Wednesday, October 31, 2007

Networth Update

An interesting transition month has come and gone, and its time to update my networth again. This month was an exceptional month in terms of my finances, since I collected a vacation pay out from one place and then a sign-on from another.

Besides the extra income, my expenses this month has been surprising in check (minus the obvious fund I set aside for buying new furniture for the place).

So, compared to last month's networth update, I have seen a 0.96% increase in my networth, or about $9,600.

Obviously, every month is not going to be like this. However, I am steadily progressing toward my goal, and I predict I'm about 8 months away from the break even point, where my liabilities will equal my assets.

Go Go Fed

The Fed announced a 25bps rate cut today, which is great news, and the market was definitely looking for it. But, interestingly, the market in the 5 minutes after the Fed's announcement tanked. Why?

Hidden in its announcement was the indication that the Fed would most likely not cut rates in the near future, citing concerns with inflation (look at the high price of gas) and the overall stability of the economy.

So what are the plays for the rest of the week? Well, if you got a nice bump today, my suggestion is to sell 50% of your winning positions to lock in your profits, and then maybe wait until Friday to completely unwind. The market tends to take profits after these bumps, and you should do the same.

However, there is one stock I was buying today, CVS. They are announcing earnings tomorrow, and I would have posted this pick earlier, but I had completely forgotten about their earnings release date. But with the consumer goods report today being so good, its a great indication that CVS's earnings will also be amazing.

Tuesday, October 30, 2007

Still waiting...

The Nasdaq did okay today, but really, it's still waiting for the Fed to tell the market "Rate cut!" There's very little change for a 50bps cut, but that would be amazing.

My portfolio right now is doing okay, since the Nasdaq has been up, but my bet on Amazon has yet to pan out. My attempt to catch a market inefficiency is butting heads against another classic market issue, no matter how wrong the market is, if the market wants to go there, you can't fight it.

So far, my Amazon options have lost 50% of its value, which is about $1,300. Hopefully the Fed's rate cut will help boost the stock some, at least enough for me to recover what I put in.

Monday, October 29, 2007

Here Fed, Fed, Fed...

Show me that rate cut!!

The markets are up a bit, but now the market has completely priced in a 25bps cut, which is what worries me. Once the market believes one way, and what is expected doesn't happen, there will be a HUGE drop. Conversely, if it does happen, the market will move a little bit.

This is a simple situation where the risk is high and the reward is low; a situation that is completely out of whack.

I am hoping for the best, but bracing for the worst tomorrow.

PS - End of the month is coming, and this month should see my networth move quite significantly, thanks to vacation time buyout from the old company, and sign-on bonus at the new company.

Sunday, October 28, 2007

Market Outlook for the Week

The Fed meets Tuesday, and most of the market is awaiting a rate cut decision. Most believe a 25bps cut, although 50bps isn't completely out of the question. It's probably going to be the biggest factor affecting the markets this week.

On the one hand, with rising gasoline costs and the fear of inflation, the Fed may decide to keep rates where they are, on the other hand, and what most believe, the Fed needs to stimulate the market and the economy by loosening the credit markets, and a rate cut is exactly what it needs.

Wednesday, October 24, 2007

Market down, portfolio up

Now most who read that headline would think, "oh, you were shorting the market", but no. I was actually long all day today. How then could I make money today?

Well one, I followed my own rules yesterday and sold half of my positions for a nice gain. This morning, as the market reacted to Merrill and Amazon's announcements, I realized it would be a big up and down sort of day.

I kept track of the market as it dipped, and around 11am, the market seem to bottom, so I bought in. I bought both the Nasdaq Qs as well as Amazon stop, for basically the same reason. Technology stock I thought were being hit by a combination of profit-taking from the day before and a general feeling market sluggishness. I thought that the market was over reacting.

After lunch, I patiently watched the market fluctuate a little before inching its way up. I was happy to see the Nasdaq end up even and Amazon make some of its 17% decrease back.

What do I expect tomorrow? A lot of bargain buyers will be coming in to scoop up the cheap stuff, and the market so do well.

Monday, October 22, 2007

Sigh of Relief

As Apple announced their ridiculous amazing earnings (news here), and Microsoft poised to report their earnings on Thursday, the NASDAQ made the turn for the better as I had hoped (predicted?). The fed comments today also helped, implying that a rate cut will definitely be used if market conditions worsen.

Overall, my position is still down about 5% from where it was last Thursday, but after hours trading suggest my options so all be in the black by the time the market opens tomorrow.

Sunday, October 21, 2007

Market Outlook for the Week

Well, all the interesting earnings reports are behind us. The markets really took a beating late last week, as companies across the board reported earnings below or only meeting expectations, which the street hated (the only bright spot being Google).

For me, it was a great time to buy more Nasdaq (QQQQ) calls options on the cheap. Right now, I have amassed the largest position I have ever taken in one equity, about 25% of my total funds. It is a massive bet, but I am betting that the market well view the market this week with new eyes, see plenty of buying opportunities, and price in a rate cut coming after all this negative economic news.

What do I need? I need the Nasdaq to go up about 5% from where it closed on Friday, and my options will do very well.

Go Nasdaq!

Friday, October 19, 2007

End of Week 1

It's been a great week of work. First day was the usual, twiddle the thumbs and wait for things to be set up. Tuesday and Wednesday were tied up in a sales conference meeting I was invited to. Thursday and Friday, I continued twiddling my thumbs, and I only got some real stuff to do around 5PM today. But by then, its quitting time.

My new job is a 3-year finance rotation program. I'm going through my first rotation as a regional financial office for both the New England and New York regions, while also performing some strategy work for both.

This program should allow me to round out my financial expertise, and prepare me for any financial management job, and eventually, CFO of a company.

Sunday, October 14, 2007

Moved in and Ready to Start Work

Spent the weekend officially getting the last bits of my life into my new apartment. Now that I have my desktop setup and internet running, its time to tally the cost of moving. My guess is its going to be about $400 along with about $3000 scheduled for apartment furniture and upgrades.

Tuesday, October 9, 2007

Total's trades net me $400+

As a short-term trader, one of the things I love are news events that are guaranteed to move the market in some fashion. Events such as those allow me to bet one or the other, and the leverage of options really allow me to profit off of those quick moves.

Today is a good example. I knew early today that the minutes of last month's Federal Reserve would move the markets. Traders and analysts would be scrutinizing every word to see if another cut was on the horizon.

Feeling optimistic, I bought 30 October 53 QQQQ (Nasdaq-100 Index) Calls and 15 November 54 QQQQ Calls, as well as 10 October 158 SPY (S&P 500 Index) Calls. Around mid-day, the calls were about even, but the market had been fluctuating up and down for a while.

Right around 1:30PM, 30 minutes before the minutes were to be released, volume picked up, and the price started to trend upward. After the news was announced, that all the Fed governors were unanimous on the rate cut decision, the Nasdaq actually went negative while the S&P continued upward.

I wasn't phased. It always takes a bit of time for the market to digest Fed news.

By about 3:30, the frenzy started, and both Nasdaq and S&P ended up, pushing my Qs and SPYs to, so far, a $414 gain. I expect another good day tomorrow, but I will sell off some to decrease downside risk. By Thursday, I plan to dump it all.

Monday, October 8, 2007

Apartment found, sold, and moved all in one weekend

I officially start at my new position on Oct. 15, which meant I had to find someone to take up the rest of my lease, find a new apartment, and me moved prior to October 15. Somehow, I managed to do all that this weekend, even though everything came down to the wire.

For a while, I was contemplating forgoing the $2500 security deposit, figuring my sign-on bonus and better job satisfaction would more than make up for that small financial hit.

Thankfully, I'm getting that back. Add to that my relocation bonuses and my old company paying me for unused vacation time, I've got some large checks coming.

My plan is to save a large portion of it, but still have money to buy a new LCD TV and a cheap sofa set.

At the same time, I have to come to grips with living by myself, which means I pay for 100% of the utilities, rather than the 3-way split I had. For utilities like cable, that was a great deal. For now, my way to cut back is to decrease my monthly discretionary budget, until I see how much utilities actually end up being, and then I can readjust accordingly.

Thursday, October 4, 2007

Options Trading, Part III

Yesterday I wrote about figuring out your comparative advantage. Today, I will discuss where this advantage will be applied.

First, we have to understand why options are valuable. Options have five basic characteristics:

(1) Underlying asset (ie. Google stock)
(2) Type of option, ie. Call or Put
(3) Strike Price - price at which option will be converted
(4) Expiration date - date when contract expires
(5) Volatility - how much periodic movement there is

So now you just have to pick at least two of the five characteristics that you have a comparative advantage in. The more you can be good at, the better your outcome will.

Of course, just because you are good at two of the five, doesn't mean you don't have to either explicitly or implicitly choose all the other five characteristics.

For instance, knowing that Google is going to go up, doesn't mean you can just go out and buy a Call option on Google. You have to consider the current price of Google, and pick a future price you think is obtainable.

The characteristic you can make the most money on is of course strike price. After price will be volatility plays and then duration plays. The last two of course will make you much less money.

Wednesday, October 3, 2007

Options Trading, Part II

The key to any kind of trading is thinking of every trade as a negotiation. When two sides sit down across from each, rather you are the buyer or the seller, both have weaknesses and strengths. Both have reasons they want to participate in the trade, and if you want to make abnormal profits, you need to know why you are capable of making those profits.

Quickly though, let me first explain what abnormal profits are. Abnormal profits are as it the term suggest, profits that are unusual. For example, if you suddenly find gold, you would profit off selling them. But no one will pay you more than the market price for it. That is a normal profit. An abnormal product would be say, gold is going for $100, and normally is costs you $80 to dig up gold, but all of a sudden, you discover a cheap process that finds you gold for $50 and you still sell it for $100.

Abnormal profits occur from having a comparative advantage. If you don't have an advantage, you aren't going to make abnormal profits.

So why do you care to make abnormal profits? Because with the increased riskiness of options, and the sheer amount of extra work you need to put into it, what's the point of getting a 15% return at year end when you could have just bought say the Nasdaq index and just let it sit there for a year for the same return?

I will continue posting for the rest of the week my views on Options Trading. But if you want to profit from what I post, you first have to ask yourself, what comparative advantage do you have over other traders?

Maybe you are smarter, or have a keen analytical sense, or perhaps Greenspan is your next door neighbor. Any of those are fine, but you have to know your advantage so that you can tailor your strategies around it.

[Update] I wanted to add as an incentive to consider your comparative advantage, the difference between me knowing what it was and just playing the market. Last year, I obtained a 10% return over 6 months following classic investing strategies, while this year I have so far obtained a 21% return in the last 2 months (I only started trading again in the last two months).

Tuesday, October 2, 2007

Options Trading, Part I

Recently, a reader asked a question about how to trade options. I thought about this question, and I realized I needed to explain a lot of background before we can get into the nitty gritty.

First, I do assume you understand what a stock is and the various drivers of stock price.

Second, I assume you have the understanding that investing is inherent risky and options even more so.

Third, I assume you have some fundamental math skills and can use Excel.

Now, rather than explaining what a basic option is, I will link to the Wikipedia article that already explains it pretty well. You only need to read the intro, section 1 and section 6 of the article. The rest is either useless or will be explained by me.