Sold my calls on FAS today for a 340% gain, huge in percentage terms, not so much in dollar terms, lol. I’m more happy we used an options strategy perfectly, stuck with it, and had it pay off at the end.

I think the financial rally is about over, even though Goldman Sachs blew profit numbers out of the water today, these stocks should see a pullback soon. They’ve just been way to hot recently and for investors not take huge profits in bank stocks would be irresponsible.

Futures are down for now but who knows what we’ll be in for tomorrow. I’m getting the feeling that we’ll have a pretty flat session, unless of course another random bank decides to report their earnings early.

More tomorrow! For now sleep!

Cheers,

Nik

And the sad part is, I’m being serious.

We’ve seen good economic data lately but it’s been offset but bad economic data. Sounds confusing? It’s because it is. Existing home sales, consumer confidence, and some other economic indicates were strong for February/March indicating to some that we’ve hit a bottom. On the other hand the United States continues to experience rising unemployment, less credit card usage, continued rising of the savings rate, home prices dropping at record rates, and record government efforts to infuse capital into the nations banking system.

The markets rallied strong in March off the economic news and pulled back a little recently acknowledging the reality that our economy might still erode further. Now we’re at a point where traders are waiting for more substantial news that points either to a bottom in the markets, not necessarily the economy, or news that will send us back down.

My gut tells me that we have further to go down and the issues in our financial system are not close to being sorted out and that markets will eventually fall further but that doesn’t seem to be happening. This leads to a situation where holding on to my strangle position makes a lot of sense yet the position is far from profitable at this point. A cardinal rule for me normally is that if I don’t know what to do, or feel uneasy, I don’t do anything. Being an independent trader allows me to do that. However, I entered in to a market neutral options position and even with it showing about a 95% loss I still feel comfortable since we’re still a week away from options expiration.

The lack of clear market direction does have me staring at my trading platform and CNBC endlessly during the day though, which gets really irritating. Volatility is what makes us money, swings in the market lead to profitable trades but a market that’s stagnant makes it very hard to put money anywhere. Of course reverting back to individual companies at this point is almost useless since it’s more like gambling then thoughtful trading.

We’ll get a much clearer picture of consumer spending in March today when retailers report their sales for the month. I have a hunch that most of them should report higher same store sales then expected but again, it’s anybody’s guess.

Remember markets are closed on Friday for Easter (Good Friday), so after Thursday closing bell I’m heading straight to the bar, lol.

I’ll update if anything significant happens tomorrow. I just really wanted to share with you guys my recent irritations with this market.

Cheers,

Nik

No real surprise here, analyst Michael Mayo started 11 major bank stocks with a “sell” rating citing escalating loan losses at the banks. The markets aren’t selling off as much as I thought they would following Mayo’s note to clients. The Dow’s down 115 right now, the S&P down 15 and the Nizzy down 35.

I’ve still got my strangle on the FAS and I feel comfortable with it. It’s nice to be market neutral going in to this week.

Also looking in to the possibility of Sun Micro getting offers from other companies, or maybe even a revised offer from IBM they actually accept. If Sun doesn’t sell itself soon, it’s going to have serious problems.

Updates later today. Looks like we will end the day lower though.

Cheers,

Nik

No, I don’t mean I went up to the fund manager of the FAS and strangled him. Rather, a strangle refers to an options trading strategy where the trader buys a put and a call, at different strike prices with the same expiration date.

I was holding on to FASPG, the FAS April 4 strike put and bought FASDB, the FAS April 10 strike call today.

Strangling is a strategy employed when a trader expects a big movement in a stock but doesn’t feel comfortable calling a direction. I expect a big movement in the FAS but with the positive economic news coming out and the FASB decision today to relax mark to market rules, markets could very well end up higher, perhaps touching 8,500 on the DOW. This is counter to my initial thought of the markets having another leg of selling off that would take us lower than the lows of early March and might actually be a real bottom. However, this could still happen. The uncertainty makes the strangle perfect.

The FASB decision this morning is yet another horrible decision made to save banks and other financial institutions. Instead of marking their assets to market prices, the mark to market rule, these institutions will now be able to price those assets based on proprietary models that are sure to over value them. It’s funny because this is the exact reason we are in this mess, firms priced assets way above market prices and those write ups each quarter lead to amazing profits. Now that those assets have dropped drastically (we’re talking around 70%) in value, these firms want to go around the rules that they once enjoyed the benefits off.

Then the government will step in, led by Timmy Geithner, with private investors and buy those assets for a much higher price than they would fetch on an open market. But who else is behind the government in buying these assets? HUGE fund managers like Pimco’s Bill Gross (whose Total Return Fund is holding 82% of the funds assets in Mortgage Backed Securities) and Blackrock, who have been advising the government to buy these assets fully knowing the government will pay a higher price. These guys have been buying these bad asset at market prices since late 2007, meaning that the price they paid for them will be lower than the price the government will pay for them, leading to a nice gain for these two fund families. Shady shit and business as usual in DC and on Wall St. Pathetic.

The markets see this as good news and we ended 216 points higher on the Dow and 23 points higher on the S&P 500. For this reason I think my strangle position on the FAS will pay off, with one positions gains greatly offsetting the other positions losses.

Funny how at the end of the day, even in a crisis, it’s business as usual. Bah!

-Nik