Remember that today is options expiration day for equities for the month of September. Hopefully your contracts have brought you in quite a bit of money!
My two contracts for the month included:
- EMC 18 Sept Call – $100 profit
- XTO 60 Sept Call – $70 profit
I regret not holding onto XTO closer toward expiration. The profit from the XTO contracts could have increased almost 10 fold! That’s the nature of this game though. And remember, no woulda, shoulda, couldas. Those only get you into trouble. Check your emotions at the login page of your stock broker.
I recently signed up for the Options Alerts Newsletter on TheStreet.com. In it, Steven Smith, an options expert, provides a model portfolio as well as weekly updates to his positions. Any changes to the model portfolio results in an alerts email being sent out explaining what he’s going to do and for what reasons. So far I’ve found the service to be worthwhile. Although I haven’t carried out any of his trades yet as a result of my account not being margin enabled (A margin account is a brokerage account in which the broker lends the customer cash to purchase securities. The loan in the account is collateralized by the securities and cash. If the value of the stock drops sufficiently, the account holder will be required to deposit more cash or sell a portion of the stock), I plan on enabling the feature once my portfolio hits a certain value. I’ll need approval of my brokerage firm to trade on margin but I would expect with my gaining experience in the market there won’t be any problems.
If you’re interested in options trading and how it’s best optimized, give his newsletter a shot. I’m currently in a 30 day trial period. As the trial goes along, I’ll update with any results I’ve had as a result of his newsletter.
The FOMC Has cut both the Federal Funds rate and the Discount Funds rate by 50 basis points each! The Dow has jumped over 150 points as a result. Inflation readings have improved modestly and as a result allowed the FOMC to make such a large cut.
The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 4-3/4 percent. Economic growth was moderate during the first half of the year, but the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally. Today’s action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time.
Readings on core inflation have improved modestly this year. However, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully. Developments in financial markets since the Committee’s last regular meeting have increased the uncertainty surrounding the economic outlook. The Committee will continue to assess the effects of these and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.
And so the waiting game begins this trading day. Bernanke and his crew will discuss the status of the economy around 14:15 EST today. Most investors expect a rate cut of at least 25 basis points, or 0.25%. Until the FOMC speaks this afternoon, I’m sure the market will behave almost identically to yesterday’s action… pretty much no action. Although the market sold off a bit yesterday, volume was light. To be honest, it felt as investors had to trade because it’s their day job. If they had the option, I’m sure most would have taken the day off. Expect light traffic again this morning until the rate cut is announced (or not announced, which would just be plain bad).
We have a busy week of trading ahead of us. Tuesday brings on the Fed’s economic advisory speech at 14:15 EST. Most analysts expect a 25bp cut in the Federal Funds rate. I think the market’s already priced a 25 point cut into prices but we’ll see.
We have options expiration week this week as well. From the first couple of months I’ve been investing, I’ve noticed volatility is huge during options week. I think my strategy for options week will be to stay out of options week! I’d prefer to invest in something a bit more stable so if I do play on buying into new positions, expect those positions to be small, almost exploratory purchases.
Financials report earnings this week with Lehman reporting Tuesday. It’s been said that depending on how LEH does, it would be wise to invest in either Morgan Stanley (MS) or Goldman Sachs (GS) as both have less subprime exposure than LEH. MS reports Wednesday while GS reports Thursday. I may pick up one or the other if LEH’s earnings are favorable and it has enough of a pop after the report.
Hunker down this week. It’s going to be a rough ride!