Money Trades


If you haven’t been keeping up, almost every other story that comes out of Bloomberg or some other finance news agency has a quip about US Dollar bashing and whenever everyone moves to the left side of the ship, I like to move to the right side of the ship knowing that people will have to move back to balance the ship unless the whole thing just rolls over.

Click on the graphic below for a sharper image.    I took a look at all the options volume for UUP which is the US Dollar Index and there is quite a huge open interest and volume on UUP options near or at-the-money on these options.   It looks like someone out there is placing HUGE bets that the US will rally sometime now or March 2010 while June shows modest interest.

UUPCY

There have been many discussions that these are large firms hedging against a drop against the dollar or inversely hedging against the collapse of other currencies.  I think the latter is more likely.  I find it much more plausible that a major currency overseas will fall apart than the US dollar would in the immediate future.     China has so much over capacity that it may not be able to do much about its currency situation.  Brazil’s currency has appreciated greatly but that is mostly predicated on the price of oil which is being artificially sustained.

There was a great article on the Houston Chronicle this Sunday from Exxon’s CEO claiming that the price of oil and demand is out of sync and I agree wholeheartedly.

A “disconnection” exists between demand for crude oil and the current price, according to Exxon Mobil Corp. Chief Executive Officer Rex Tillerson.

Oil prices aren’t reflecting demand fundamentals, just as they didn’t when crude rose to a record above $147 a barrel in July 2008, Tillerson said Friday at an energy round table in Singapore as part of the Asia-Pacific Economic Cooperation meeting.

“There is clearly, and has been in my view for some time, somewhat of a disconnection in the fundamentals of supply and demand and the current day market price, and I can’t really explain that to you,” Tillerson said.

Tillerson said the price of oil would probably be around $55 a barrel if the dollar hadn’t depreciated against the euro during the last 18 months.

“You could say oil is about $20 to $25 a barrel higher simply it’s priced in dollars and there’s a weak dollar,” he said.

Personally, I’m anticipating a huge dollar rally and a huge drop in oil prices so I went out and bought 50 contracts on UUPCY (March 2010 $24) strikes on Friday in the attempt to speculate and profit from my prediction – it is a pure gamble.     I’m usually early to the party and I hope that isn’t the case this time but we’ll see what happens.

Wow, I was taking a look at the March 2010 call options for UUP (USD bullish) and I was amazed to see 155,000+ contracts interest at the $24 strike level.   The December 2009 $23 call options are trading 176,000+ contract interest and that’s just AMAZING!

I am seriously tempted at buying 50 or so contracts just to gamble with and see how that pans out.   Since the world over is now bashing the USD, then it must be naturally the time to invest in it.   Of course, it is possible that the USD descends into the abyss but the more deeply I think about it the less likely I think it is to happen.

I’ll wait till the end of October and make a decision next week to see what I’m gonna do but it is interesting the volume is so high.

This market volatility is great for my ETF Covered Call strategy as it’s been extremely profitable to buy long and simultaneously sell short.  I’ve made $3,000 these past few days and  with the market gyrations, it’s been exceptionally profitable to buy back those contracts on the cheap when the market turns the opposite direction.

I had a feeling that the bailout bill wasn’t going to pass after I read it Sunday night, it just didn’t have anything good in it to solve any real problems.   My guess is that the bill would have simply pushed the problem onto the next administration to deal with it.

I suspect the bill will pass later today or this week with some crazy shenanigans pulled and that may rally the market which would mean more profits to bank 😉

Good hunting.

This post is dedicated to Brandon, my favorite antagonist commenter.   A couple of months ago in this post, I outlined my investment strategy to help bring focus to how it works and why it works, at least for me.    It’s all about exit strategy and I exited OIH a while back when the ETF rallied way above my expectations.    Now, OIH has pulled back significantly to where it was back in the winter of 2007.

Without any type of exit strategy with the market, you’re perpetually buying, never reverting to a cash position.   During the recent market drop, I found myself holding a rather large cash position because of my ability to exit the market.   I still have holdings at a paper loss but that’s all temporary and the down swing has been cushioned by profits from selling short.

If OIH drops back down to $170, I’ll be knocking on opportunity’s door.    In the meantime, UYG and XLF are looking mighty delicious but I’ll wait till August to see how things turn up.

OIH is on fire! A while ago, Mrs. Micah asked, “Do You Have an Investing Exit Strategy” and I couldn’t help but associate that question with my ETF Covered Calls investing strategy. Let’s review a specific journey on a specific investment I recently made.

In December of 2007, I bought 200 shares of OIH at $189.45 and sold 2 contracts for January $190 strikes for $5.00/each to rake in about $1000.00. In January OIH dropped to around $170 and stayed near there through April when it started climbing back into the $180’s.

In April 2008, I sold 2 contracts for May $190 strikes for $5.55/each to rake in about $1100.00. So the total profit for the trades were about $2100 or 5.5% from December through May expiry.

OIH is now hovering around $210 but is now the time to sell? Has OIH had it’s run and will it slide back down or is it just catching its second wind and about to climb to $250?

Look at the graphical diagram (click for larger image).

OIH_Profits.png

As you can see from the image, OIH hit a “dry well” for a brief period from January thru April so should you have cut and run or stayed in it for the long haul? This is why I love ETF Covered Calls because you’re partially quasi-long and you’re profiting by selling calls (short). It’s the best of both worlds.  As obvious as it sounds, you make money selling not buying and I’ve sold calls and soon I’ll sell my shares to bank the profits.

As for my current investment, if OIH closes above $190 today (which looks like it will), I’ll be forced to sell my shares at $190 and revert to being in cash in my account. Once in cash, it’ll be time to look for more opportunities and I’m glad. I’m getting the feeling that OIH might have run its course and I’m not willing to re-buy OIH at these levels. Perhaps if OIH drops back down to $170’s I’ll pick it up again. If you find this interesting, check out www.ETFCoveredCalls.com to learn more.

The week before options expiry usually yields lower returns but $500 is $500 right?  This brings my return for April up to about $2000 for the month.  Not too shabby for clicking a mouse but I’m still desperate for a phone that can handle true HTTPS/SSL requests so I can click my phone to make money.  Any recommendations out there?

Evidently, the iPhone doesn’t support true secure web connections but maybe the next generation one will!

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As soon as option expiry ends next week, I’ll focus on making money in May.  You know what they say about May…..Sell in May and go away to keep your losses at bay or the foray will decay your profits away…..

You can learn more over at ETF Covered Calls.

Not a bad week as I raked in $1500 this week. My OIH had been a dry well for a few months but it looks like it’s on its way to recovery as energy demand is red hot! I sold 2 May contracts to rake in $1100 in my arbitrage account. In my mini account, I went double long in the Dow by picking up 200 shares of DDM and selling 2 April OTM for $400.

So with the crazy market going up or down from one week to next, my Double Down Dow Arbitrage Theory is working bloody well. I’m now Long Double Dow with short calls in my mini account till April expiry and currently Long Double Short in my power account with hopes of selling Calls Short (inverse long). Whoa…. did that just make your head spin like it did with me?

If you want to learn more, check out ETF Covered Calls.

Steroids and HGH aren’t just for baseball players, these handy little boosters will work wonders for your investment portfolio.   I’ve hinted in the past about a new mathematical model for the ETF-Cashinator that factors in leveraged index funds with covered call writing to boost returns to superior levels and as always, I put my money where my mouth (blog) is and take action.

Yesterday, I banked about $2700 on top of the $900 I made last week but I’m moving toward using my new leveraged model to rake in more profits as I described here.   This essentially goes back to this original mind blowing article written by Jason Kelly here.  I’m convinced that this model can work with pure options plays as well but that’s for another blog and another time.

So how does this whole thing work?

We all know index funds tend to be the better bets on the stock market.  Less than 20% of funds ever beat indexes so it makes index funds a very seductive investment play but how can you make it better?

In a single word: leverage.   If index  funds are good then why can’t leveraged index funds be better?  If you’re dollar cost averaging anyway, why not buy leveraged index funds.  Sure you’ll lose twice as much during down turns but as long as you keep buying you’ll make twice as much on the way back up right?  I like to think of these leveraged index funds as index funds on steroids.

Index funds on steroids can be rewarding but why not add in something a little extra for a little insurance and extra kick!   Mixing leveraged index funds with covered call strategy is exactly that extra kick I’m famous for at this point!  I like to think of the covered calls as HGH so that leveraged index funds with covered calls acts and feels like steroids with HGH enhancement!

So what are the main tactical components.   Well leveraged index ETFs are the ones I like the most right now:

DXD – Double Short Dow

DDM – Double Long Dow

SSO – Double Long S&P 500

SDS – Double Short S&P 500.

I like all of these because they are leveraged up/down and they all trade options with healthy volume.    So my most recent trade was to go double short on the dow (DXD) and sell calls (DXDCI) to be inverse long.  Using this strategy, I banked ~ $2,000 in my power account yesterday.   I then went on to go double long on the Dow (DDM) and sell calls short DDMCT to bank another $700 in my mini account.

So whether the Dow goes up or down from here it should be a profitable move -in theory.  The DDM will be valuable if the market recovers short term or long term and DXD will be profitable if the market tanks or recovers (options).

We’ll see how March expiry plays out.

I promised an anonymous poster that I’d do a write up on my ETF Covered Call strategy do explain it in detail but I’ve been too busy.  I don’t like writing about “theoretical” returns which is why I put this blog where my money is and write about my transactions almost as soon as they happen.

I held 700 existing shares of EEB and decided to sell 7 call contracts against them to rake in ~$900 today.   I’m long DXD (Dow double short) and I’ve sold calls short (inverse long) and those contracts expire tomorrow.  They’ll likely expire worthless so I’ll be able to sell March calls and possibly rake in $1700 or so next week.

I debated about whether I should wait a little longer before selling the contracts but I figured if my strategy really does make money when the market is up or down then it doesn’t really matter what’s going on with the market today so I pulled the trigger.

With the municipal bond meltdown going on write now, I’m as concerned as ever about this market which is why I’m double short on the Dow right now but with the Fed giving money away, the market can easily bounce back.   Why not gamble with free money anyway?

I hope you’re getting rich slick wherever you are today 🙂 .

I couldn’t resist the profit mistress as her sultry allure seduced me back into this market by snapping up 700 shares of EEB and 1000 shares of SDS and selling near the money calls for a quick $1900. What this mistress doesn’t know is that I like to play both sides against each other 😉 .

I bought long and sold short simultaneously so it’s a win-win for me and only me 😛 .

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I expect this unmedicated market to experience some serious bipolar issues next week so buckle down for the wild ride and good luck hunting.

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