SplitMaster.com:: Newsletter
Home :: Strategies :: Membership :: Past Results
Author: Mike Celeste Editor: Tony Ponzo July Circulation: 6735

Stat Sheet Week Ending July 11th 2009

ChangesWeeklyYear to Date
Indexes Points Percent PointsPercent
Dow-134.0-1.6%-629.0-7.2%
S&P-18.0-2.0%-23.0-2.5%
NAS-41.0-2.3%+179.0+11.4%

In this Issue---
Options---
*******************************
I personally took another approach the last half of the week when making my Spy plays. Now, not everyone is approved for this, but let me mention it to those that might be interested, and are qualified. We option traders know that there is a time value ticking every day, deducting from the price as we go from one day to the next, there being one less day until expiration day. The Spy options we traded had a time value of about 5-6 cents per day. That means that if the Spy stayed the same from one day to the next, the option would be worth 5-6 cents less at the end of the next day. When there is a weekend, that is 2-3 days worth. Take a look at a Spy option closing price on Friday, and see how it is priced on Monday, allowing for a change in the Spy price. You will see what I mean. OK, that being said, I wanted to take advantage of that 5-6 cents decline in price. Actually, it seems that the price deduction comes during the day when the market maker makes an adjustment. I mark down the Spy price, the option price and the Dow price, all at the same time and see how the price moves. You can see that the option price can be different later on, with the Spy price the same as it was before. In order to profit from this, instead of buying a Put when I thought the market hit a resistance point, I wrote the call. I sold/wrote that call, hoping it would go down and I would buy it back at a lower price, and have a profit. If time value wore away at it, theoretically I would get the benefit. I did 4 plays during the last 2 days of the week, and won on 3 of them.

Not very much, but I was testing the theory. On Friday, the last one was writing a July 88 Call. I wrote/sold it for 1.30 when the Spy was 87.90 and the Dow was down 49. I covered/bought it for 1.25 when the Spy was 87.80 and the Dow was down 61. At the end of the day, the last sale of the Call was 1.23, but the Spy was 88.05 and the Dow was down only 37 points. Both the Spy and the Dow improved markedly from when I covered/bought back the option, which means the Call should have gone up in price. However, the Call was 2 cents less than when I closed the play at 1.25, when it should have been well over the 1.30 I sold it for when the Spy was 87.90 and the Dow was down 61. This is a bit tricky and meant for those that are experienced and qualified to write options. You can see that the option lost the time value during the day, and that was what I was counting on.

Momentum Plays---
************************************************
We got a slow start to July in the this strategy in two ways. With the market moving in these very thin ranges, there is not enough volitility in stocks to create qualitfing W plays up or down. Look at the Dow for example. On Thursday it closed up less than 4 points. On Friday it closed down only 36 points. With the market making these small moves, it makes Indicators plays hard to come by too. And with earnings seasons ending, we also have no earnings plays. That will change though starting next week as the new earnings season is just now getting under way.

The bottom line is we have not had a lot plays which leaves us with going after SR SPY plays and they have been very tough to read lately as well. So we have lhad a lack of plays and the one play we did get into this month was a small loss. We've been lacking excitment that's for sure but we are looking forward to more action in the coming weeks and getting back to making progress. Come on earnings!

Indicators---
****************************
We had a mixed result on the one Indicator play this past week. Officially, it was a loss, but I had a winning play, personally. That was pure luck, for a nice change. We sent out the signal and price to the members and one of us entered the play. I was busy typing, and my personal play went in just a bit later. There was a quick drop in the price of the option bought, 4 cents, and then a bounce back. Since we go for a 10% profit goal, my 1.41 entry price meant an exit profit price of 1.55. The bounce back took it to 1.55 on the button and I was out at my profit. Our other play was in at the higher price and thus just missed the 10% goal, which was followed by a drop to our stop loss point. So--mixed results.

A brief mention of our stop loss program. The stop loss limits our loss, but many times we see that the profit point exceeds the 10% goal, and aggressive players often see 50%-100% gains in the option. That more than makes up for the 10% stop loss. You can also keep raising your stop--making it a trailing stop--as the price goes up for the option, we can raise the stop point. That way we could well have it stopped out, but the higher stop price still gives us a profit---For aggressive consideration, that is.

Feedback---
***********************************
We are noticing that some of our experienced traders are taking matters into their own hands---and beating us in doing it. Often we hear that members acted when the Spy hit our resistance or support level. We, tho, watched too closely or conservatively to see if the Spy would break thru the range we calculated--and in doing so, we missed some plays that turned out to be very profitable. Congrats to those members that beat us--we are happy to see it happen--really.

The Economy, The Markets & Commentary---
*************************************************
Do you remember that old commercial, where the guy gets slapped in the face and says, "Thanks, I needed that"? We think that is what is happening to us common folk. We are getting slapped in the face, pretty hard, too--and we are acting like we needed to get slapped. These "experts" are on TV saying there is no inflation. I guess people are believing them, because there is little uproar over the fact that everyone is raising taxes, prices, and consumer costs. This isn't just in our state of California, but the majority of states are having difficulty in getting budgets in balance--and we should include cities, too. Our vehicle registration just about doubled, air fares are being raised, our water rates went up, we got rationed, and told that rates are going up for the next 6 years. Our sales tax went up in 2 steps of 1/2% each--to or over 11%. Our electric went up, along with natural gas. Food prices are still high while basic commodities have gone way down from their peaks. Car prices actually went up---we checked with our local Toyota dealer and we were told that our SUV would be severely down in value, but the new car would be higher than last year. All fees have gone up and more are to come. The federal government tells us that the green bill will cost us more, but will help in the long run. I hope most of us are still alive when that price saving takes affect. They are using natural gas, an energy source, to make ethanol, another energy source. Problem is--ethanol costs more than natural gas and we have a huge supply--over 100 years worth--of natural gas. Around here, all of our busses are using natural gas. T. Boone Pickens is pushing hard for natural gas---but those we entrust to take care of us, the politicians, are going the opposite way. We have huge supplies of oil in this country--and much of it is on federally owned land. That includes offshore oil. Our "experts" tell us we need to find alternative sources of energy. Why? If oil is on federal land, we the taxpayer would get the royalties from the oil. That would lower our deficit and lower our taxes. No, that is too simple to say we should use what we already have before we go to alternatives that cost more. Instead we see that we have a 10 year high in oil inventory and oil goes up in price instead of down. This past week we saw a break in oil prices--down well over 10%. Our gas prices did not go down this week, they stayed the same, just a little bit off the recent high. They say that when oil goes down it takes time to work through the system so that gasoline responds with lower prices. Why is it then that gasoline goes up the next day when oil goes up?

Last year, when we were hammering away at the prices of oil being so high because of speculation, that was knocked by the "experts". Now they are saying there was a lot of speculators causing the price rise. The regulators are checking into how to control that better. Not once did I hear that all you have to do is raise the margin requirement from 5-7% to the same as stock margins--50%. Finally, this week, Jim Cramer said there was a very simple way to knock out most of the speculators---raise the margin. He didn't say to raise it to the same as stock, but that sounds logical to me. The main reason for the crash in 1929 was that margin was at 5%. That's a 20 to 1 leverage. Fine when things are going up, but watch the bubble burst big time when prices start dropping and you are losing 20 for every one you have in of your own money. Jim is right, it is a very simple solution. No, we continue to be ruled by big money interests that don't have the taxpayer interest in mind--at all.

A potentially interesting item to track----We all hear how the stock market is 6-9 months ahead of the economy. We had lows in Nov. and March. Six months from Nov. would be May. May is when we were finishing off a huge market rally. So that seems to be way off the mark. We had the main bottom in March--6 months from then would be September. The prediction is for bad times in Sept. Let's watch and see if things are bad then, the worst we have seen up until then. The "experts" are calling for improvement in the 3rd quarter, not the worst of times. The 4th quarter is supposed to be up over 100% from the 4th quarter of 2008. Going back in 2008 I don't see that prediction working out. No one mentions back in time, they just want to talk about future time--6 months from now. My feeling continues to be that this is the worst times for our economy since the Depression, which was 12 years long and saved only by World War II ramping up production and jobs for the war effort.

Also, the Dow in 1969 did not see the same numbers reached for 13 years--going to 1982 before they reached the same highs of 1969. The real estate crash of 1989-90 in California did not see a return to the 1989 prices until 1999, 10 years later---when they took off to artificial highs because our politicians allowed 100% loans with no proof of income needed to pay back the mortgages. So, someone please tell me how we are going to have a recovery in the last half of 2009, making the recession just 18 months in length? Really, someone let me know how we can do so much better than our other previous serious down economies.

You might be interested to know that the web site for seeing where the TARP money is being spent is having the sight redesigned. Guess how much the amount of the awarded contract was worth. $18 million dollars to redesign the web site to explain where our $'s are being spent. Then, you will notice that the bail out money was handed out, with little detail at the time, as we kept saying. It turns out that there was no requirement on how most of it was to be spent, especially the amounts given to states and cities. A closer look shows that billions are being spent on non-productive projects, with few new jobs being created. The Feds gave a blank check to an account holding billions---and we expect that it will be spent wisely. Reports are coming out that mortgage fraud is increasing, not decreasing. Fraud is estimated to account for 10% at a minimum. That means that for 750 billion, we can expect 75 billion to go to frauds. On top of all that, we are being warned that there are many scams out there, where consumers are talked into all sorts of deals to help get TARP money, and also big pushes on grants, relief on mortgages, educational courses, and on and on---all requiring up front money. Watch out for them

Yes, I think we say that we need these slaps in the face. Out here we are having an upcoming Congressional election. It covers an area of 500,000 residents. It is estimated that there will be less than a 10% turnout----a few thousand votes will affect 500,000 people. People, don't scream about higher taxes, loss of jobs and all that, when we keep returning the same types of people to our government---and don't care enough to vote. The last major election in our area, last November 2008, saw every single incumbent returned to office, if they ran for re-election. These crooks that allowed us to get into this financial meltdown continue to be returned to office. It seems that people think their rep is ok, it is the other rep that is the bad guy. No, in my opinion, far and away, they are all bad guys (and gals--we just had a female mayor indicted, for ex.)

Personally, I have come to the conclusion that the federal explanations are not believable--that is Congress and Administration. They do say it wil be more costly in the short run, but the long run will show the benefits. I don't see how you can raise our costs and taxes now and expect that we can overcome them in a matter of a few months. Oh, and now we are hearing those famous words from our elected politicians (I refuse to use the word, representatives, here). " We didn't realize the economy was in as bad a shape as it turned out to be". They had all the answers before the election, but after the election things are worse than they thought. That is also followed by the previous politicians that now have all the answers to our problems--but they didn't have them when they were in office. Us suckers continue to let them lead us down the path to the wiping out of the middle class. A very sad story---and I pray that I am wrong. In the meantime, SplitMaster continues to do its part to provide some help in building up our assets. We have a good record, and hope that we can continue to deliver the goods. If you are not a member yet, you can still get our trial at no cost to you---see the site and check us out. Stay tuned....................

Today's Thought---
*****************
How bad is the economy?
I got a pre-declined credit card in the mail.
Then, I went to buy a toaster oven and they threw in a bank.

Mike

Published by Splitmaster.com, LLC.
P.O. Box 960 San Dimas CA 91773
Copyright © 2006 All Rights Reserved.
Privacy Policy

To unsubscribe from our newsletter or edit your delivery address go to our Newsletter Page. To edit membership information login to the Splitmaster.com members page. For inquiries regarding this or any other Splitmaster.com Information Delivery System publication contact us at staff@splitmaster.com.