SURVIVING THE GAME
FEBRUARY 27, 2009
2009 – 17

Today was another down day for markets. Seems like we’re just slowly grinding our way down. We all know that we won’t get to zero but how low will we go? If I knew I would certainly share it with you.

What is wrong with holding cash or being very light on equities? I listen to the talking heads on TV and they all want to be long and pick the bottom. They all want to be heavily invested in equities, no matter how bad it gets. One fellow today said he had adjusted his position to ONLY 60% equities and that was being very conservative. Even if you have 60% equities, when the market drops 20%, you lose 12% of your total! Nuts. Everything I have learned tells me to get smaller and smaller as I lose and not take on more risk until I’m into a solid upswing in profitability. In a screaming up market I would recommend being at most 70-80% invested. Never go all-in, this is not a poker game. These markets are tough, stay small and hold on until the tide eventually turns. Using the option strategies I have recommended will help you rebuild your portfolio while waiting for the next Bull market to come. By the way, I think it will be years of waiting, not months.

OPEN POSITIONS:

USO. Is there a chance of turning a profit? Maybe. Hold

SU. Closed at $20.79, up $1.89 from entry point. Jan $20 call closed at $560, up only $0.40 from entry point. Trade working well so far, open profit of $1490. Hold. This is the sole survivor of the long stock/short option trades. Take a good look at them as a group. Bought SU, CAT, AA, AAUK, SPY and XIU then sold short calls against each. Five of six have been stopped out. Together they are showing a profit of $1596.00, and that is after being WRONG and the markets being down 15%+. Imagine what the gain would be if we could actually get the direction right!

SPY MAR $78 and APR $80 straddles. Up slightly on both. Hold. Will be out pretty quick if markets continue down. Small positions with little risk.

NEW TRADES:

The Canadian dollar is falling apart. I believe it is a bit overdone and will simply trade between 77 and 83 cents for a while. Volatility high. Sell 5 each Canadian dollar APRIL 80 calls and puts. Closed at 347 today. Best to sell on electronic platform. This will net you approx $3400 per straddle or $17000.00 total. Set exit stops if dollar hits 76.50 or 84.50. Risk is approx $6000 or 1.8% of portfolio. Watch for decline in volatility or sideways action to erode value of straddle.

Options Guy
Editor
Surviving The Game
optionsguy@shaw.ca