Wednesday, January 21, 2009

DOW 6000

Back to the financial war. What a start to the year. I sold puts 2 weeks ago with a safe margin and got put on 2 out of 4 trades, enough to post a loss. For those who don't know, selling puts really says 'I am selling you insurance, even if the stock goes below a price, I will buy it at that price". If you own stock it is a hedge. For me it is a way of saying "I am ok getting in the market but at a steep discount from now". I got battered because the rate of fall was bigger than my discount. Granted I lost a lot less than if I held the stock, but still, no loss is fun.

I got to move on. I am fundamentally bearish, as the financial debacle unfolds (to 3.6T according to Roubini, so we are not there yet) and we finally nationalize the commoditized lending facilities formerly known as banks.

Good news from IBM may clear the skies for a little while. I think we may visit DOW 6000 soon. I believe in a fundamental 7000-9000 band of volatility and will be selling puts that clear that range. Not a good time to be in the markets but a good time to be hibernating. Problem is I don't take my own advice and gamble stupidly sometimes, like selling puts at the top of my band. Live and learn.


Niraj J said...

"I don't take my own advice and gamble stupidly sometimes," Ditto for me.

Having heard roubini and Taleb(black swan) numerous times. I still venture out to buy, only to get hurt.

Marcf said...

yeah it is easy to get destroyed in this climate. selling puts as reader arthur B put to me is 'picking pennies in front of a steamroller'