SURVIVING THE GAME
NOVEMBER 24, 2008
VOLUME 1 NUMBER 21


Stopped out on the AAPL $140 calls today at $350. Now flat in all the equity/option trades initiated over the last 6 weeks. As an observation, you can see that every single stock trade was a loss. The addition of options turned two from losses into gains ( GM & UYG ). Three lessened the loss on the stock position ( LVS, NUE & AAPL ). Two were flat ( GE & C ) and 1 made it worse ( BNS ). All said, the options did what they were supposed to do, lower loss in event of a move against position and/or enhance gain if flat or correct on direction. I am not at all happy that every position has been stopped out but that is life. I am especially disappointed that the NUE, AAPL and BNS positions were taken out last Thursday on the most recent thrust lower. However, while NUE and AAPL are now rebounding above our exit point, look at the losses that would have been incurred if we had simply hung on or averaged down. The UYG, C, LVS and GM positions would have been devastating. I am looking to reinitiate some stock/option positions soon. Will keep you informed.

On the bright side, the pure option positions are performing wonderfully. The DIA straddle positions have generated over $13000 in profits so far, offsetting the losses on the equities. The ECA and DIA butterfly positions are holding their own, essentially flat so far. The UDN ( $US ) position is now starting to show good gains.

Overall I am happy that we are flat over the last 7 weeks given the turmoil in the markets. I am cautiously looking at adding new stock/option positions if the market holds most recent low.

We are positioned neutral with the DIA DEC 84 straddle, protected to the upside by the long DEC $100 calls. Looking to purchase downside protection with the DIA DEC 65-70 puts. They are currently in the $70 - $130 range. Purchase one of these for $40 or less if given opportunity. The higher the strike price ( eg 70 vs 65 ) the more protection but also higher the cost of that protection. If able to purchase downside protection, look at selling JAN postions. I am looking for a small rally with the DIA DEC 85/95/100 butterfly position, anything above 8765 generates a profit. As long as the rally stays below 9735, we profit.

I am working on a newsletter that outlines my basic strategies. Briefly it will say that I am looking to capture profit from multiple sources while always striving to limit risk. Some examples are: 1) Long stock, short options to garner premium. 2) Selling option straddles, strangles, condors, etc to capture premium decay in a sideways market. 3) Various option strategies such as butterflies, spreads and outright option purchases to benefit from a correct determination of direction. I will also be doing directional trades in commodities, currencies, etc.

Those looking to educate themselves on options can go to www.onn.tv. It has lots of info on options, strategies, etc. Some of the info is a bit dry but still quite informative.

Until then, I hope we have seen the bottom and will consolidate in this 8000-9000 range for a while. If not you will be hearing from me sooner rather than later.

Dave Knight
Editor
Surviving The Game