The Dow Jones finally crossed the 9,000 mark, putting us back to January levels. Existing home sales ticked up another 3%. We need the S&P 500 to cross 1,000 and this correction might be complete.

I bought $1k worth of JNJ Aug 60 calls. Being patient and waiting for the stock to cross 60, it’s currently at $59.92 with a solid ceiling at 60. It if crosses look for an awesome break out.

Quick update for now. I’ll fully update at the end of day.

-Nik

That’s probably what Bernanke did when they asked for another bailout. My god what a mess of a company this is.

On Monday the company announced they had reached a deal with bondholders and secured $3 billion in loans. The Journal is now reporting that CIT agreed to pay at least 13% in interest for the loan and that it’s still might not be enough prevent a bankruptcy filing. Shares were up 80% on Monday, down 25% today - this is fantastic volatility.

To add to the fun the company anticipates reporting a $1.5 billion dollar loss for the second quarter and a stress test done by the Federal Reserve Bank of New York found that it might need $4 billion more in capital. Their liquidity needs are plenty.

The CIT business model was to sell short term bonds and commercial paper and then loan out the money at higher interest rates. This required them to constantly access debt markets in order to roll over their short term obligations. When credit markets froze, so did their business. This would be the companies ninth consecutive quarterly loss. If that doesn’t spell winner, I don’t know what does [/sarcasm].

The long term viability of the company now depends upon bondholders accepting a tender offer that the company announced on Monday. The company would pay bondholders 87.5 cents on the dollar, cash, if they are willing to tender their notes. This should go through, as these are the same bondholders that just bailed out the company.

The real question is, where does the company plan on getting additional capital from? One answer might be it’s Utah bank. If the Federal Reserve allows it, the company can transfers it’s assets to the bank and use depositor money to make new loans. Although, considering the quality of their assets, this might not be the best idea. The bank itself could go insolvent and there’s a real fear it might be taken over the FDIC. Not to mention, no depositor in their right mind would be ok with this company lending out their money, so many depositors will probably pull their funds out.

The more likely option is the sale of assets and the sale of the bank. This would shrink down the company - deleveraging - and suck value away from current shareholders. They might also consider a debt for equity swap that would wipe out a lot of current value also.

Bottom line is that this company is a long ways from saved and has a strong chance of filing bankruptcy. The stock is volatile as all hell, which is perfect for strangling it.

I initiated another strangle on the company on Monday, I bought 10 August 2 Calls and 10 August 1 Puts.

I don’t mind holding on to this strangle for a while as I can see both sides of it being profitable at some moment in time. The bondholders have until August 17th to tender their shares, my options expire on August 21st, so I have a good time to hold.

I’ll be looking at doing some intra-day trading tomorrow to put some of my money to work in the shorter term, while this CIT mess sorts itself out.

Hope your all having a fun week so far.

Cheers,

Nik

As this Daily Show clip shows, be really care who you take financial advice from. If someone can’t prove their record, they’re most likely full of sh*t.

Read more about this here

The CNBC Interview:

The sad part is, it appears he actually thinks he’s right. 111-0 record by buying deep in the money calls - riiiggghhtttt , sure thing Lenny.

And, it turns out he doesn’t like making friends, even with his employees.

The douchbaggery is high here. Always be aware of people like this, who are only talk. Know that you will always get our REAL TRADES and OUR REAL RETURNS here at Bully Bank.

In any case, hope you guys enjoyed the weekend!

J and I are meeting up for dinner to discuss some plays for tomorrow. Back to work tomorrow morning - I can’t wait!

-Nik

Options expiration day is always a stressful day but today was amplified because we had Bank of America, Citi, and GE reporting earnings. All companies had their conference calls during morning market hours. The potential for fail was huge today. The potential for win, not so much. All it would take to tank markets today was one bad comment during either conference call.

Markets opened lower but spiked higher starting around 7AM PST. I had my own dilemma by that time, I was holding on to $390 (15% of the portfolio) worth of GOOG options that opened with a bid price of $5. Awesome, $390 turned in to $10 overnight.

This along with the value of my FAZ calls and IBN calls would have left my portfolio showing a loss - blah! I sold off the IBN as soon I could (took a $25 loss, which at the time didn’t seem bad at all), I didn’t need to worry about that, my main concern was the GOOG call and put I was holding on to. I quickly scanned my charts and looked up and down my watchlist to find stocks that had the potential of hitting a strike price quickly.

I took another look at FAZ. I knew I’d have an opportunity with the July, 43 calls. Taking a huge risk I bought 20 FAYGQ at $30 each, total cost of $600. Awesome, I had almost 50% of the portfolio invested, which if you remember, is more than I ever want to have invested at one time. This was a special circumstance however, I wasn’t going to have all my work this week destroyed by a bad call on GOOG.

I waited patiently and finally FAZ shot up, starting at about 7:30 PST. I watched it soar all the way up to 42.99 and blam, the stock hit solid resistance at 43, it just wouldn’t move past 43. At this point I knew this wouldn’t be a rockstar trade but rather one where I’d get to make up some of my loss on the GOOG trade and my portfolio would end positive for the week - that’s really all that mattered to me. I quickly shot out a limit order for $50. That didn’t hit after waiting about 30 minutes. It was clear at this point that FAZ would start sinking soon, the chart was looking really weak. I shot out a limit at $45, nothing. $40 and boom, they hit. Quick gain of $200 bucks and enough cushioning for me to cover the loss of the remaining FAS put I owned.

I sold the FAS put for $30 bucks, taking a loss of $315. Total loss for the day: $730. But thanks to my quick action and my awareness I was able to end the week in the positive.

Lessons I learned today:

1) Taking profits even if they deviate from the plan is OK

This is important. My GOOG play was profitable yesterday toward end of day. I should have taken the profits even though it differed from my plans - it was an earnings play. Which brings me to lesson two:

2) No more earnings plays, unless extreme volatility is assured

I could have taken that money spent on the GOOG strangle and played at a table in Vegas, it would have been the same thing. It was an unwarranted gamble that almost cost me my legitimate gains. This is going to end here and now.

3) Buying options close to the money, or in the money is preferred close to expiration

The closer we get to expiration the less I’ll be buying out the money options. The reason for this is simple: out the money options have only time value, the closer we get to options expiration they experience something called time decay - their value drops by the day. Options that are in the money are protected because they have less time value and actual intrinsic value. This is a way to protect against time decay. The in the money options still experience time decay, just not as much as the out the money options.

All in all though this has been a good week. This morning was stressful but I’m happy in the way I reacted and quickly made up, part of, the loss. My portfolio is up 11% after 5 days of full time trading, after a small withdrawal of $50. Not many people can say that for a week.

Hope you guys have a brilliant weekend! I need a beer

Cheers,

Nik

Phew! What a busy couple days. Firstly, let me get you guys caught up on all my recent trades:

———————————————————————————————–
7/14/09

Bought 5 CITGZ CIT July 2.5 Calls at $10: $50
Bought 5 CITSI CIT July 1 Puts at $10: $50

That left me holding 10 of the July 2.5 Calls and 15 of the July 1 Puts. Average price paid for the Calls was $7.5 and $13.33 for the Puts.

7/15/09

Bought 3 FAYSP FAZ July 42 Puts at $135: $405
Bought 5 IBNGF ICICI July 30 Calls at $50: $250

Both positions are naked. Fun times.

7/16/09

Bought 1 GOPGL GOOG July 460 Call at $195
Bought 1 GOPSB GOOG July 410 Put at $195

Sold 15 CITSI CIT July 1 Puts at $65: $975

So, here a break down of the CIT trade:

Bought 15 CITSI CIT July 1 Puts at $13.33: $200
Sold 15 CITSI CIT July 1 Puts at $65: $975

Total profit on Puts: $775
Minus cost of Calls: $75

Total Profit: $700
Percent Gain on Trade: 231%

Percent gain of portfolio: 33.4%

———————————————————————————————–

CIT was denied more government aid - the shares were halted towards the end of trading yesterday. The shares reopened this morning down 75% making my puts worth 400% more than what I paid for them. CIT is now scrambling to get private money in order to stay in business. In any case, it was a great trade.

Bank of America reports results tomorrow morning. If they beat estimates - which they should - and their credit losses have flatten, we should see a strong rally tomorrow. If that happens my puts on the FAZ, which are already in the money, should gain a decent amount. Looking for an exit within the first 30 minutes of market open. I’m not playing around on expiration day, which is tomorrow.

If we do see a rally tomorrow, IBN should surpass $30 a share, which would mean my calls would be in the money. Looking for an exit from this position early tomorrow also. I’m very skeptical about this being profitable, simply because the stock was left behind today when the market was rallying.

And now for, what I think, is the biggest mistake I have made so far: the strangle on GOOG. I was expecting them to blow past estimates and the stocks to rally about 10% after they reported earnings (they reported today after market close). They reported a measly 3% rise in revenue and a 19% rise in net income. They also reported a drop in revenue per click - the amount they’re paid every time someone on the web clicks on one of their ads. The slowing revenue growth and drop in price per clicks spooked investors. Unfortunately, it didn’t spook them enough. The stock is down a little more than 3% after-hours. For you long term investors, now is not the time to invest in GOOG.

In any case, there still a chance the puts will hit. The earnings growth was good but the revenue growth is scary - especially for stock trading with a P/E in the low 30’s. It makes me question if GOOG is a growth company anymore. The stock should sell off in the longer term, there’s no reason to buy this.

Tomorrow will be another action packed day. It’s options expiration plus we have Bank of America reporting earnings before market opens. I’m hoping for a rally off the banks earnings but just one wrong word from them and we’re heading straight down.

Hope you guys are having a great week!

-Nik

Yoo,

Banking analyst Meredith Whitney upgraded Goldman Sachs this morning, citing higher trading profits that should give the firm stellar results for this past quarter. This sent the financials stocks sky rocketing this morning, the broader market caught up and we a strong rally today. AIG was one of the financials that was lifted up, by 24% - the stock closed at $14.57, sending my July 14 calls to a high of $1.68. I closed out my position to lock in profits. The trade is below:

Bought 3 AIGGN (July 14 calls) for $40: $120
Bought 3 more this morning at $1.50: $450
Total: $570

Sold 6 AIGGN for $1.60: 960

Total Profit: $390
Gain: 68.4%

I quickly opened a strangle position on CIT :

Bought 10 CITSI (July $1 Puts) for $15: $150
Bought 5 CITGZ (July $2.5 Calls) for $5: $25

CIT is definitely the talk of the markets right now. The lender is facing a possible bankruptcy filling if it doesn’t secure FDIC backing of debt it plans to sell. The strangle is biased towards the short side because CIT doesn’t really pose a systemic risk to the financial system. It appears the company is in “advanced” talks with the government - what ever that means. It was good enough to send the stock up 25% to $1.69 in after-hours trading. It looks like the calls will be profitable tomorrow but it’s still way to soon to tell.

It definitely felt good to be back trading today. The AIG puts aren’t a complete write off yet - I’ll wait until Friday (expiration day) to see if they hold any value. In any case, it’s good to have insurance and they have definitely served their purpose.

Let’s see what tomorrow holds!

Cheers,

Nik

Yooooooooooooooooooo,

So, I”m officially a graduate. Got my B-school degree last night and I’m ready to get back in to trading FULL TIME! Keep in mind this is going to be my major source of income, so my perfromance will determine if I eat, lol. This feels good.

So, my first trade is a strangle on AIG:

Bought 6 AIGSB (July 7.5 puts) for $30: $180
Bought 3 AIGGN (July 14 calls) for $40: $120

So that’s a $60 bias towards the downside and 15% of my capital invested. A couple ground rules:

1) NO more than 50% of my capital will be invested at any given time, I just can’t risk it.
2) Every trade will be hedged. These markets are too volatile to play naked.
3) Allocation of funds will be biased towards the side I think is going to win.

The AIG play is based on their awfully low equity levels (around $45 billion) and their exposure to European credit default swaps. Let’s make this simple: if capital markets do well, AIG doesn’t loose that much money, if markets tank this company is worthless. Markets are definitely looking like they’re going to tank soon as anxiety over how long a recovery will take persists and the fundamentals of our economy get worse and worse.

The losses on their Euro + US CDS portfolio could easily wipe out whatever equity is remaining, sending the shares to pre-split levels. The disposition of assets also drains equity, so it’s like a double whammy. The insurance on this trade is because the government might step in with an other blank check - bolstering equity levels and sending shares higher.

If the S&P break 750, I think we’re going to free fall. It it manages to maintain, then we might go sideways with economic news driving the markets. In any case, this is a very interesting time.

In any case, I’m ready to get my PARTY on this weekend! I’m also ready to do what I love to do - trade full time all day.

Hope you guys have a beautiful weekend!

-Nik

P.S. - BULLY BANK 2.0 COMING VERY SOOOOOONNNNN!!!