EOT Position Update – October 8, 2008
October 8, 2008
Market Snapshot
IMPORTANT NOTE: Watch for a new trade Thursday or Friday.
We’re well below 10,000 on the Dow. We closed at 9,252 to be precise. The market hasn’t seen levels like these since 2003. The losses have been staggering. The only guidance I can give is this too will pass.
Remember to hold the course in your retirement accounts, and watch your trading account closely. I know many professional traders who in these types of markets are reducing their exposure, cutting losses early, and taking profits quickly. Consider adjusting your trading strategies if you’re not comfortable in the markets.
Lucky for us several of our trades are showing nice gains!
The big news this week . . .
Today we awoke to a coordinated global rate cut to stimulate the world economy. It’s not good if you have multiple central bankers looking down the road and seeing nothing but recession and economic slowing.
At least they’re taking action early.
How bad is it? Beyond the coordinated rate cut, the Fed is now stepping in and buying short term debt (corporate paper). This allows them to bypass banks who might be tempted to hoard dollars. Hopefully this will stimulate corporate activity directly – and keep a number of major corporations from missing payroll. Keep in mind the last time this happened was during the Great Depression!
Bank of America announced earnings two weeks early. They cut their dividend and announced a capital raise of $10 billion. The stock collapsed more than 40% over the last 8 days.
Banking Problems Go Global
This week several European Governments took the unprecedented step of guaranteeing bank deposits (without limit). These countries included Ireland, Greece, and Germany.
More Buffett
After securing a sweetheart deal with Goldman Sachs, Buffett went a step further. He made a huge investment in General Electric – capturing similar style returns with a guaranteed dividend of 10%.
The US Dollar
Despite the US Government flooding the market with greenbacks the US Dollar remains strong. Another sign that fear is at record levels.
And all of this news comes despite the passage of the $700 billion bank rescue package. A piece of legislation that raced through Congress (with a few pork barrel add-ons) and was signed by President Bush just a few days ago.
Now for the trade updates.
Position Updates
Just a quick note: Remember, we won’t update every open position every week. I try to focus on the positions that have some significant news or price movement.
MS November 2008 $35 CALLS (MSKG)
Let’s address this head on. This was a risky pick and it moved against us. I expected the market to rally or at least bounce and all it did was go straight down. At least we have our other investments which are showing nice gains. The stock’s blown through both support levels and only the most aggressive traders should continue to hold this position.
CVX December 2008 $75 PUTS (CVXXO)
Our put options on CVX are up again this week. Oil prices continue to fall – as we expected – and CVX traded close to $70. Everyone should be showing a nice profit!Maximum gain so far is 277%.
JCP January 2009 $30 PUTS (JCPMF)
JCP continues to move lower as the threat of a recession becomes more real. JCP moved as low as $26.18 today, causing our put options to spike in value. Traders still holding these are showing gains of 217%.
GT January 2009 $15 PUTS (GTMC)
Goodyear Tire continued falling this week trading as low as $10.92. We traded below both support levels, giving us nice gains. Peak value this week showed a gain of 124%.
Parting Shots…
Third Time’s A Charm – The VIX
Over the last two weeks we talked about the VIX. It’s a measurement of the puts and calls being traded on the exchange. It’s not often it trades above 30. And rarely does it trade above 40.
This week it’s moved above 50 . . . and stayed there for several days now.
According to my sources, the last time we hit this level was in October 1987 when the market plunged more than 25% in a single day.
FEAR IS HERE!
Because of this, put options are becoming more and more expensive. I’m going to focus on call options. As the VIX falls (and it will) the market should rise.
Category: EOT Update
