio stopped out on Friday on the final 15 UDN APR 25 calls at $200. Now flat in $US. Will look to re-enter if market sets up properly.

OPEN POSITIONS:

ECA butterfly puttering along slowly. Now at $514 each. In for $355, hold.

DIA JAN 86 straddle closed at $586. Stops to exit at $800. These options expire on Jan. 16th. If stops not hit, will tighten as we get closer to expiry.

DIA FEB 90 straddle doing great. Sold for $1310. Closed at $830 on Friday. Own FEB 102 call so upside is protected. Tighten stop to exit at Dow 7800. Looking to purchase cheap insurance to lock up gain.

DIA MAR 90/100/110 ( my Obama trade ) butterfly is up slightly. Hold, no stop.

NEW TRADES:

Markets seem to have calmed a bit the last few weeks. VIX at 39.19, down from 60 a month ago. This has been good for your open DIA straddle positions. 40 is still a very high reading so time to take advantage of that fact. One year ago VIX was at approx 22.

1) Sell 20 each DIA MAR 89 calls and puts. Closed at $1075-1125 on Friday. Should net near $1100 per straddle. Set exit stops at 10400 and 7400 on DOW. Risk is approx $8000 or 3% of portfolio. Potential gain is $22000 or 9% of portfolio.

2) Sell 30 each DIA JUN 92 calls and puts. Closed at $1575-1645 on Friday. Should net near $1600 per straddle. Set exit stops at 11200 and 7200 on DOW. Risk is approx 4% of portfolio. Potential gain is $48000 or 16%.

3) Sell 30 each DIA SEP 92 calls and puts. Closed at $1925-1990 on Friday. Should net near $1950 per straddle. Set exit stops at 11550 and 6850 on DOW. Risk is approx 4%, potential gain is $58500 or 20% of portfolio.

Yes, these are all very similar trades and no, I haven’t lost my mind. After much study I have decided that these are incredibly good trades. The risk/reward is good and if I am correct that 2009 will be flat, these trades will reap healthy gains. If I am wrong, the risk is manageable and losses will be relatively small. Remember this is based on what is now a $300,000.00 portfolio and the percentage risk can be scaled down if you are not comfortable with the level of risk indicated. Also, will be looking to purchase options to reduce/eliminate risk on all of these positions.

Options Guy
Editor
Surviving The Game
optionsguy@shaw.ca