Thanks for the lesson, quite impressive for a “techie”!! By the way it appears you have done well with CVI. On your advice I picked 200 shares at 8.18, closed yesterday at 10.00, not bad for 2 days! I notice it’s ROE is 32%, with so many different fundamental indicators it is beneficial to know that you put special emphasis on ROE.
I read that the Treasury is going to be auctioning off more bonds next week, longer term, 20, 30 year. The report stated that foreign interest is diminishing and The Fed is trying to coax institutional investors to have greater participation. One opinion is that this money will come directly out of equities and consequently the S&P could start declining at an accelerated pace by this time next week. My question is: I have long positions all over the place (way too many). Some are your picks (DBA, UNG, CVI, XOM) others are my own (CHK, X, PCX, VALE, PFE, F, DELL, MSFT, APAC, AOI, COMS, EXTR) and a bunch of other smaller positions. When or if, do you think I should start unwinding or even get short? I have some shorts already (FXY, HOT, GS) and I am looking to buy SPG, Oct 75 puts @ 21.20 playing the downside on commercial real estate (another developer with ballooning debt).
Any advice you can offer is greatly appreciated.
My Response:
I’m glad you liked my little tutorial. As an indicator it makes perfect sense. If you use it to confirm all your long trades you’ll see your percentages go way up. I write these types of articles for my website (options/commercial finance related) and some are especially useful that I like to pass along. If it helps to make money, I’m all for it.
Now down to business. That ROE is one heck of an indicator or even for trade confirmations. Good to know you checked it. CVI is a longer term trade with what I believe to be huge upside. I get the sense you bought the shares outright. You bought in at a great price. It’s a double pronged business model with oil and gas exploration & production using the waste byproduct to make nitrogen fertilizer. The Fertilizer names (Potash, Mozaic etc.) had a huge runup over 60% each, so expect a short term pull back. The direction is up. Energy and fertilizer, great combo. My only thought on the the trade is, as you know I prefer options trades in almost all instances.
In the case of CVI, the Dec 10 calls would only cost $160 each. So instead of tying up $1,600 and get a dollar for dollar return, you leverage up with $320, control the same number of shares good till Dec. If you held the 200 shares until Dec, and it didn’t move, you tied up the use of a good amount of cash that could have been put to work on another trade. Either way, you can’t beat controlling 200 shares, in a great energy/ag stock, with a 32% ROE for $360.
About your other question regarding the Treasury Auctions and the sale of all those bonds, did you receive my emails about shorting the S&P. I know I was a little early on the call, but the move down is inevitable. As I mentioned, I already have a position in Sept SPY puts and the Sept QQQQ puts. I like the SPY better.
From the looks of it, you seem to have a lot of long positions. You didn’t say whether they were option contracts or owned shares. It does matter because some of the stocks you mentioned are good companies and even when the market starts to correct (which I expect will be severe) some of the stronger ones will bounce back first enabling you to add to the better ones.
My biggest concern is the number of total trades. The 20 that you mentioned plus another “bunch” of smaller ones seems to be too many trades. It might just be my personal style, but I prefer to concentrate more on fewer trades (taking multiple contracts, different strikes, different expiration months).
In any event, it would be a meaningful improvement if you were to pair down your portfolio. The trades I recommended are in confirmed uptrends and don’t let market fluctuations shake you out of the hands. I’m hoping you get the updates on the ones I recommend but DBA, UNG, CVI, XOM are excellent positions (DBA’s up 100% already. I recently added the Oct 28 calls).
I would hold HOT because when the market turns down it will kill this one. It may even help you with GS. You and I are in the same spot with FXY. It’s consolidating at around 103. When it breaks out of the consolidation pattern there’s no question the move will be to the downside and it will be big. The question is “will we be in it?” The June expiration doesn’t give us more than 2 weeks but I’m holding it (I also made 240% profit on FXY on the contracts that were closed in March, I rolled some of it over to June). These still have a fifty/fifty shot at turning profitable. A little bad news and who knows?
Take a look at you portfolio.
If you’ve had it for a while and it’s not moving, there’s probably a reason for that.
If you have positions showing a profit, consider taking profits.
If you have stocks that would be vulnerable in a sharp market downturn, consider selling them.
The market will correct and it will be severe, consider buying Sept. SPY puts.
The dollar will continue to fall, hold any Energy, Ag trades.
The dollar will continue to fall, consider buying GDX or SLV with the excess cash you’ve trimmed from your portfolio.
It’s far better to consolidate the holdings and raise as much cash as you can for now. When the market collapses there will be plenty of places to put it to good use.
Little wordy as usual, but they’re not yes or no questions either.
Ray
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