BlackVault CM

blackvaultcm.blogspot.com Will Be Shutting Down!

noreply@blogger.com (BlackVault) — Thu, 19 Feb 2009 18:09:00 -0800

I'm not going to be updating this site anymore. The reason is that I'm working on a new site http://www.blackvaultcm.com/. I don't have the time to work on the new and update the old.
My goal is to create a community where everyone can exchange ideas and communicate with one another and add other features that are difficult to do with this site. (blogger.com)

If you're still interested in receiving updates as what I'm doing and market analysis, then shoot me an e-mail and I will add you to the distribution list.

Sorry if this caused you an inconvenience.

Intraday Update - 02/19/09

noreply@blogger.com (BlackVault) — Thu, 19 Feb 2009 08:06:00 -0800

Purchased PFE @ 14.22
Purchased ATVI @ 9.43
Purchased OZCAY @ 8.31

The plan with PFE, ATVI, CSCO and XOM is to sell calls if they rise 5-10%. If they move further down, then I'm going to keep adding to the position to cost average.

OZCAY is a call option contract on QQQQ. 25 strike and expires December 2011.
Using this as an insurance policy to hedge my position.

Current Holdings & Realized Positions

noreply@blogger.com (BlackVault) — Wed, 18 Feb 2009 23:00:00 -0800

To make it easier to track what I'm doing, I put together two spreadsheets.

One shows my current holdings and another displays settled investments.

I will be updating this on a daily basis, but it will be done through links located on the right hand side under "Current Holdings & History"

Current Holdings

Settled Investments

Recycle Your Options!

noreply@blogger.com (BlackVault) — Wed, 18 Feb 2009 17:58:00 -0800

Most individuals I've come across shy away from selling calls/puts because it's a slow way of making money. People don't seem to want to wait a whole month to collect a few percentage points. I must say I agree...that strategy does sound boring.

When I deal with options, more often than not I'll be the seller. Statistically alone they say that 2/3's of all options expire worthless. So if you're the buyer, you are already down to a 33% chance of winning. If you happen to be buying at the wrong times on top of that, then you're pretty much doomed to be on the losing side of the transaction almost 100% of the time.
There is an easy way to make selling option contracts exciting and more profitable. Recycle!!!

Here is a quick example. Let's say that Cisco is trading for $15 a share and you want to sell 10 calls expiring 30 days from now @ $15 strike for $1 (you own 1000 shares of Cisco). If the stock does absolutely nothing over the next 30 days, you will collect 10 x 100 x $1 = $1,000!

But that is the boring part. Throughout the month the stock will move up and down. So let's just say that about a week later the stock is trading at $13.50 a share and your option contract you sold has devalued to only $0.10 cents! Now what I find most people doing is just riding it out and waiting until it expires and goes to zero! Recycle instead!

If the option devalued to $0.10, that means you're up 90% in a week. So why wait three more weeks to collect the remainder $0.10 cents? The odds much better for that option to go up in value than down. What I do here is buy the calls back to close out my position and wait for the stock to move back up. So let's say the stock moves back to $15 or even as little as $14 a share the second week...the option contract will increase in value. This is when you re-sell for a higher price and repeat the process if available.

Real life example. Just last month, I was able to sell Cisco calls for $1.53 when it was around $17 a share, then closed my position for $0.28. Re-sold for $1.25 and bought back for $0.08! If I didn't recycle, I would have watched the call devalue to $0.28 cents and shoot back to $1.25.

So in summary, if you ever have your stock move quickly in a direction over a short period of time, it is a good idea to close out your position especially if you have collected 75% of the premium already. You wouldn't want to risk it going back in value and losing your gains. Then just rinse and repeat!

Trading Strategy - 02/17/08

noreply@blogger.com (BlackVault) — Tue, 17 Feb 2009 20:23:00 -0800

Take a look at where the S&P 100 is trading and the next critical levels.

Trading Update - 02/17/08

noreply@blogger.com (BlackVault) — Tue, 17 Feb 2009 07:48:00 -0800

Sold JP Morgan March 25 strike puts @ 4.40.

JPM had a decent move to the downside, no point on push my profits further. My target is $19 on this stock, however if it moves sharply in a single day I'll always sell puts and take profits. If the stock bounces back, I re-buy the puts. 96.4% return is satisfying enough.

I've also purchased Cisco @ 15.42. If the stock moves lower I'll sell puts, if the stock moves higher I'll ride it and sell calls. I also purchased some April Cisco 13 strike calls. I'm doing this mainly for protection from the market as a whole. We are approaching uncharted territory and it can get real ugly. This gives me protection in case the market declines 15-20%.

Trading Strategy - 02/16/09

noreply@blogger.com (BlackVault) — Mon, 16 Feb 2009 07:49:00 -0800

I can't wait until markets open tomorrow. I really dislike having a day when markets are closed.
Some important events happened over the weekend, so take a look at where we could head next.

S&P 100

Exxon Mobil

NVDIA

JP Morgan

Cisco Systems

Market Analysis Update - 02/12/09

noreply@blogger.com (BlackVault) — Thu, 12 Feb 2009 15:08:00 -0800

OBAMA to the rescue!!! So I'm starting to notice a little pattern here. Whenever the market reaches critical levels, somehow, someway, news seems to leak that "bails" out the market from a complete collapse.

Today, it was a leak that Obama administration will start to subsidize mortgage payments for troubled homeowners that pass the "affordability test". Maybe I should rack up my credit, buy a bunch of toys and quit my job. Then scream HELP! I can't pay my mortgage payment, make my responsible neighbor pay for it through taxes. Am I the only idiot here not taking advantage of this? Anyway, take a look.

NOTE: I think I'm going to use the S&P 100 chart from now on as it best portrays the current market. I don't care for the DOW Jones because it has stocks that shouldn't even be there based on the index's' criteria. I don't like the NASDAQ for analyzing purposes because it focuses too much on tech/bio-tech. That leaves the S&P 500 and S&P 100. The difference between the two is that the S&P 500 has a much higher turnover. Meaning if a stocks' market cap drops and stays there for a significant time, it will be replaced with another stock that is bigger. With the market lately, there has been a lot of stocks flying in and out of the S&P 500. The S&P 100 on the other hand has lower turnover as it contains the top 100 largest stocks. So I'll be using the S&P 100 from now on when I want to talk about the market as a whole.

EDIT: In the chart I commented that Geithner will probably speak tomorrow morning. Only real information I have regarding that is that he will be addressing the situation in the next few days. So it maybe be tomorrow or maybe not, but expect something soon.

Market Analysis - 02/12/09

noreply@blogger.com (BlackVault) — Thu, 12 Feb 2009 11:28:00 -0800

Intraday chart of Nasdaq and where it's likely to go next based on some technical indicators.

Trading Update - 02/12/09

noreply@blogger.com (BlackVault) — Thu, 12 Feb 2009 11:16:00 -0800

Made a move today on NVDIA.

Trading Strategy - 02/11/08

noreply@blogger.com (BlackVault) — Wed, 11 Feb 2009 18:47:00 -0800

I've made a few moves today. Click on the charts to see my comments.

Market Analaysis - NASDAQ

Cisco Systems - Trade Update

Exxon Mobil - Purchased

NVDIA - Watching Closely

Market Analysis - 02/10/09

noreply@blogger.com (BlackVault) — Tue, 10 Feb 2009 20:43:00 -0800

The market took a beating today and more than expected. Today was an important day, because I think it set the tone for the coming weeks. It had an important trend line to break through and it failed. It didn't just fail lightly to where it can take a breather and try again, it was a BIG fail.

So instead of trying to work on penetrating the upper trend line, it took a single day to reverse the situation where now it is going to attempt to break the lower trend line and retest the 810 resistance and then the November low of 750.

If 827 holds, then we should have a choppy week trading sideways leading to a big breakout to either the upside or downside.

Intraday Update - 02/10/08

noreply@blogger.com (BlackVault) — Tue, 10 Feb 2009 10:21:00 -0800

Here is an update on Cisco and JP Morgan. My Cisco puts are up about 51%, I'm going to take half off for profits, and the rest I'm going to keep. I think the market can go lower and the stochastic haven't crossed yet. I'm actually hoping that once the stochastic get into the single digits that we can stay there. In this case I want to be in that wave like pattern since I'm the owner of the puts and it benefits me.

JP Morgan turned into positive territory for me. The puts are up 36%, however remember that I've sold my February puts in exchange for the March puts which were sold for a 76% loss. Since I tripled my position to cost average, I'm actually 7% in the green. Anyway, I'm not going to post a graph of JP Morgan as it's pretty much the same scenario as Cisco.

I few of the companies I was tracking have reached their price target giving me a signal to buy and use the appropriate action. (yesterday's posting) However, I think the market heads lower in the next few days, so I'm going to reduce my price target on some of them and wait.

Predicting Crisis: Dr. Doom and The Black Swan

noreply@blogger.com (BlackVault) — Mon, 9 Feb 2009 22:59:00 -0800

How to predict a financial crisis and the five signs of a bear, with Nouriel Roubini, RGE Monitor and Nassim Taleb, The Black Swan author.

Fantastic discussion from both individuals regarding the current issue, what the government is doing, why it won't work, and then their solution.

Source: CNBC

Trading Strategy - 02/09/08

noreply@blogger.com (BlackVault) — Mon, 9 Feb 2009 20:36:00 -0800

Tomorrow my plan is to manage my puts in JP Morgan and Cisco Systems. My target is 15% for Cisco and 50-60% on JP Morgan. All subject to change though as events unfold.

I also have a list of companies that I'm tracking and would like to buy once price is right.
I've listed the company along with my target and action.

Cisco Systems
T=15.25, Buy stock, sell at the money calls.
Alcoa, Inc
T=8.00, Buy stock, sell out of money calls.
Exxon Mobil
T=75.00, Buy stock, sell slightly out of money calls.
Activision Blizzard
T=8.75, Buy stock, sell at the money calls.
Pfizer Inc.
T=14.50, Buy stock, sell slightly out of money calls.
Best Buy Co.
T=26.50, Buy stock, sell at the money calls.
Johnson & Johnson
T=56.50, Buy stock, sell at the money calls.
NVIDIA
T=8.25, Buy stock, sell slightly out of money calls.
Arcelor Mittal
T=21.00, Buy stock, sell out of money calls.

*As these targets are reached and proper action is taken, I will also start building a position of long term (6-9 months out) puts on the S&P to hedge my position in case of an economic collapse.

Picking the Bottom...Is it Easy?

noreply@blogger.com (BlackVault) — Mon, 9 Feb 2009 18:35:00 -0800

Take a look at the charts below.

Crash of 1929.

Pretty nice rebound...or is it? Take a look at what happens the next few years.

1929-1933

You can see how trying to pick the bottom can be difficult. Personally, I believe that the current crash is very similar to the crash of 1929. Therefore, I'm making investment decisions accordingly.

Does looking at the graphs above change your view on the current economic crisis? Are we going up or further down? You decide!

Intraday Update - 02/09/08

noreply@blogger.com (BlackVault) — Mon, 9 Feb 2009 06:57:00 -0800

Selling JPM February puts for a slight loss, and replacing them immediately with March 25 strike puts. I want to reduce the risk of time decay since JPM didn't go down right away as I expected last week. Purchased twice as many puts as I had before to significantly reduce my average cost.

Also, purchased Cisco March 17 puts. If the market goes higher, I will keep firing and buying more to cost average. As I said before, this is the key when buying options. You have to save enough capital to be able to "bail" yourself out through cost averaging.

Details:
JPM March 25 @ 2.32
CSCO March 17 @ 0.97

Trading Strategy - 02/09/08

noreply@blogger.com (BlackVault) — Mon, 9 Feb 2009 05:36:00 -0800

I talked about purchasing puts on JP Morgan, which moved in the opposite direction for me. I purchased some more puts to double up and cost average on Friday. If the market doesn't substantially lower, I will purchase even more puts on JPM and also some on Cisco Sytems. The market has gone up too much in short period of time, and I'm expecting a decline at some point this week so I can take profits.

Here is a chart of DOW Jones.

Notice that we had a cross over on the stochastic and now it started to tip dip below the 90 which is what we want rather than simply a cross over.

I'm also hoping that the excitement dies down regards the passing of the stimulus and the overhaul of the bailout plan. Especially since Geithner's plan will probably be similar to what it was before which obviously didn't work.

Why did Geithner Delay Bank-Rescue?

noreply@blogger.com (BlackVault) — Sun, 8 Feb 2009 12:31:00 -0800

Geithner Delays Bank-Rescue Speech to Keep Focus on Stimulus
Feb. 8 (Bloomberg) -- Treasury Secretary Timothy Geithner postponed his unveiling of the administration’s plan to shore up the financial industry as officials focus on getting approval for their separate economic stimulus plan in the Senate.

“The Senate votes on Monday, and economic officials administration-wide will be working and consulting with senators throughout the day,” the Treasury said in an e-mailed statement in Washington today. “Secretary Geithner will postpone the release of the administration’s Financial Stability and Recovery Plan until Tuesday to allow for that to happen.” ...
(Read the full story here)

This is nothing but a poor excuse. Why not announce this a week ago? or even a few days ago? What does his work have to do with what congress is doing anyway? They are seperate projects worked on by seperate groups.

The real reason Geithner is delaying his announcement is because he is not ready. Why even give a due date regards to the unveiling of the plan? It's because he wants to remind the public that he and the Treasury are doing something, to give the public hope and calm their fears.

So Mr. Geithner, you shouldn't have even given the Tuesday deadline for yourself. I mean you won't have another excuse to come up with if you aren not ready. This just means that you will rush the plan since the public is expecting it; even if the plan is "imperfect" as your boss Obama would say.

Two Day Rally...So Now it's Time to Buy?

noreply@blogger.com (BlackVault) — Fri, 6 Feb 2009 21:20:00 -0800

Profits down? Market up! Employment down? Market up!
TARP? Bailout? AIG blowing up? WHO CARES!!! BUY! BUY! BUY!
This is the bottom and you DON'T want to miss it! Last chance to get in, before we go up up up! So dial the number at the bottom of your screen 1-800-BUY-DOWJ todaaaaaaaay!

This is what it sounds like when I watch CNBC. Nothing but cheer leading. We have a two day rally and all of a sudden Mr. Cramer and his crew gives reasons that things are turning around.

Here are his 10 reasons.
1) The Federal Reserve is willing to do whatever’s necessary to save this market. Chairman Ben Bernanke and gang said as much in this week’s meeting.

Cramer...I hate to tell you this, but they have been saying this since the market started to crash months ago. We needed a two day rally for you to tell us this? This doesn't qualify for a reason.

2) While the U.S. may be struggling to pass a worthwhile, infrastructure-heavy stimulus plan, other countries’ spending is already driving the market. See: China.

That is right. China is starting to manufacture things again and they are the only ones too. How long will that last though if nobody is buying their .99 cent toys? You do know Jim that US and Europe buy nearly all of Chinese goods. Were you thinking that the newly 700K unemployed individuals are going to buy them Mr. Cramer?

3) The Baltic Freight Index, a measure of world trade, has really taken off. It was down heavily last year, but a turnaround is well underway thanks to Chinese demand. Commodities like nickel and copper are up, and oil has finally bottomed, signs of growing strength in the global economy.

Jim, two things you silly man. First, the BFI seemed to have bottomed back in December and has been rising ever since. Why not mention something back then? Second, the BFI dropped 94% from it's peak of 11,793(June of 08). Now it's at 1,642. So you're right, it has increased...but when you are practically as low as you can be without disappearing all together...what did you expect? Oh, and to get back to it's high, we need a 718% growth. So yeah, a clear indication that things are getting better.

4) Again with China – that country’s market is up 20% so far this year. And the Chinese economy is starting to consume mass commodities with the voracious appetite for which its known. That will help to work off any worldwide inventories in coal, steel, copper, aluminum, as well as grains and consumer goods.

Genius! Let's repeat reason #2. At least you could have moved it further down the list in hope that someone would forget that you mentioned it earlier.

5) Despite a negative outlook from Cisco Systems [CSCO 17.04 0.69 (+4.22%) ] and State Street’s [STT 30.49 2.95 (+10.71%) ] dividend cut, both stocks finished the week up 11.3% and 29.7%, respectively. If money can’t be made shorting such horrible news, then the market’s already sunk too low.

There is no such thing Cramer. You're giving a reason using hind sight. If the market really sunk "too low", it wouldn't have sunk that low to begin with. Market determines the price and if there is a buyer and a seller then the price is legit, at least for that moment. Remember when the DOW dropped 800 points? Then shot up 950? Then back down around 500 all within a few days? Did people think it was too high, the all of a sudden thought it was too low, then too high, then too low...then...ahhhhhhh!!!! Come on man, this is just daily volatility with nothing else driving it other than the anticipation of the stimulus package.

6) Wal-Mart Stores [WMT 49.63 1.07 (+2.2%) ] seemed to indicate that people are spending money again.

I listened to Wal-Mart's conference call and they didn't want to give future guidance regards to where the company is going because they don't know. This screams confidence Cramer! Plus, what do you mean people are spending money again? When did they stop spending? I thought Wal-Mart's sales only declined 9%? You make it sound that for a few months people stopped buying food and clothes and now all of a sudden they realized they are naked and are hungry. Where do you come up with this stuff?

7) Reports showed that housing sales are up in markets where prices are down. Combine that with a $15,000 tax credit for home buyers, and Cramer thinks a sector bottom could still happen this year.

Which markets? Care to enlighten us? The main markets contributing to this whole collapse is California, Florida, Nevada and Arizona and they are BLEEDING RED! Oh, never mind...I see what you're talking about. Sales in Buxton, North Dakota did increase. My apologies sir. Also, do you really think that a $15K tax credit will do something to spur home buying. Ah yes, let me go buy that overpriced home in California for $750K and get $15K off. Then I can make some popcorn and watch it depreciate to $500K the following year. Cool.

8) The hedge-fund selling that hurt so many stocks is over, at least for now. It looks like client redemptions have slowed, giving these funds a much-needed breather.

Well the DOW isn't swinging 800 points up and down anymore is it now? So yes, I would agree with you that client redemptions have slowed. However, this stopped happening a couple of months ago. Are you saying that the market just now realized that redemptions have slowed and therefore decided to go up 200 pts? Come on man.

9) The market finally has real leadership in Apple [AAPL 99.72 3.26 (+3.38%) ], Research in Motion [RIMM 59.17 2.37 (+4.17%) ], Google [GOOG 371.28 17.56 (+4.96%) ] and Amazon.com [AMZN 66.55 3.37 (+5.33%) ]. These stocks could take all stocks higher.

You couldn't be more right. I bought an iPod yesterday and googled some info this morning. That in return will stop the free fall in home values, un-thaw credit, create jobs and fix the auto industry. You should have just stopped with the first sentence. Why did you have to throw in "These stocks could take all stocks higher".

10) UPS [UPS 47.07 1.16 (+2.53%) ] reported a decent quarter and announced that the transport business isn’t as bad as Wall Street thought. Cramer looks at these transports as a major indicator of the economy’s turn, he said, and the buying in Fed Ex [FDX 55.27 2.69 (+5.12%) ] and rails means that investors agree.

The reason the packaging business did just OK this quarter is because X-Mas was part of that quarter. Shipping is always higher then, but you seem to forget that their sales have slowed year over year. I would like to see an increase in revenue year over year or even quarter over quarter before I can make a bold statement like yours.

You struggled really hard to come up with reasons as to why the economy is all of a sudden doing much better. Also, most of the reasons you stated if not all were already known to everybody and their mother. You gave reasons and poor ones if I might add, using hind sight. Why couldn't you say this a couple of weeks ago. Something like, "hey guys, I know that the market is tanking, but here are my 10 reasons as to why I think the market has it wrong." Then when the rebound actually does happen, the more intelligent crowd can say, "Wow, that Cramer guy was right, perhaps this market isn't as bad bad as it seems".

I'll give you the real reason why the market went up the past two days. People are simply speculating that the stimulus package will actually do something this time (which it won't). So they are buying stocks now, pushing the market up, causing the short sellers to cover, which in turn is fueling the rally higher.

People will once again realize that unemployment is still sky high and going higher, commercial and prime loans blowing up, banks disappearing, auto industries going bankrupt, firms posting record losses, firing more people in return, who now can't pay their mortgage, which sends home values further south as they have to foreclose, which puts more pressure on banks, who in return won't lend to firms who are in dire need of capital, who now have to cut costs again and fire more people, and those people can't buy goods in return, which lowers firms profits further, who have to cut costs again and fire more people, and then this, and then that, and then this and then BOOOOM!!!

Yes Cramer, it is indeed a time to buy!

Trading Strategy - 02/06/08

noreply@blogger.com (BlackVault) — Fri, 6 Feb 2009 08:46:00 -0800

Looking at the charts, we are approaching a point where it's almost a great opportunity to go short on any stock that is correlated to the DOW Jones.
Take a look at some of these.

Dow Jones

Cisco Systems

JP Morgan

I probably should have waited to buy JP Morgan. Even though I hate to admit it, but I was off on my timing and I think I forced the issue. I didn't wait until all indicators were lining up for the best possible opportunity. I can't be always right, I know that. But this is something I could have avoided. I simply wasn't patient.

Once these cross over and start heading south I'll have to double down on JPM and buy CSCO puts. Also, my plan was to ride Wal-Mart till $51, however if the market starts to tip, I'm going to have have to adapt and cut my gains short. Remember though, it's important that the stochastic indicator starts heading down and not just cross. You don't want to be trapped in that wave like pattern that can form time to time.

Trading Strategy Update - 02/05/08

noreply@blogger.com (BlackVault) — Thu, 5 Feb 2009 20:54:00 -0800

Ok. So the two trades I talked about a day prior is Wal-Mart and JP Morgan. I want to shed some light on my thinking throughout the day as events unfold and perhaps you can learn something from it. When investing, you have to have a strategy but also adaptability.

WAL-MART
Originally, I wanted to hold off on buying Wal-Mart until I knew how the market reacts to Cisco's news. Apparently, it liked it. I'm still not a firm believer, so I'd like the market to have another decent day before I'm sold on it. Wal-Mart moved up $0.80 pre-market. There was no way for me to buy calls when it already moved so much pre-market. It is simply a lost opportunity. No big deal. I'm going to tweak my strategy.

(click to enlarge)

Notice that WMT formed a double bottom (circled in green) which generally displays strength. It simply wasn't able to go lower than the previous low of $46.40 which is it's newly formed support.

The key now for WMT is to build strength at $48. Notice it touched $48 just the other day and pulled right back. It simply didn't have the strength to keep going past it. However today it made another attempt and blew right through the $48 resistance. If it had touched $48 today but not go past it, then it would have formed what we call a double top. Which is the same thing as a double bottom. Anyway, what I want WMT to do is just build strength here for a couple of days and then try to break through the $49 resistance. I think once it breaks it's next resistance, it will move quickly to $51. Notice there is no support between those two points.

So that's my next plan. Wait until it builds some strength at $48. If it breaks $49 give or take a few pennies, I'll be buying calls and riding it to $51.

JP MORGAN
Ok, let's take a look at JP Morgan. We talked about the strategy plan on JPM yesterday. It broke through my target resistance I set and therefore bought some puts. Unfortunately, news regarding mark to market rule surfaced, which got everybody excited and spoiled my fun. Ok, so no big deal. One of my rules on trading options is to never go all in. I trade a couple percent of my portfolio on each transaction. If it blows up in my face, I can analyze the situation and make a decision to either cut my losses or double up.

Thankfully I'm only at a slight loss so far since JPM pulled back from it's intraday high. Tomorrow will be the deciding point. If JPM moves lower, then I'll leave things be as I should be at my break-even point. Then we simply continue down the path we originally set out; going to $19.

If JPM breaks out tomorrow and goes higher, then I'll first make sure there isn't anything positive going on for the company. If it's just market noise(what I call daily ups and downs) then I'll wait for a strong upward move and double up on my puts.

Cost averaging is a very powerful weapon you can use when the stock doesn't move in your favor. This way you will reach your break-even faster and start making money.
Often traders can't seem to understand the importance of having cash reserves. Think of it as your own little bailout fund. Use it as offense and defense when appropriate. If you go "all in" and happen to be wrong then you'll be completely wiped out. Build your wealth patiently.

Trading Strategy - 02/04/08

noreply@blogger.com (BlackVault) — Wed, 4 Feb 2009 23:02:00 -0800

Here is a potential trade on JP Morgan. The stock has had some very volatile moments in the past month. Gaping down too quickly for a 29% decline, and the result was a pop for 36% all within two weeks or so. Right now the stock is at it's short term resistance and if it breaks $26.70 look for a drop. The reason I outlined the potential of $19.20 is because it doesn't have any real support prior to it; $19.20 is it's next support. So if it breaks, look for the drop to complete within a few days.

Since this trade will happen quick, I'm not worried about time decay. Therefore, I would rather leverage myself through options contracts vs. raw capital which I'm not willing to risk.
I'm going to pickup Feb puts @ 23 or 24 strike price.

Trading Strategy - 02/04/08

noreply@blogger.com (BlackVault) — Wed, 4 Feb 2009 17:38:00 -0800

I don't mind offering variety regards to stocks, but as long as I am making money who cares. Personally, I like to trade only a few companies. It is far better knowing a few really well then knowing one hundred, but knowing them poorly.

I took a look at KB Home as well as a few dozen other companies, but I just don't like it. I don't like what the charts are telling me, so I'll wait for a better opportunity. If you read my post on controlling emotion, one of the key characteristics that you need to have is patience. Sure you can take a gamble and try to be right, but I prefer having 90%+ odds in my favor. Even if it takes days of waiting.

Back to Wal-Mart...

(Hold Ctrl & Click to open to a new Window)

Ok. Normally, I would say go ahead and buy calls here but not this time. Cisco Systems didn't have the greatest quarter and worse yet they guided that revenues will be down 15-20% next quarter. Cisco System is a fantastic indicator of how the economy is doing. If businesses are decreasing IT infrastructure, then it usually means they are short for capital and spending is decreasing. This means that it could be an ugly day tomorrow morning.

Now take a look at the green circle in the chart where I noted "watch out for the trap". Notice that Wal-Mart declined a substantial amount throughout the green part. My technical indicators are set to where they would have to cross my lower threshold of 20. Not just slightly, but I like to see both the blue and red rise almost in a 90% angle upwards together crossing over the lower threshold.

Right now, the blue is starting to inch it's way closer to the red. However, unless the movement is strong as I described, you must be patient and wait. Chances are that it might perform a little wave like the one I circled in green. If you buy a call now and get caught in one...you're as good as dead. This is mainly why I say be catious, because you can't only rely on charts but common sense too. You have to pay attention to what the markets will do as a whole.

Now I'm going to wait before I buy my calls. Same one as before, either Feb or Mar @ $47.50 strike. What happens if Wal-Mart skyrockets tomorrow? Then nothing...I missed my opportunity. I would rather miss an opportunity than be in one and be wrong. I simply have to forget about it and move on. Unless I'm 90% convinced, I don't make a move.

If you don't train yourself to be patient, you will make a wrong move eventually. That can't happen. Our goal is to strive for perfection and capital preservation.

Trading Strategy Update - 02/04/08

noreply@blogger.com (BlackVault) — Wed, 4 Feb 2009 10:36:00 -0800

Update: We discussed buying Cisco call options. I purchased Cisco April options for $1.57 and sold them just now for $1.92 for a 22.3% return.

Right now Cisco options are trading at a higher premium than normal due to the fact that they are reporting today. That is why I'm not comfortable holding them here. Chambers (their CEO) always gives conservative guidance, so it's very rare that the stock goes through the roof on earnings. If the stock stays where it's at or goes down, the option will devalue. If it goes up, it has to go up substantially 5% or so to make it worthwhile. Those are not favorable odds. If you already have the stock, then personally I would sell some calls here. I'll be listening to the conference call later today to plan the next move.

Update: We also discussed buying Wal-Mart call options. You were guided to sell the calls near or at $48. I bought Feb calls for $2.02 and sold for $2.62; a 29.7% return. I hope you took advantage of it too.

I'll post another strategy on KBH later today/tonight assuming it does what I think it will by days end. If no, I'll find something else.