On 12/10/2007, I liquidated mom’s positions in Google GOOAD January $720 positions in anticipation of the FED announcement, for a nice profit of $3000. I also liquidated all of her positions in CROX, GME, CPLA, CDS, for a profit of $535 which brought mom’s account from $195,000 level to $198,000.
On 12/11/2007, I was growing especially wary of the market’s advance, especially because it was driven by the hope that the FED would cut 50 basis points off the FED FUNDS, which I thought was unrealistic. The market was running on hope and the fundamental macroeconomic conditions have not improved since the snap back rally happened. I reasoned that a 25 basis point cut would be disastrous for the market that has priced in a 50 basis point cut, and hence we got a total sell off today in the markets today, which essentially kills the current rally. I believe we have more downside to come and this next leg down will be more ferocious than the previous one.
I astutely bought mom TWM (Proshares Ultra short Russell 2000 short ETF) for 300 shares at average cost of $69.1399. I probably should have bought more, but I didn’t want to be a pig and I will allow this position to prove itself before I commit more money to this name.
I also bought BIDU January $370 put contracts for a total of 20 contracts at an average price of $20.80. I believe that BIDU is frothy at this level and will not be supported in the economic environment that US is heading into. At best, this stock is a $75 stock trading at the level of $380 level. Additionally, BIDU has a history of seasonal weakness from December through end of February and early March. I anticipate that we will at least test the lows of $298 level before the contract expires. I use options in this instance because the shorting endeavor is risky and the downside is defined in put options whereas if I shorted the common shares, my risk is infinite.
My current positions are:
TWM 300 $69.1399 $70.87 $21,261.00 +$1371.00 (6.89%)
BPJMN 20 $20.80 $25.00 +$5000 (11.11%)
cash: $136,431.06
My plan is to slowly add to the TWM if this break down in the market gains legs. Also, I may want to add an additional 10 contracts to BPJMN if BIDU makes a recovery attempt tomorrow.
We do have positive seasonality of Santa Rally this time of the year so I have to keep my eyes open. However, just like the Turkey rally, I think Santa is not coming to town this year.
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2 comments:
I agree. I am glad to see you turned bearish. The economy absolutely sucks. Sure we may bounce in the short term but over the next few months it looks pretty grim.
Hi, thank you for the post. I have been generally bearish but have changed positions to take advantage of the market direction. Like you, I see our economy as being in major trouble. We are headed for a depression type economy with tightening credit and no solutions in sight. The next few months are going to be painful if you are long.
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