Wednesday 30 January 2008

Selling FirstFed (FED)

Just sold around $8,000 worth of FirstFed Financial (FED) at $38.94.

I actually don't know much about this "bank", but any mortgage lender with a focus on California can't be doing well. It was in the high-60's early last year, so doesn't actually seem to have fallen all that much given the huge change in the market. I think we need to see a number of small lenders go bust, and I want to be in on some of them. I plan to short more if it starts to go down, and maybe use a stop-loss around my average short price to limit risk.

I also have my eye on Downey Financial (DSL), with a view to shorting it. It seems to be a regular over at Calculated Risk, as it's delinquent loans are going through the roof! This is from a post on Jan 16th...delinquent loans up from 1.5% in June to 7.8% in December! And I'm not sure, but maybe I see a trend...?

Gonna watch the stock for a little bit before pulling the trigger. I better be careful on getting too bearish...maybe I should find some longs...

Buying 10y Treasuries

Just paid 116.33 for the 10y Treasury future (March), in $25/cent, which is about
$250 per basis point.

The on-the-run 10 year is trading at 3.68% today. Whilst it has come in from 4.50% just 3 months ago, I think the picture has fundamentally changed from back then. The Fed has shown its willingness to bring rates down a long way, GDP growth is slowing FAST, just 0.6% in the 4th-quarter, and there is plenty scope for deflation talk to begin as profits start to fall, companies start reducing prices, and unemployment begins to drop. All we need to nail it is for commodities to start to come down. I guess that one is a playoff on global demand falling against faith in fiat currencies deteriorating. I've got to think that the demand side wins in the near term.

And when do you see the Fed next hiking rates? The economy is in the process of falling apart, and I can't see the end of the tunnel. Long the 10 year 20bps above Fed Funds with significant cuts still to come, looks good to me.

Increasing the S&P500 short

Sold another ~$26,000 or so of S&P March futures at 1357, doubling my short (I'd shorted at 1327 last week).

I'm so bearish.

Maybe I read Mish and Roubini too much.

Looking at shorting some homebuilders and REIT's also, I don't know much about the REIT sector, although stumbled across an unbelievably good blog,, which was discussing the sector (and GGP in particular) in a lot of detail. Very negative.

Tuesday 29 January 2008

Cutting out of Intercontinental Hotels for flat

Back on January 7th, I'd bought some London listed Intercontinental Hotels (IHG.L)

As you can see from the chart, at the time, my 772p entry level looked pretty good. However, within a few days the stock had dropped all the way to 612p!!! Now, to maximise P+L, I think it's important to get good entry levels on trades, so I've cut out for flat, and I'll wait for another huge equity puke to pick some up again. I still think global hotel chains can make good profits, they seem to be growing sensibly and still have plenty spots across the world to get into. For example, IHG are looking at franchising Holiday Inn in China. So...waiting for a better entry.

Monday 28 January 2008

Back into the Staples short

I'd successfully shorted Staples (SPLS) earlier this the 13 days since I covered that short, the stock is back up about 14%, so I'm getting involved again. I sold around $23,000 worth at 22.93. If I'd waited closer to the close, I coulda squeezed another 1.5%-2% out of it, as it closed at $23.33.

Anyway, not to worry. There is no way a business supplies retailer is going to do well this year. I'll just try and take 10% out of it as many times as possible.

Selling some S&P500

Selling ~$27,000 worth of March S&P 500 futures at 1327.

I just feel that the market has some significant downside yet. With the credit markets on their knees, lending siezing up, the housing market looking like it has years of falling still to do, the commercial real estate crash now getting more talk on the MSM, and the fact that equity indices are higher than they were a couple of years ago despite a MUCH worse environment, I think we need to see significantly lower prices.

I also think that in the bigger scheme of things, long-term we will see smaller corporation sizes and smaller profits. The internet revolution is still only a decade old, and barriers to entry in a number of industries, already down massively over the last decade, are continuing to fall as the web techniques develop. From retail, media, real estate, even banking, and many many more industries, it doesn't take much for competition to get started. So long-term this should bring down profit margins, and result in less long-term dominant companies, as innovators improve on existing products and services.

Of course, this could take years to play out. But I'm patient, and I'll add to my short on the way down.


Friday 25 January 2008

Selling the Dow 12900 call option

Just sold the balance of my Dow 12900 Feb call at 94, for a profit of $1,500.

Taking advantage of the euphoria of the last few days, whilst their is certainly potential for stocks to continue to creep higher, I don't think it would take much to get fear back into this market. [Note: the chart finishes at last night's close, the market looks set to open around 12465]


Covered my Sep '08 rate trade

Just paid 97.185 for $125/bp of Sep '08 Eurodollar, to close out my position.

I was in a world of pain just a few days ago when this was up around 97.90, and since the Fed has clearly shown it's hand on its willingness to slash rates as deep, far and fast as necessary, I don't think fundamentally I'm supposed to be short rates. So, I'll take the cut, for a total loss of $3,413 across all my trades on this contract. Better than the $12,000 or so I was down on Tuesday at least...

Oh, and SURELY the Fed doesn't cut next week? They'd be crazy to, but then they seem a little irrational...


Scratched out of AUD/JPY for flat

Sold my Jun '08 long on AUD/JPY at 92.49, for basically flat P+L. I figure I was down about 3.5 points just the other day, the best part of $10,000, so f*ck it I'll unwind the trade following the monster rally of the last 2 days and look to pick it up lower. Might never happen, but I'm willing to be patient. I don't think we've seen a bottom in equities by a long-shot, so the great unwind and the Yen rally could easily reappear, not that I really agree with the rationale for Yen strength, why would you want to invest in an economy that has had stagnant growth and equity prices for nearly two decades???


Thursday 24 January 2008

Taking off part of my Eurodollar short

Just paid 97.34 for $25/bp of my Sep '08 Eurodollar. Thought process is that 1) it's booking $500 from my 97.54 sale of the other day, and 2) I'm thinking of taking the whole trade off and just writing off the $5,200 or so loss. The Fed cut rates 75bps and showed its hand, it will CLEARLY be willing to slash rates further when (not if) the economy slows further, bad debts increase, the housing market gets worse, share prices fall and banks lose even more money than they already have.

You can see from the market move over the last couple of weeks that I jumped in too early...ce la vie. Big change in market sentiment in just over a month, moving 165bps or so, was just too tempting to try bottom fishing (longer-term chart here).


Going to try some vol trading...

Earlier today, I paid 911 for a Dow March 12100 straddle, in $20/point (just over $18,000 premium). My plan here is to do some crude delta hedging, selling $2/point of Dow March futures every 100 points up. At the time I bought the straddle, I sold $2/point of the Dow (about $25,000 worth) at 12270, and set limits to open positions every 100 points away from the strike. So at 12300, I sold another $2/point, at 12400 I'll sell ANOTHER $2/point, etc etc, until if it hits 13100 I'll sell my final delta and I'll be flat on the way up. If the market blew out of the 1000 point range either side of 12100 I'm trying to trade, I'll lose about $9,000. However, I'm hoping I can catch some swings, so in this example, every 100 points it drops, I'll cover that sale. So my first and second sales will be bought back at 12200 and 12100 respectively, then on the way down, I have buy limits set every 100 points down for 1000 points. We'll see how it goes.

Hope that's clear. I'm not going to add it to the spreadsheet at the moment, as I'll be forever updating it as limits get hit. I'll have to think of the best way to do this.

Here's hoping it just keeps flying around for a couple of months between 11000 and 13000...


Sold my Starwood Hotels long

Sold my Starwood (HOT) stock earlier today at $43.51.

Whilst I still think that some of the global hotel groups can still perform over time, the last few weeks has certainly been a warning shot towards stocks exposed to debt and to the consumer. My Intercontinental Hotels long (UK stock) has performed like a pig since I bought it, down almost 20% or so since I bought it on the 7th of January, but is now almost all of the way back. So my plan is to let Starwood and Intercontinental fly, and maybe pick them up on the days when the market is looking ugly. Another couple of percent on Intercontinental and its gone.

My P+L on the Starwood was $979, as I had some financing costs on it. Although I haven't mentioned it yet, I do have to finance all my longs and shorts, so the P+L isn't just reflective of the spot rates they are trading at when I buy/sell. Just looking at where the stock was trading when I bought sold, it looks like I made $1,220, but because most stocks have dividend yields below the risk-free rate, it's actually negative carry to own stock. For short-term trades, it's not overly noticeable, but longer term it matters. I'll adjust the spot rate of the closed trade to reflect the EXACT P+L that I made.


Wednesday 23 January 2008

Portfolio thoughts:

Some of my thinking on the portfolio so far:
  • The interest rate trade has been disgusting. I'm not sure if I can take anything away from it, other than maybe I should only trade in the direction I fundamentally believe in. Since I believe that the unwinding of leveraged credit will be deflationary, I need to position for lower rates. Trading the other way just because the price makes it look like a good trade will do me no good, as I can't just sit it out easily, confident in my position.
  • Taking profits at the right time, and having patience to wait for good entry points, is key. Just look at some of my shorts that I covered, Carmax is up 14% since I covered it just over a week ago, and 21% from the lows, Staples is up 15% since I covered my short last Tuesday, etc etc.
  • Having said that, I definitely took off my FTSE and DAX Options short, the DAX one alone I booked about $8,000 in profit, but that trade would be up $60,000 if I'm kept it on! So being patient until a trade is at least close to the levels I think it can reach is important.
  • Sizing my trades; I don't want any particular trade to overly dominate the portfolio, especially if it goes badly, so making sure I am not too big in some trades as well as being large enough in other trades where I believe in the position. I think I've been OK with this so far, although spending the $6,400 on the Dow Call premium was too much given the short term nature of the trade and the P+L so far.
So, although I feel I could have done better so far this week, the P+L is doing OK. I like pretty much all the trades I have on, and am not in a hurry to close out any of these at the moment. I think the next trades I'll be looking at will be once again shorting Staples, Carmax, US Steel, etc. I could really do with finding some longs to put against it, as the single-name equity bit of my book is short about $100,000 notional.

Also I think there is more to do in FX. The Fed has shown its hand, being willing to slash rates as much and as low as necessary. The ECB and BoE look unwilling to bail out the markets to the same extent. Initially this should help the Euro and the Pound, but at some point the markets will focus on relative growth rates, and if the Fed is doing enough to cushion sme of the blow of this credit deleveraging debacle, then maybe the dollar comes into favour. So I still plan to sell strength on the Euro and Pound. I also still have an eye on selling Hungary (HUF) and maybe Czech Krona (CZK), any economy running a large deficit is bound to see its currency get crushed this year.

Finally, commodities seems to be in a playoff between a slowing global economy reducing demand and hence the price, and a lack of faith in fiat currencies driving money into hard assets, taking commodities higher. I think ultimately the demand side wins, taking prices lower, so I plan to be mostly short. Reading any blogs about Peak Oil definitely makes me nervous on my oil short, but I think that long-term trend will still be beaten by demand. Hell, we might even see a supply increase from the oil producers if the price drops enough, so that they can maintain their income...that could really bring an accelation lower.


Cutting my Dow Call Option in Half

I guess it really is all about timing. I paid 64 for a 12900 Dow Feb Call the other day, only to see the markets puke. I'd paid $6,400 in premium, and was a little concerned I'd gone too large. Following a pretty big rally today, my options is back up to where I bought it, so I'm cutting the position in half for flat, selling $50/point at 64.

I'll consider this a get-out, even if I do lose my premium here. Just this morning, the bid side of my option was 4....maybe more patience is needed for entering and exiting positions...


Tuesday 22 January 2008

Couple of trades from earlier

Sold the S&P futures that I'd bought overnight for a bounce, selling at 1310 (equivalent to 1305.5 on the S&P500). Profit $820.

And covering my Coca-Cola (KO) short...paying $59.12, for a profit of $800.

I'd have liked to cover more of my shorts, but they just didn't seem to go down enough, especially after the 75bps rate cut. I'm almost tempted to increase my shorts on a few things (BBY, GS) and add shorts in SPLS and X. But if the markets go on a little rally, I expect it to lift all stocks, so I'm going to mostly leave my single name equity portfolio unchanged.


Selling more Vodafone, also doing some FX

Trading looks like it'll be active today, so I'll be keeping everything brief.

Added to my Vodafone short, selling another ~$7,000 worth or so.

Also, with the pound trading around 1.95, I just shorted some (£500/big figure) and sold a Feb 8th Straddle for just over 4 points. Don't mind being short the pound around 2.00, and don't mind taking 4 points profit out the trade if it goes down.


Barclays sold...6.3% in less than an hour

Big rally on the FTSE, close to unchanged having been down 4-5% at one point.

Selling my Barclays out for a near $1,000 profit. 425.4p, 6.3% in under an hour. Annualize THAT!


Closing my eyes and buying some Barclays

Just paid 400p for £8,000 worth of Barclays. They say you get paid to take risk on the days no-one else wants it. Well, UK banks are on sale for basically the lowest price in 7 years. Fuck it, lets give it a go. While the UK may be fucked, it's still going to be a long drawn out process before it finally hits recession.


Selling more it

Doubling up my crude short, selling the March NYMEX contract at $86.49 in a bit over $40,000. A few reasons:

1) Oil was the biggest bubble commodity last year, rising even more than gold. It's payback time.
2) Despite everyone saying that it costs $40/$50/$60[insert number here] a barrel to produce, I reckon the Saudi's are still pulling it out the ground for less than 10 bucks a barrel. No evidence at all to back this up, just a hunch.
3) Loved this FT article the other day talking about Israel converting the whole country to electric cars, and requiring ZERO oil within 10 years!!
4) Just saw this BBC article pop up on my computer...'Huge' oil field found off Brazil.

So there's my reasons. I'm short about $95,000 worth now just below $87, I think we should be looking for $70 a barrel to start with.


Selling more Sep '08 Eurodollar

Well, one of my nightmare positions, being short Sep '08 Eurodollars, is really going crazy this morning...I'm selling another $25/bp at 97.54.

Whilst I definitely see the risk of full blown crisis, and a slashing of Fed rates, I don't think it will be in a straight line, so the market pricing the Fed at 2.25%-2.50% by September seems punchy to me. Since mid-December alone, it's priced in an extra 130bps of easing. Hell, even if it went to ZERO, I'd only be down about $50,000. Bad, but not a total killer by itself.


Monday 21 January 2008

Buying a little S&P 500 for the bounce

Well, tomorrow should be interesting. Falls in Europe today of 5-7.5%, and futures way down in the US. From reading through the comments on a few other blogs, it seems like I wasn't the only bear who had taken his shorts off last week.

So I'm expecting the bears to reset shorts tomorrow, the BIG bears who had kept their shorts on to cover, and the longs to panic and dump stuff all over the place. That should set the technicals up for a squeeze higher, although the fundamentals certainly argue for further falls.

Well....that's my thesis, so I'm buying a little bit of S&P500, paying 1269 for the March future (equivalent to 1264.5 in the S&P500 itself), in about $25,000 worth. Keeping it small, I'll see how the day plays out. I think I'll probably look to cover some shorts if it gets hit really badly, and maybe I'll re-short Staples if it's down under 5%.

Stay calm folks, panic never pays.

If you can keep your head when all about you
Are losing theirs and blaming it on you;
If you can trust yourself when all men doubt you,
But make allowance for their doubting too;
If you can wait and not be tired by waiting,
Or, being lied about, don't deal in lies,
Or, being hated, don't give way to hating,
And yet don't look too good, nor talk too wise;

If you can dream - and not make dreams your master;
If you can think - and not make thoughts your aim;
If you can meet with triumph and disaster
And treat those two imposters just the same;
If you can bear to hear the truth you've spoken
Twisted by knaves to make a trap for fools,
Or watch the things you gave your life to broken,
And stoop and build 'em up with wornout tools;

If you can make one heap of all your winnings
And risk it on one turn of pitch-and-toss,
And lose, and start again at your beginnings
And never breath a word about your loss;
If you can force your heart and nerve and sinew
To serve your turn long after they are gone,
And so hold on when there is nothing in you
Except the Will which says to them: "Hold on";

If you can talk with crowds and keep your virtue,
Or walk with kings - nor lose the common touch;
If neither foes nor loving friends can hurt you;
If all men count with you, but none too much;
If you can fill the unforgiving minute
With sixty seconds' worth of distance run -
Yours is the Earth and everything that's in it,
And - which is more - you'll be a Man my son!
- IF by Rudyard Kipling


Covering Copper short, and setting an Oil short

Covering my Copper short for a $1,135 profit...I'd shorted the March contract at $321.75 on Friday, and am buying it back today at $310.40. Part of the reason is that I'm surprised how well it has held up despite the weakness in today's markets. Maybe something is up.

Setting up a new short in Crude Oil, selling the March NYMEX contract at $88.21. I'm pretty bearish on Oil and don't want to miss it, with a slowing global economy, demand WILL go down, as will speculation in commodities, and so down goes Oil. Sold just under $45,000 worth.

What a day in the markets...not exactly sure how to play this one, am going to do not a lot until I see how the US reacts tomorrow.


Friday 18 January 2008

Buying some OTM Feb DOW Calls

Just paid 64 for a Feb DOW 12900 Call. Expiry Feb 15th. In $100/point, so $6400 premium.

Markets are obviously volatile, and I figure I can double my money on a 300 point rally, whilst limiting my exposure to just 64 points. Looks OK to me.


Looking deeper into commodities...Selling Copper

Just sold some Mar '08 Copper at $321.75, in just over $30,000.

I'm quite surprised how well copper has done lately, given all the recession talk. I guess it's partly to do with the fall of fiat money and the move into hard assets that has been going on ever since the Fed starting cutting rates. Fundamentally, any slowdown is going to affect demand for this industrial metal, so I expect some decent price falls from here. I'll try and add to the position as and when the price falls.

Also, if you've got any nickels in your pocket, you might wanna think about joining me in this trade. Nickel is 75% Copper and 25% nickel, and if you price up the fundamental value in a coin, it's about 6.8 cents at the moment!

The next thing in commodities that I'm having a close look at is meat prices...I see contracts for Feeder Cattle and Live Cattle, and Lean Hogs and Pork Bellies. Now, in all honesty I know jack-sh*t about any of this, but it was put to me somewhere that meat prices could be in a lull as farmers cull their cattle instead of rearing them, due to high grain/feed costs, and once that increased supply is out of the way, there will actually be much LESS supply in the future, so prices could really soar.

Looks like a good entry. The other contracts I mentioned look similar. I'll keep an eye on it for now, although am very close to pulling the trigger.

If anyone has any knowledge about this stuff, please let me know!


Thursday 17 January 2008

Covering US Steel short, 6.1% in 1 week.

Taking my profit again on US Steel (X), it's down 6.1% since I shorted it a week ago. Just paid $101.25, profit $662, having shorted it at $107.87.

Still think it's going down, but I'll keep chipping in some profits when I can. My big mistake was not selling more when it rallied after my original short, as per what I said my plan was. Shame to have left money on the table, but maybe I'll get another chance since Goldman are still bullish on the sector...for some reason.


Cutting out of CFC for flat


Just sold my CFC at $5.65. P+L $20. Yes $20.

I can't believe I bought into this in the 2 days before a takeover was announced and I've still managed to make no money. If only I'd been around last Thursday afternoon...I didn't see the news until after the close. Up 51% and $4,000, yeah I'd have taken that! F*ck f*ck f*ck.

Sucks. But I'm not going to lose money on this one.

Whilst there are definitely risks in the merger going through, I still think it's more likely than not that it does, no matter how bad housing, and Countrywide, looks like by the 3rd quarter. Anyway, I'm sick of seeing this stock now, so out it goes.


Selling another consumer "staple"

Reading this Mish article gave me another stock which looks to be doing far too well, given that it is a food producer getting double-f*cked by higher input prices and lower consumer spending and lower pricing power (I think).

General Mills (GIS) "products include ready-to-eat cereals, refrigerated yogurt, microwave popcorn, frozen pizza and pizza snacks, ice cream and frozen desserts, frozen baked goods, ready-to-serve soup, dessert and baking mix, and refrigerated cookies. The company also offers grain, fruit, and savory snacks; dry dinners, and shelf stable and frozen vegetable products; refrigerated and frozen dough products; and organic products, including soups, granola bars, and cereals."

Yum. Well, how do you reckon that business is doing just now? Paying more for the basic foodstuffs that they use to make it? Yep. Maybe falling sales if we are in a slowdown? Yep. Going to get worse? Undoubtably.

Looks like a good time to get in. Sure, it's not the top, but it's not a whole lot off it. I don't see any reason why it should get back up there either.

Selling almost $55k at $54.64. This is now my biggest single equity position.


No shares to short of CMG...shame.

Following an excellent post and active comments section from Mish about the restaurant sector, I just tried to short some Chipotle Mexican Grill, but my broker doesn't have any shares to short, damn. This looks like a great one to short TODAY, especially since the shares haven't reacted despite the CFO saying business trends since mid-September have been weak (I'm paraphrasing), and commodity prices are "challenging".

What a no-brainer short. Oh yeah, and the P/E is 62 and the forward P/E is 43. Betcha earnings estimates are brought down this year as well.

Anyone have any other restaurant shorts to look at?


Selling GBP/USD, and selling a Straddle

Cable (GBP/USD) today is up around 1.5 points, trading at 1.9770 just now. I just sold some Jun '08 at 1.9643, in just under $1,000 per big figure.

At the same time, I just sold a 1.98 Put and Call, expiring Feb 1st, for 1.674 points and 1.245 points respectively, so a total of 2.919 points.

If the pound falls, as I expect it to do over the medium-term, I book a nearly 3 points profit. If the pound rises, I'm comfortable selling more of it...note that on the straddle I lose money above about 2.0050.

Newsflow out of the US is horrible just now, maybe if it quietens down for a while we can get back to focusing on the impending UK crash.


Stopped out of my S&P500 Punt

Well, I got stopped out on my S&P 500 punt. Down $1,000. My stop was at 1372.5 and you can see it got taken out overnight (I was in the March future).

Oh well. Was maybe a stupid idea.


Wednesday 16 January 2008

Taking a punt...going long some S&P 500

Just paid 1382.5 for equivalent of $100/point of S&P, and put a stop-loss on it at 1372.5...that's a notional amount of long $138,250 fyi.

Market seems oversold, Asian markets back up, and JPMorgan CEO is gonna be on the front-page of the journal tomorrow morning as the WSJ speculates the Dimon may be on the hunt for acquisitions - "In terms of buying assets or buying companies, we are very open-minded," Mr. Dimon said in a conference call with analysts.

We'll see. It's just a punt.


Booking profits on Oil, XOM, EUR, Shorting GS, BBY, adding to Eurodollar short

Wow. I go to the gym for an hour, and when I come back the Euro has plummeted 2 points, Oil is down and back up a bit, I hear inflation is at the highest rate in 17 years, and while I am reading that, I've got Bloomberg TV in the background telling me that inflation is the lowest in ages!! Who the hell knows what to make of it.

Well...I know what I'm doing. I just bought back my EUR 1.47 Feb 1st Calls that I'd sold a couple of days ago at 2.435 points, for 1.012 points...that's a profit of $1,423. Sweet. I missed the lows unfortunately, but still can't complain with that result after 2 days. Spot was around 1.4660, it's traded in a 2.6 point range today alone!

EUR/USD 5 Day Chart

I also just covered some Exxon (XOM) that I'd shorted on Jan 7th at $91.57, I just bought it back at $86.56, that's 5.4% lower, and a $1,002 profit (yes I was tick-watching to make sure it got into 4 figures!!). As oil prices fell, so did Exxon, plus I think the market is starting to realise that refining margins aren't actually that great. Plus inventory numbers today were higher than expected, causing both oil and oil companies to fall. This inventory stuff seems a little random to me, so I'll take advantage of it.

5 Day Exxon Chart

In line with the Exxon rationale, I just couldn't resist taking my profits on my oil short either...I bought back my Crude short (Feb '08 NYMEX contract) at $90.10, for a profit of $988. I had been even more in the money than that, but I missed the lows of today unfortunately.

Now, that was my profit-taking, I've also added to my horrible Sep '08 Eurodollar position, selling $25/bp at 97.10, figure I might as well average in a bit, especially since I could see an equity bounce, and also rate cuts getting priced out a little bit if/when we see some stability. One of my annoyances with this trade is that I'm purely doing this on a value basis...I fundamentally believe that deflation is coming, so selling Eurodollars just doesn't tie in with that thesis...but hey, we're here to trade, so I better just do that.

I've also put on two more shorts:

Goldman Sachs (GS)...just sold about $20,000 worth at 198.83, I just don't think they will be able to extend the earnings of previous years when M&A is going to decline massively, and ABS (Asset-Backed Securities) issuance is as good as over. Also their financing costs are going to be MUCH bigger than in the past. I think they've had a good run in the markets, but the glory days are gone for a few years now I reckon. Just check out the 2 year at $150 or so in the middle of 2006...conditions today are much worse than then, so maybe it should really be trading more like $125 are or so. We'll see.

And finally...I shorted some Best Buy (BBY). Yes, it may be the best electronics retailer in the US, but it's going to get hit as hard as anyone when consumer spending all but dries up. Over the last 2 years, it's basically traded around $50, with a few forays up to the high-$50s and down to the low-$40s. Well, I just shorted it at $45.10, and love the entry level. I shorted just over $20,000 worth.

2y Chart of Best Buy

Well, that's it for now! Relatively pleased with how everything is going, P+L up to $32,000 or so, with about $22,000 of that this month. Here's hoping the market keeps handing out cash!


Taking a punt by covering my DAX puts

Last Wednesday, I sold a 7500 March call on the DAX and bought a 7000 March put in about 7 times the size, for about zero premium.

Falling a half-decent fall over the last week, I'm covering this position. Whilst I still see significant downside for the German stock market, I want to try and maximise profits by actively trading it around. Plus basically, I'm pretty greedy and find it hard to not book profits!

On the put - I'd paid 76.3 in equivalent of about $135/point, I'm selling it today for 108.7 for a profit of just under $4,400.

On the call - I'd sold at 517.6 in just under $20/point, today I'm buying that back at 305.2, for a profit of about $4,150.

Whilst there is a lot of fear out there, I want to remain level-headed and continue to buy the dips, and set shorts on strength. Nothing goes down in a straight-line, so hopefully this strategy will pay off. Will continue to use these leveraged option trades, where I have a large potential payoff whilst having smaller exposure if it goes against me.


Slightly Increasing AUD/JPY Long

Yikes looks like I was a little early in the AUD/JPY purchase yesterday...Yen continues to be on a tear, and this has dropped another 2 big figures from yesterday, taking it's drop to about 5 points in a week. Looks a little too far too fast for me, especially since Japan looks like it is heading right into a recession, which Japan Economy Watch details nicely.

Just paid 90.90 for the Jun '08 contract, that's with spot trading 93.18.

Looking on the long-term chart, if you think that trend of a rising Aussie is still intact (and with a slowing Japan and still high Aussie rates, I don't see why it shouldn't be), then the entry point today looks good...but then I thought that yesterday also...

[Admin note: just a reminder, I haven't figured out how to get forwards into the spreadsheet, so I'll just put in the spot rate and adjust when I close the trade, to keep P+L exactly right]


Adding again to Oil short, and reducing the stop

I'm adding to my Oil short from yesterday...I'd originally sold at $92.95, then $91.61, now I am selling again at $90.68. Putting the stop-loss at $92.41, which would be a ~$400 loss if it bounced back up there.

Feb '08 NYMEX contract

Looks like we are into a trend there, if we can just break through $90 then maybe a few more folk give up on the bull side of this trade. Keeping my risk small by just incrementally adding to the position as it goes my way, but this will hopefully still give me a large payoff if I can ride this trend down.


Tuesday 15 January 2008

It's a nice day to take off some shorts

Buying back a couple of shorts I put on last Tuesday.

Carmax (KMX) I'd sold at $19.02, I just bought it back at $17.25, that's a 9.3% drop in 1 week. Profit $885.

Staples (SPLS) I'd sold at $21.86, I just bought it back at $20.16, that's a 7.8% drop in 1 week. Profit $1,700.

Whilst I'm still negative on both of these stocks (a second-hand car dealer and a business supplies seller are NOT going to perform in a downturn), I might as well take profits when I can. If these things rally back 10% or so I'll look to re-enter.


This is a gift...selling more Hormel Foods

A month ago I shorted a little bit of Hormel Foods (HRL). Well, I just shorted another $12,000 or so of it at $39.50, and I could barely stop myself from shorting more. Think about it, a food/meat producer in an environment where input prices (grains/meats/other commodities) are going through the roof, where the consumer is tapped out, and we're heading into a recession. How can that stock be trading at all-time highs??? Just makes no sense...I think what's happening is that moron fund managers are piling into consumer staples because "that's what you do" when the economy is going down. Now, this sector probably will outperform in a recession, but perform outright? Nope. It's going down.

I'm going to have a good think about making this into my biggest short. One thing to worry about though...just be aware they are starting a new Spam campaign!


Buying AUD/JPY again

I bought and sold AUD/JPY last week, between 96.61 and 97.71. Today, the Yen is on FIRE against a number of currencies, and AUD/JPY is down over 2 points to 95.20. I just bought some Jun '08 at 92.81, in an amount that equates to about $2000 per big figure.

As I've said before, Japanese rates are 0.5% and either staying unchanged or going down as the Japanese economy slides back into recession, and Aussie rates are 6.75% and going up apparently. Until the commodity boom cracks, the carry here is worth clipping, and if I can combine that with some active trading, buying dips and taking my profits when they come, I think there is a fortune to be made in this cross.

Away from FX, I'm rueing some big missed opportunities yesterday. Of course, I should have let the FTSE option trade run, but I also had the chance to short some more United States Steel at a great level but didn't (down ~5% today), but didn't despite saying in a previous post how I would sell into any rallies. The strength yesterday just put me off, I guess I'm always a little suspicious that someone out there knows something I don't. Also didn't short Goldman despite it being over 200, which was a level I'd targeted, and also just irritated by Countrywide that just keeps falling!! If it hits the level where my P+L is flat, I'll just dump out of it I guess.

Hindsight makes it look so easy...


Adding to Oil short as it falls

Oil continues to fall today. I sold some earlier at 92.95, I've just sold some more down at 91.61 in the same size, and I'm putting a stop-loss on at 92.78, so the most I can lose is $200.

I plan to add to this at it falls, I'd love to make this a large winner from initial low risk. With stocks continuing to fall on fears the economy is going to fall into a recession, and Bush pleading with the Saudis to pump more oil, which the Saudis seem willing to do, we could easily see $20 wiped off the price.


Dipping my toes into the Oil short again

Having caught the Oil move a short while back from 99 to 97, I don't want to miss any larger legs down, so am selling just under $20,000 worth at $92.95 of the Feb '08 contract. Just a small position, if it starts to go my way, I'll add to it and use stop-losses to contain my exposure.

Feb '08 NYMEX Crude Oil Contract, last 10 days or so

I think if you look at what can "save" the US, one of those things is falling oil prices. Today you have Bush talking to the Saudis about increasing production, although I'm sure those guys are already cranking at full with prices where they are. Keep on pumping guys, 'cos you are soon gonna be putting out way more supply than there is demand for the product.


Monday 14 January 2008

Taking off the FTSE Option trade

Back on December 21st, with the FTSE trading at 6424, I sold a 6200 Call and bought a 6200 Put, and for zero-cost was able to buy 6 times the size on the Put versus the Call. The FTSE just now is trading ~6230.

I'd sold the Call for 303.7 points, I just bought it back for 87.6 points. Profit $2,115.
I'd bought the Put for 52.7 and just sold it for 47.1, for a loss of $329.

Overall on the trade, I made $1,786.

3 Month FTSE Chart

I'm pretty gutted with this one, as on Friday when the FTSE was well under 6200 it was showing a profit of closer to $6,000...I had an itchy trigger-finger but just never pulled it...too greedy, in hindsight. Now with expiry on Friday coming up, I'm not sure I could stand the time decay of the Put, plus with the markets having taken such a hit in the last couple of weeks, perhaps we see a little short-term stability. So I'll take my meagre profit and move on.


Selling another EUR/USD Call

The Euro has rallied pretty hard in the last few days, and following my losing option trade which expired on Friday, I'm going to give call selling another go. Luckily for me I didn't dive straight in on Friday as the market is up about a point since then, trading ~1.4890 just now.

Selling a 1.47 Call expiring Feb 1st for 2.435 points, for $2435 premium. My hope is we see bearishness on the US fade a little over the next couple of weeks, which should help the dollar out a little bit. Europe has many problems, and to me this doesn't seem to reflected in the FX markets, where everyone seems to love the Euro. Who knows why.

3 Month Chart of EUR/USD


Sunday 13 January 2008

Summary of last week

Sold GBP/AUD on Sunday night, and covered it on Wednesday for a 3 point profit, or nearly $3,000. Looks like I was early though, as it moved down a further 3 points. Looks like I may have been right when I said a breakout to the downside was possible.

However, at least I am partly ok with missing the extra part of that move, as on Wednesday I bought some AUD/JPY which I then sold on Friday for a 1 point gain of almost $2,000.

Finally in FX, my EUR/USD options expired for a loss of $680.

In commodities, I tried to increase an oil short that was working for me, but got stopped out for a gain of $1,200.

In indices, I added a short on the DAX (German stock market) through selling a call and buying a more OTM put...I was frustrated as US stocks fell, but I wasn't particularly short, so got involved in the DAX since it seems to be holding up way too well, and I think Europe will eventually start feeling more of the effects of the credit crunch. This trade has marginally moved my way.

Within interest rates, I did a pretty horrible trade, selling some Sep '08 Eurodollar on Thursday, just before Bennie B threatened to slash interest rates. Great...down 24bps, or $2,400.

Individual stocks was where the action really was...some additions to the portfolio were from the UK, where I shorted some Vodafone and bought some Intercontinental Hotels, to compliment my Starwood position. In the US, I sold some United States steel and then covered it just 30 minutes later over 5% lower! An easy $2,000 there. I then re-entered the short on that name on Friday...think this will turn out to be a great trade, steel companies will get hammered in a recession. I also sold some Exxon, which has done nothing yet.

The real action though came with a bunch of trades I put on on Tuesday, while the markets were getting hammered. I bought CFC and MBIA because they were getting smacked down 15% or so, so was playing for a bounce. I also bought some more CFC on Wednesday when it was REALLY cratering. I got my payback when the BoA rumours and then confirmation of the takeover came through. Unfortunately, I wasn't watching the market on Thursday afternoon, so missed the 51% rise and chance to sell that day! CFC fell on Friday, and I still own it, at a profit of about $1,000. Still thinking about this one. MBIA I sold on Friday about a buck higher than I bought it for a profit of just over $1,000...stock had taken off when MBIA cleared a bond deal which gave them enough capital to (probably) keep their AAA rating. RIMM, which I sold on Tuesday, I managed to buy back a crazy 10% lower on Wednesday, which I was obviously delighted with. Finally, Staples and Carmax were both lower, meaning that I'd made money from all 5 of the companies I got involved with on Tuesday. Nice.

Here's hoping this week plays out just as well. I'm hoping my FTSE Put/Call structure really pays off, it's now in-the-money on the 6200 Puts. Expiry is Friday, although if it shows some decent profits and the markets look oversold I may take them off. Also looking at shorting Hungarian currency and the Spanish stock market, and perhaps even Goldman Sachs if it ventures much above $200. The glory days are over for the foreseeable future, but equity investors don't seem to have priced that out of the stock...yet.


EUR/USD expiry from Friday

Back on January 2nd, I sold a 1.46 call on EUR/USD expiring on Friday (10am NY time). The call expired at 1.85 points (ie EUR/USD was at 1.4785), so I'm down $680 on that, since I'd sold it at 1.51 points in $20/point equivalent.

Bit frustrating, as shortly after the ECB left rates unchanged on Thursday, EUR/USD drifted down close to 1.4650, making my option trade look pretty good. Not to be I guess.

I'll probably sell another call when the markets are open tomorrow. I certainly plan to be generally Euro-bearish this year anyway.


Friday 11 January 2008

Back into the United States Steel short

Back on Monday, when I was looking for a good stock to short into a recession, I sold some United States Steel (X), and within 30 minutes or so I was able to buy it back 5.2% lower, a bit of a crazy trade! Now, the stock is back up thanks to an upgrade yesterday by some analyst. Unfortunately, my Yahoo Finance alert which I'd set to trigger if the stock went above $108.50 only JUST NOW sent me the message, despite the fact the stock went above 110 yesterday. Very annoyed at this, so I'm going to go into a small short only. Just sold ~$11,000 at $107.06.

If it goes up, I'll just sell more, if it goes down, I'll sell more and just stick a stop-loss at the average price. Figure I can't really lose either way.

My rational still stands from Monday for this a recession, steel stocks will get CRUSHED.


Taking profit on the MBIA long

I'd bought some MBIA (MBI) way back on Tuesday, I'm trading it today just over a buck higher than I paid, selling it out of the portfolio at $16.17, for a profit of $1010 (I'd paid $15.16 on Tuesday).

If only I'd waited an extra day to buy it I could have made WAY more than the 6.6% I ended up with (which I suppose I can't complain about in 3 days), as the stock was getting smashed down on Wednesday. Ah well, can't have it all.

Not entirely sure what's driving the stock up 10% today, but I'll take it, I was mildly worried on Wednesday both with the price action and the very bearish commentary that was around on the company and the sector.

Away from MBIA, I'm still mulling over what to do with Countrywide...I guess there is now a floor under the stock (at least for a while), and some potential of upside if anyone else is stupid enough to come and buy them, or if shareholders gripe about the price enough to make BoA raise it's price.

Finally, some new trades I am considering are:

Firstly, shorting the Spanish stock market (IBEX35), as Spain is clearly going to crumble in this credit can read some very bearish stuff here.

Secondly, I'm probably going to sell some Hungary FX, just not sure what to do it against yet. I've read in the past that Eastern Europe is running large deficits, and surely that will be punished in the midst of a credit crunch and a global slowdown...see here for recession talk in Hungary. I don't particularly like the Euro or the Dollar here, so I may go long either Swiss Franc or maybe even Aussie Dollar against it. As always, will keep you posted.


CFC...what to do...

Following yesterday's 51% rise in Countrywide (CFC), I'm a little unsure how to play this. I'll probably sell near the open, pocketing over $4000 if it opens unchanged. I'm sure the stock can move up further from here if BoA comes in with a firm bid, but I still hate the company so am probably gonna cut out.

One thing I don't get though is how Bank of America think it can buy CFC for just $4bn, or $7 a share (which is what the New York Times is reporting today)...why do they think shareholders will agree to that? Check out the 2 year chart, would you agree to a sale at $7 when you know the buyer wanted to buy above $40 just a year ago, and bought an option through a preferred stock issue at $18 just a few months ago? I think I'd squeeze them way higher. Of course, the idiots in the MSM are saying sh*t like "welcome relief for shareholders to get BoA stock in exchange for CFC stock" but that is just rubbish if you ask me, like these shareholders can't just sell their shares on the open market???

I hear it's trading down $7.40 or so in Europe. I'll be having a good look at the open price and the newsflow, but like I say, I'll probably just let it fly.


Out of AUD/JPY for now

I'd left an overnight order on my AUD/JPY forward 1 point above where I'd bought it (hey, i can't resist taking profits), so I'm out of the Jun '08 forward at 95.11, for a profit of nearly $2000. Sweet.

5 Day Chart of AUDJPY

The portfolio had a HUGE day yesterday, as Countrywide takeover mumble with Bank of America surfaced, pretty much exactly as I thought. Nothing like having $10,000 of a stock that jumps over 50% in one day lol! I hadn't been watching the markets yesterday afternoon, or I probably would have taken profits on it...we'll see how it opens.

Also the FTSE put options kicked in some P+L, my EUR/USD call option was which expires today was looking good after the ECB left rates unchanged, but is now against me. Was looking good for a while there.


Thursday 10 January 2008

Selling some Sep '08 Eurodollar

One market I haven't looked at for several months is the Eurodollar market (that is, where 3month Libor resets will be). Check out this chart for the Sep '08 contract:

Sep '08 Eurodollar

You can see that even back in the midst of the crunch in August, the market was only pricing about 4.50% on 3month LIBOR by Sep '08, perhaps believing the crunch would be short-lived. 4.50% would indicate the market thought the FED would be at 4.50% and in cutting mode, or 4.25% and basically done cutting. Or something along those lines.

Today, the market is pricing in 3mLIBOR for Sep '08 at about 3.18%, so for the Fed to be at about 3% by then. Doesn't seem unreasonable, but I think there is some risk the market has got ahead of itself, and if the Fed disappoints at the next meeting and only does 25, and markets can get some sort of a recovery going, I think we could see this react lower by 25-50bps or so. So I just sold $100/basis point (bp) at 96.815.

For those not familiar with these interest rate markets, all I can say is that they are awesome for trading, as the go through such huge swings in sentiment, sometimes very irrationally if you ask me.


Selling Vodafone...£100bn market cap???

Sold some Vodafone at 187.5 in about £7500. This company (of which I am a former customer) has a market cap of £100bn. This seems way too high for what is now a mature technology, and whilst it is certainly a cash cow, and no wonder given the crazy charges for using your phone abroad, competition should remain fairly tight within the mobile teclo sector. Also, there are new technologies coming through all the time that threaten to harm its business model, such as using Skype with cellphones or WiMax, which I personally believe could be very disruptive when it finally goes mainstream.

5y Chart of Vodafone

At multi-year highs, the entry point looks very attractive.


Wednesday 9 January 2008

Buying AUD/JPY

As mentioned over the last few days, the Aussie Dollar looks like a good place to have money. Interest rates at 6.75% and I hear they are going up, and whilst the commodity boom rolls on, it will do well.

The Yen, although being a favourite of the permabears (of which I have been accused of being in the past but try my best to stay rational), does not appear to me to be somewhere worth investing. 0.5% interest rates and probably going down, a 16 year deflationary economy that even 0% interest rates couldn't fix, 16 or so years of falling property values, and huge levels of government debt. Doesn't sound good to me.

I also think that markets may be oversold a little, so any recovery even in the short-term could see the carry trade pick up. With nearly 5 big figures a year in carry, AUDJPY is the place to be positioning for this sentiment change.

3 Month Chart of AUD/JPY

Spot is trading at 96.61. I just paid 94.11 for Jun '08 contract in the equivalent of about $2000 per big figure (about $189,000 worth of AUD). Lovin' that carry.


Buying back RIMM...1 day, 10%!!

Just paid $91.84 for RIMM, which I'd shorted yesterday in ~$20,000 at $102.43!! That's 10.3% in 24 hours, happy days. Although I've been smoked on MBIA and CFC which I bought...hmmm I guess I'll ride those out for now.

P+L = $2,118


It's a sin? Adding to CFC losing position

Buying some CFC at $4.72, just under $5k worth. Having bought some in the $6's yesterday, I'm gonna average in a little. If it goes bust, then I lose $11k or so, which is more than manageable anyway. My bet here is that it survives for now, trades up on a quiet news day and an up day in the markets, and also I bet we get some takeover rumours for it. If BoA were so interested in the 40's in early '07, in the teens in late '07, then surely they'll be interested in single digits now? We'll see.

5 Day Chart of CFC


Downside options on the DAX

Germany has been holding up way too well, just a shade off its highs.

1 Year Chart of DAX

Europe isn't going to avoid the global slowdown, it's just trading with a delay to the US.

So I've just sold a 7500 March call at 517.6 in £10/point, so £5176 premium.
And bought a 7000 March put at 76.3 in £69/point, so £5265 premium.

Net cost £89. (I had intended it to be ~zero but got my sums wrong!)

At worst, I don't mind setting a short at 7500 anyway on the DAX, but hopefully any near-term falls will allow me to take some very good money out of this trade. Come on the 10% fall!