Wednesday, May 26, 2010

Personal Trades- Week of May 24th

The front page of "Money and Investing" section of the Wall Street Journal on Monday reported that the massive financial regulation bill, which is making its way through Congress now, will lower some big bank credit ratings, meaning their borrowing costs will be higher in the future.  The banks mentioned specifically in the article were Citigroup and Bank of America.

I already had my eye on buying put options on Bank of America (BAC) prior to the article and when I saw that Bank of America stock was actually higher in the morning and afternoon session after reading it, my interest piqued even more so.  This meant that their options might be trading abnormally cheaply, which made no sense to me, given the chaos of the Euro and of the European banking system as whole.  So I looked into BAC's options pricing and, not surprisingly, liked what I saw.  The news and the stock price contradicted itself, especially in light of the European financial situation.

I bought to open 10 BAC $15 June puts at $0.50 and 20 BAC $14 puts at $0.28.

Also, as I am long the iShares Silver Trust ETF (SLV) (at an average price of $12.45) but also believe that silver will continue to fall short-term against the dollar, due to flight to quality from the European situation, coupled with its dramatic recent run-up, I purchased 5 SLV $17 puts at $0.40 and 10 SLV $16 puts at $0.15.

I feel as though I received a good price-point for each of these contracts, although I would have liked to have paid $0.25 for the 20 BAC $14 puts.  In hindsight, I feel as though I reached for that contract emotionally, rather than waiting for the price of volatility to swing back in favor, as, after all, there is still nearly a month until the contract expires.  This is why people should write down rules to investing and adhere to them.  I am working on developing mine with experience attached to it.

On May 25th I purchased to open 10 BAC $13 puts at $0.25, 25 SLV $15 puts at $0.08 and 5 CEDC $20 at $0.50.

I queued each of these orders prior to the market's open, knowing that the market would open much lower based on Asia and Europe's overnight activity.  I entered the orders in hopes of grabbing them early in the session and quickly turning them over for a nice profit.  Unfortunately, that nice profit came and went in the blink of an eye within the first 30 minutes of the session, and I was, of course, indisposed with other obligations at the time.  A very poor mistake on my part.

It obvious that I reached for each of these contracts and might have hell to pay for them in the short-term.  I am nervous that the market will open strong tomorrow, causing me to get crushed in the process, however, I believe that the correction we have experienced over the past few weeks is not over for the U.S. market, and I remain convinced that I will achieve a nice gain with the majority of these contracts.  That is not to say, however, that I won't sell into major gains, in an effort to play with "house money."  This is my objective, and it will always be my objective, especially in the volatile options market.

It is very evident that I should have created rules for myself regarding the options market prior to my delving into them.  I know better than that and am disappointed in myself for that lapse of judgment.  I plan on having template in place within the next day or so, specifically regarding enter and exit strategy, and then continuing to develop that plan as I gain more experience.

As of the close on May 25th, my holdings stood at (last trade price):

Short Sales:

- 300 shares of WFMI short at $40; ($39.54/share)

Put Options:

- 3 CEDC $25 at $0.45; ($2.90)
- 5 CEDC $20 at $0.50; ($0.50)

- 10 BAC $15 June puts at $0.50; ($0.59)
- 20 BAC $14 puts at $0.28; ($0.32)
- 10 BAC $13 puts at $0.25; ($0.19)
- 5 SLV $17 puts at $0.40; ($0.41)
- 10 SLV $16 puts at $0.15; ($0.18)
- 25 SLV $15 puts at $0.08; ($0.07)

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