Well it’s that time of year again when we are supposed to be thankful and spend copious amounts of time with family but somehow get derailed into all-day shopping trips and bargain hunting! Or maybe that’s just me! To those of you that are planning trips over this holiday season to visit friends and relatives, we wish you and yours a safe and happy holiday.
And when the festivities end and the new year begins we will be looking forward to another successful year of trading. This past year has brought with it excitement and volatility and a good deal of prosperity. But each year our goal is to improve upon our previous year’s performance and the only way to do that is to look back and learn from the trades that did not work out quite as planned while reinforcing those that did go well.
It all started out so easy with huge gains earlier in the year on Baidu, Intuitive Surgical, New York Stock Exchange, Google, Freeport McMoran and many others. As the big market moves occurred we jumped on board the trends with long options. Trade after trade worked out well as the Dow surged 1000 points higher from 12,000 to 13,000 between March and late April.
After the huge run we felt that the markets were overextended and in need of a pause and so we decided to take advantage of credit spreads that would take advantage of what we believed would be a channeling market short-term. During May and June our series of trades were:
Bear Call – SHLD, Bull Put – FCX, Bear Call – TSO, Bull Put – AAPL, Bull Put – ICE, Covered Call – NYX, Bull Put – GS, and Bear Call – SHLD. Each of the credit spreads expired worthless and we pocketed a nice chunk of change.
July was a rollercoaster with the market surging higher before collapsing lower and we decided to move from simple credit spreads to advanced hedging strategies, including ratio calendar strangles, advanced bull call spreads, and advanced collar trades. When the going gets tough as it sure did in July we didn’t hesitate to hedge more heavily. We’re okay riding out the tough times with more hedging but that didn’t affect the profits much with big gains in market leaders Google and Apple contributing to another winning month.
From August thru September the market shook off credit concern woes and marched higher once again and we positioned bullish for the run. We weren’t quite convinced of the move and stuck initially with bullish credit spreads in case the markets decided to do an about turn we would still be in good shape. Bull puts on Boeing and New York Stock Exchange were winners and we’re still riding out the crazy volatility on LDK, which has been and continues to be a fun ride.
In September we were nicely ahead of the curve on NYX again and took advantage of the breakout with LEAPS calls when the rest of the investing community doubted the move. Modest gains were made on VMW and EMC before we ran into danger with an FXI bear call that warranted some adjustments before finally expiring worthless. This was a classic example of "Don’t panic"! A trillion dollars was added to market capitalizations of Chinese companies almost overnight and pushed FXI much higher than we ever dreamed possible but a little dexterity and sophistication coupled with some disciplined trading left us eventually with profits in our pockets. We are still riding out Bear Stearns which is also proving to be a bit of a roller coaster but it will come right in time and this one is just testing our patience (–playing the stock market without patience is like playing the odds in Vegas and hoping to win, a loser’s game!).
As the last quarter rolled around we had some selective winners with United Healthcare, Apple and Potash but for the most part we were in hunker down mode with some seriously heavy hedging as the market made some massive moves in both directions. As with other trades we have had to work at we expect our trades on JCP, AEO, EMC, GE and BA among others will be just fine in time. Again it’s just a matter of sticking with the rules, acting when appropriate, sitting on our hands when needed and trying to control emotions.
As we look ahead to the new year we will strive to make further improvements. We recognize that we have maintained our 100% winning record on closed trades but we also realize that some of our open trades will need some work to get back to profitability. As we get set for a new year we will as always be looking to improve our methodology so that we jump on board trend changes more quickly and increase the profit potential of our trades while minimizing the risks incurred in so doing.
It has been a fun and profitable year and we thank all our members for questions, contributions and goodwill during the year. Our goal is to impart our knowledge through examples and help our members become great traders. We hope we have helped you and we look forward to a prosperous 2008.
Best wishes,
Stock and Option Trades
