New ZB Trade

As mentioned in a previous post on this trade, I was looking to initiate another short position when the opportunity arose. I got short at 126'20 and again at 127'20. I also sold a 129 call for more than a point so essentially it's getting short at a little over 130. This is the last of this position I am comfortable adding to at the moment. I'm still doing my homework on this trade. For instance, why would a $100,000 face value no coupon bond be selling for about $127,000 right now? Because ZBs are deliverable on a 6% yield basis, so there is a deflater/conversion factor calculation that has to be applied to the current price at time of delivery that brings it back in line. Right now I'm comfortable with the amount of risk I have on just based on technicals, a hunch that 30-year yields have hit a low and have nowhere to go but up, and QE2 bond purchases being fully priced in at this time. I believe there to be an upside price risk in this trade if the Euro region tanks and thus we see another flight to safety in the US dollar and Treasuries. For now I'm going to attempt to trade in and out on a short term basis using a position size that would allow me to stay in the trade should we in fact see some panic that pushes Treasuries higher. And thanks goes to Tom Sosnoff for turning me on to the idea. After initially analyzing the trade and because of the leverage involved with financial futures, I like the risk/reward offered on this idea.

Trade Update 12/1/10

I had set a GTC order to cover these two short contracts at 126'04. Though I was happy to wake up and find I made $2,000 while I was sleeping, it was also irritating to see that I could have doubled that by selling at any point later in the day. It took me a long time to get in the habit of setting a GTC for an exit point once I initiated a trade. This is just one of those times when I could have made more without it, but I just as easily could have woke up and found that with a GTC you could have covered in overnight trading but missed it. So you take the good with the bad. I set my exit point where I was willing to exit so can't cry later that you could have got more.

Historical Trading Results

I've finally finished documenting my historical trading results going back to my first trade in the summer of 2008. It was an interesting experience because my personality is such that I focus on losses much to strongly and tend to downplay my successes. So being able to quantify and visually see my total history has been a good exercise. I need to look at the overall results once in a while, specifically when I've had a recent loss as I tend to get conservative and even at times stop trading all together for a while.

My style of investing has changed over this brief 28 month period so its hard to draw any solid conclusions on my performance other than to say I believe I will continue to trade profitably. I've learned a lot about risk mgmt and position sizing so hopefully future losses will be mitigated to an extent that some of these past trades were not. I would like to get more quantitative in the future as far as total portfolio return rather than just monthly dollar returns. I have a few problems in this area though as I haven't decided exactly how much I would like to designate as available trading capital, and I continually pull money out to live off of so the calculation of compounded returns is difficult if not impossible without some sort of software package to aid me. If you're aware of any please let me know.

Thank you Kim Jong IL

I was already short 30-year Treasuries but yesterday's Korea news opened up an opportunity to add to the position. My feeling was this, six months ago if you had told me that North Korea would engage in an attack on South Korea and people died, I would have guessed the markets would be down huge and fall from there. When we only opened down 150 Dow points and didn't sell off any further I didn't sense any real panic. Bonds however did show some panic and shot higher. With the combination of this news and some technicals I decided to add to my shorts in both the DEC and MAR contracts. This morning apparently a good jobs number trumps international conflict and the markets rebound and thus bonds sold off. I exited my shorts for a nice three day gain of roughly $3400. I am still short (1) MAR11 ZB 130 Call but will look to short MAR11 ZB futures again should the opportunity arise.

November 2010 OPEX Results

This is another deceiving month as the large gain on MET has been a paper gain for many months and finally switched to a realized gain this month. My actual trading activity during the month was a loss.

NQ

I shorted the NQ yesterday afternoon at 2142 when it looked like it was going to stop at overhead resistance, was planning on shorting it down to support levels but using a stop in case I'm wrong. I just closed it out for a small gain. This was a trade where I was kind of late to the game. I had wanted to short last week but just didn't make the time to follow through on it and I missed the move. So when I saw a large white candle that seemed to stall at resistance I decided to be a late entry to the trade. I later decided that was stupid, I had already missed a good 50 point move down. So I'm out at 2124.75.

A few new trades: ZB, CSCO, KMP

I've been very passive with trading/investing lately but I'm back at it full time as of yesterday and looking forward to it. I started things off good with what turned out to be a quick trade. I shorted (1) ZB yesterday morning at 127'20 and covered in after hours at 126'22 for a gain of $933. Minimum tick is 1/32 at $31.25 so each full point is $1,000. I decided to short after seeing the largest while candle in the last three months that looked to be nothing more than a little panic flight to safety buying as equities shed 1.5% that day. I will look to enter again with a short if there is any short-term strength in bonds. Meanwhile I have been short a ZB 133 call for November which is set to expire worthless, and I'm short a Dec ZB 130 call.

I am going to spend the next few days finally rebuilding my spreadsheet I accidentally lost with all my trades going back to summer of 2008. That is the time frame I made the jump from primarily investing long-term with covered calls to different types of short-term options trades. I'm looking forward to seeing and analyzing the results.

ZB

CSCO

I sold Dec 19 puts on CSCO for .39. After the recent sell off it left this stock at its lowest price since the MAR09 bottom. I'm comfortable owning this stock long-term if put to me so there is no exit point to this trade.

KMP
I was short NOV 67.50 puts that are to expire tomorrow so I rolled this trade to DEC 67.50 puts at a net of .52. With a 6.3% dividend yield I think this stock has a floor in it not too far from current price. In a world chasing yield this is a low risk stock with a long-term track record of stable and growing dividends. I am willing to own at a cost average price of $67 so there is no exit point for this trade.

Gold/Silver should I be worried about my dollars and what should I do?

Is HyperInflation a possibility?  You bet it is...

NIA(National Inflation Administration)released a report that believes because this decade's Real Estate bubble was so large, Real Estate prices will
likely overcorrect to the downside and the median U.S. home will be worth only 500 ounces of silver at some point this decade. Therefore, if you buy just $13,000 worth of physical silver today based on 26 dollar silver, NIA believes you will be able to pay cash (without any mortgage) for an average American home within the next 5 to 10 years."

http://inflation.us/foodpriceprojections.pdf 

I do believe that we'll see inflation like this, but I think what we'll see first is corporations trying to keep a lid on prices and they'll do that by reducing the size of the item you buy. We're beginning to see this already, with cereal boxes shrinking as well as the amount of food being served in restaurants with each plate as commodity prices climb higher and higher.

Gold & Silver were the star performers yesterday, with Gold trading past $1,400, and Silver trading past $27. This morning, there's more Gold & Silver buying, and now Silver is trading over $28! WOW!  The thinking that the FOMC's $600 Billion QE isn't going to be enough, and the Eurozone periphery country problems is really pushing Gold & Silver higher, and higher. 

People ask me all the time how to play the silver/gold market...so here you go...

I stick with the etf's for silver = SLV, a stock that has a great model geared toward no work all pay based on Silver is SLW....just reported great numbers. I own options on both and have for years.

Gold again etf GLD or if you want leverage with the gold miners which as you will learn leverage is a two sided sword, goes up and down with gold prices but more than the actual physical moves. With that being said GDX (major miners) and GDXJ(small miners) is the way to play it. The GDX miners are pulling it out of the ground all expenses paid for 450 an ounce....gold at 1400 no brainer. If you're interested in two actual stocks go with AEM and EGO....pulling it out of the ground for cheap and no future prices locked in.

If you're looking for gold, silver, palladium and platinum just read about a new ETF that looks very good called GLTR.

Again do your own homework....gold and silver while is needed in any and all portfolios....has skyrocketed lately so average in to any and all investments in this area and if you're familiar with options use deep in the money far out options instead to buy these.

If you do nothing else after reading this other than get interested....for goodness sake do something. It's your money and I promise you the price of silver and gold as I've stated for the past 10 years to anyone that would listen will be more expensive 2 years from now than it is now.

Do your own Diligence..

Happy Investing.

Marty Blackmon

And the drum keeps runnin, runin......

Thats the Oil drum I am talking about. What a run that the oil complex has had. Today we took out the May highs in crude of 87.15. I had to go to the weekly to get the next resistance level, as crude has cleared all resistance levels for the last 12 months. We are hitting 2 year highs today.

    3 year weekly chart for Crude

Now in the longer term time frame crude can continue higher and has not reached overbought conditions yet according to the RSI. But the daily is getting close. I do think we get a correction on the shorter timeframes before/if crude is to continue higher. Probably down to at least $84-$85 range.

But then again I am biased as my portfolio is posiitoned to profit from the downside. Yesterday and today I have been lifting most of my long hedges preparing for a sell off, in exchange I bought some cheap call condors just in case.

Below is what my current portfolio looks like, Delta wise.

I will continue to try to trade around the positions and will be looking for opportunities to add long exposure. Based on my current positions my average shorts are as follows:

Whats the total portfolio look like?

First let me start by saying that I added some more short exposure on today's up day. I just don't buy it. Although yesterday I was out trying to hedge some of my exposure, I just think I need to be positioned short. So I added the following positions:

1) Short 5 Jan CL 86 calls @ $3.09
2) Short 5 Dec HO 2.39 Calls @ 288 pts or $0.0288/gallon

And then I added to my delta neutral CL Dec/Jan spread. I added 20 more lots for a total of 25 lots at an average price of around +66.

So lets take a look at the total portfolio and what I have in terms of Delta exposure:

I created the above spreadsheet in order to keep track of my positions as well as my P&L. Today I added a section to keep track of my Delta exposure in terms of contracts of the underlying. As you can see from the table above the total portfolio is short the equivilent of 3.66 CL contracts, 3.7 HO contracts, and long 2.5 RBOB contracts. In the 3rd colunm you can see what a 1ct move in any product means to my in terms of P&L exposure, I am net bearishly slanted.

In the coming week I am planning to also add a column for my theta exposure as I like to be a net premium seller. The only other thing that I would point out is the table on the bottom right corner, which represents all of the open orders that I have either to close or add to current positions.

Adding to my Inventory

Today I am adding some hedges to my short positions:

1) Short 5 Dec HO 2.33 puts @ 920 pts
2) Short 5 Dec RB 2.20 Calls @ 300 pts

* 1 and 2 were done as a package. In a perfect world I would get assigned on both legs locking in a 730 diff, with the current diff at 1850. But I do not think this is the most likely case. It is most likely that one or the other will get assigned or they both expire worthless (which would be awesome as well, but diff would have to come in about 500 pts).

It really has to do with the current diff and where they usually finish historically. For example with the current 1850 diff this is right in line with historicals, so if I were to get assigned on the 2.20 RB calls that would give HO a minimum price of 2.3850, thus no assignment on the HO short puts. So on something like this if I get assigned on the 2.20 RB calls then my breakeven is at around 2.32 or if I get assigned on the 2.33 HO puts then my breakeven is around 2.20.

In addition to the above position I did add 1 short CL Dec put at the 80 strike for $1. If we get a sizable dip tomorrow before the fed announcment I will look to add maybe 2 more short puts in crude and maybe even sell a few RBOB puts somewhere in the middle of my 2.04/1.90 put spread that I own. Just looking to hedge my bets a little.