Investing Adventures

Thursday, November 8, 2007

Valid Rally or Short Covering?

Filed under: Market Pulse — Tags: , — Jorge @ 2:25 pm

Today the DJIA was down over 200 points on comments made to the Senate by Bernanke.  The last hour or so of trading saw a 180 reversal in the DJIA and the S&P  and seeing them close only fractionally.  My question to you is this.  Was today’s rally a result of dip-buyers taking advantage of the sales or was it a result of the bears covering their shorts?  The technicals for the DJIA and S&P have broken down and as a result I would expect more downside in the near-term but today’s action doesn’t justify that thought.

Health, Currency, and You

Filed under: Miscellaneous — Jorge @ 2:14 pm

Someone on Realmoney.com posted this cartoon from Mother Goose and Grimm. I couldn’t pass this up. Check it out!

Healthy…

Wednesday, November 7, 2007

Financial Select SPDR (XLF) – Index and ETFs

Filed under: Index and ETFs, Options — Jorge @ 2:34 pm

With the financial mess the market’s seen as of late, it may be a good time to talk about the XLF, or the Financial Select SPDR. If, for whatever reason, you need some exposure to the financial sector, this ETF may be your ticket (although you might as well just hand me your money…).

What is the XLF: Quite simply, anything and everything financial can be represented in the XLF ETF. Largest holdings in the XLF include Citigroup, Bank of America, Wachovia, Wells Fargo (Cramer favorite), etc. As you can see, the XLF incorporates big name financial institutions.

Why use the XLF: Wide exposure to the financial sector, plain and simple. The XLF is diversified in terms of the types of different financial institutions (banks, investment brokers, etc.) but in today’s market, anything financial is seen as a negative until the subprime mess has passed.

XLF Options Structure: Currently, the XLF trades in $1 strike price increments with $0.01 bid/ask spreads near the money.

Currently, the XLF is being used as downside protection against the financial sector and more broadly the market. I’m not exactly sure but I believe the financial sector is the largest, by percentage, in the S&P 500 with the oil sector a close second (I’ll go back and recheck that statement). Even with the current string of rate cuts, the XLF has fallen from a high of about $38 to today’s closing price of about $30.

If you’re in need to playing with fire, the XLF may be the torch you need. Personally, if something has anything to do with anything financial, I’m passing right by. The play is just too risky and unknown for my taste.

Festival of Stocks (again!)

Filed under: Miscellaneous — Jorge @ 2:23 pm

Next week we’ll be hosting the Festival of Stocks again!  I enjoyed it last time and since no one was available for next week’s edition, I happily volunteered to host it again.  If you have any writings regarding ETFs, REITs, specific stocks, stock analysis, or any other related topics to the stock market, go ahead and submit your article.

Last week’s festival was hosted by Blain over at Stocktradingtogo.com.  Go visit this week’s festival and thank Blain for hosting this week!

Tuesday, November 6, 2007

Oil Service HOLDRs (OIH) – Index and ETFs

Filed under: Index and ETFs, Options — Tags: — Jorge @ 9:19 am

Oil… oil… and more oil! With oil reaching $100 per barrel, this may be a good time to explain how to gain exposure to some of the oil and oil services sector in the market. Without purchasing individual companies or barrels itself, there’s an ETF that can give you a broad exposure to anything and everything oil. Let’s discuss the Oil Services Holder, or the OIH ETF.

What is the OIH: The OIH gives you broad exposure to oil and oil / oil service companies without having to purchase individual companies. Largest holdings in the OIH ETF include Transocean (RIG), Schlumberger (SLB), and Haliburton (HAL).

Why use the OIH: As the price of oil increases, theoretically, profits from oil and oil services increase as well, in turn increasing their stock price and as a result increasing the value of the OIH ETF. Since the OIH trades as equities, all of the tools options traders have are available for use with the OIH.

OIH Options Structure: At the present time with the OIH nearing $200, strike prices are in increments of $5 with $0.05 bid/ask spreads. Liquidity is much less than the larger ETFs such as the QQQQ or SPY but you shouldn’t have issues finding a buyer or seller. At the time of this article, open interest with both calls and puts is about 50-60k.

Oil’s reaching $100 a barrel whether the market likes it or not. The key is whether or not oil will make a retreat once the $100 level is reached. I’ve noticed about a 2:1 put/call open interest signaling a potential downtrend in oil and oil companies as the $100 level approaches. Options traders believe, at least from the open interest ratio, that oil will meet heavy resistance at $100. Barring any political or economical situations, expect oil to make a retreat and as a result the price of the OIH should follow suit.

The OIH is a great way to speculate on how oil and oil service companies will behave as oil reaches record levels without having to purchase options in individual companies. Remember that oil’s liquid gold. Speculate appropriately!

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