While the arguments go back and forth, inflation is definitely the winner for now. So while we get these signs of things going up, you might want to take shorter positions.
The latter part of the year could see the slowdown cause things to change. We just may see certain sectors react differently. If that is the case, we certainly will want to jump ship and reverse our thinking.
Still long natural resources and short the dollar until otherwise.
If you like calendars and diagonals, you may want to only go out 4-6 months on the long side. This will take much more diligence to follow, but it may help if the environment changes.
For those that like to be there first, selling put spreads 6 months out and 10% below market price on the financials may be a good gamble. Please remember that when you do these credit spreads, use an ETF. Many individual stocks may not be around and you may end up holding the bag. Whenever you use the 10% 6 month rule use baskets of stocks. Individual stocks can and do run up or down much more than 10%. The sectors usually do not.
Saturday, March 8, 2008
Friday, March 7, 2008
More fed money
Let us be clear here folks. The reason we are in this mess is because of easy money. Liquidity sloshing around begging for laxed rules to be given away. Now we are faced with the realities of this liquidity.
So rather than bite the bullet and let free (I use that term lightly) markets act as they should, the feds today are offering up more and more easy money. The terms of the acution today for one.
This will only force more dollar plunging thus causing more commodity running. Simple here folks, If I have a dollar in my pocket and now the feds print more dollars, this dollar in my pocket is worth less now. If I have to buy something it will take more dollars to buy it. So almost everything I buy costs more.
By now you are so sick the the same story however rich it is making you, "Short the dollar and long the natural resources". This should be every investors mantra for the forseeable future. If not, then you suffer the consequences.
So rather than bite the bullet and let free (I use that term lightly) markets act as they should, the feds today are offering up more and more easy money. The terms of the acution today for one.
This will only force more dollar plunging thus causing more commodity running. Simple here folks, If I have a dollar in my pocket and now the feds print more dollars, this dollar in my pocket is worth less now. If I have to buy something it will take more dollars to buy it. So almost everything I buy costs more.
By now you are so sick the the same story however rich it is making you, "Short the dollar and long the natural resources". This should be every investors mantra for the forseeable future. If not, then you suffer the consequences.
Thursday, March 6, 2008
Unwinding Calendars
I get this question many times so I thought it good to address here.
You are in a calendar or diagonal that has gone way into the money for the short side. Because of this you cannot roll out to the next month and get any preimium. What do you do?
Let us walk through a live example. Back in Oct I went long GDX Jan 09 (a leap) 44. I then sold the Nov 45. Rolled the Nov to Dec and again to Jan, Feb and once more to Mar. I was gaining about 1.00 for each roll (now some months less and some months more).
As we all know gold (GDX is gold stocks) has gone throught the roof. So I am deep in the money on my Mar short as well as my '09 Jan long. Today if I were to roll to the next month I would get .40 Not worth it. So I have some decisions to make.
#1 Buy back the 45 and sell a higher option. This is not good since I will be buying the short option for a loss and then selling the higher one for not as much, but then I will be at a higher strike price for my long option.
#2 Is my preference. Let the short option get assigned, now I am short GDX, buy it back to close which is basically a transaction the same day. And I am out the comission. Now I can sell the next month higher strike.
Word of caution here, if the stocks should rise dramatically from Mondays open, I would lose on the short shares, however I still have the long option that would cover this.
Just thought this would be helpful. I am still very bullish gold and want to stay in the game.
You are in a calendar or diagonal that has gone way into the money for the short side. Because of this you cannot roll out to the next month and get any preimium. What do you do?
Let us walk through a live example. Back in Oct I went long GDX Jan 09 (a leap) 44. I then sold the Nov 45. Rolled the Nov to Dec and again to Jan, Feb and once more to Mar. I was gaining about 1.00 for each roll (now some months less and some months more).
As we all know gold (GDX is gold stocks) has gone throught the roof. So I am deep in the money on my Mar short as well as my '09 Jan long. Today if I were to roll to the next month I would get .40 Not worth it. So I have some decisions to make.
#1 Buy back the 45 and sell a higher option. This is not good since I will be buying the short option for a loss and then selling the higher one for not as much, but then I will be at a higher strike price for my long option.
#2 Is my preference. Let the short option get assigned, now I am short GDX, buy it back to close which is basically a transaction the same day. And I am out the comission. Now I can sell the next month higher strike.
Word of caution here, if the stocks should rise dramatically from Mondays open, I would lose on the short shares, however I still have the long option that would cover this.
Just thought this would be helpful. I am still very bullish gold and want to stay in the game.
Wednesday, March 5, 2008
Commodity ETF's
There are some very new and great ETF's that have come out. These ETF's allow the average investor the opportunity to take advantage of the raging bull in commodities while avoiding the usual problems associated with them.
Look into powershares and Ipath. They are continually adding new ETF's that you can buy at your regualr broker. As to offering options on these, you will need to look into this and see if the volume is prohibitive or not. But for now just the chance to buy wheat and energy without the usual futures account is exceptional. Now the average investor can participate in the commodities bull market.
If you would like more discussion on this, leave a comment on the blog and we can talk it over.
Look into powershares and Ipath. They are continually adding new ETF's that you can buy at your regualr broker. As to offering options on these, you will need to look into this and see if the volume is prohibitive or not. But for now just the chance to buy wheat and energy without the usual futures account is exceptional. Now the average investor can participate in the commodities bull market.
If you would like more discussion on this, leave a comment on the blog and we can talk it over.
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